<PAGE> 1
AIM GLOBAL TRENDS FUND
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
AIM Global Trends Fund seeks to provide long-term growth of capital.
PROSPECTUS
AUGUST 27, 1999
This prospectus contains important
information about the Class A, B and
C shares of the fund. Please read it
before investing and keep it for
future reference.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
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AIM GLOBAL TRENDS FUND
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<TABLE>
<S> <C>
TABLE OF CONTENTS
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INVESTMENT OBJECTIVE AND STRATEGIES 1
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PRINCIPAL RISKS OF INVESTING IN THE
FUND 1
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PERFORMANCE INFORMATION 3
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
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Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Sales Charges 5
Dividends and Distributions 5
FINANCIAL HIGHLIGHTS 6
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SHAREHOLDER INFORMATION A-1
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Choosing a Share Class A-1
Purchasing Shares A-3
Redeeming Shares A-4
Exchanging Shares A-6
Pricing of Shares A-7
Taxes A-8
OBTAINING ADDITIONAL INFORMATION Back Cover
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</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection, AIM Funds, AIM
Funds and Design and AIM Investor are servicemarks 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 GLOBAL TRENDS FUND
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INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing, normally, at least 65% of
its total assets in equity securities of issuers in the following global
industry sectors:
o consumer products and services
o financial services
o health care
o infrastructure
o natural resources and
o telecommunications and technology
The fund considers a company to be in one of these industry sectors if it (1)
derives at least 50% of either its revenues or earnings from activities related
to that industry; or (2) devotes at least 50% of its assets to such activities,
based on the company's most recent fiscal year.
The fund may also invest up to 35% of its assets in equity securities of
issuers in other global industry sectors and in debt securities of U.S. and
foreign issuers. The fund will normally invest in the securities of companies
located in at least three different countries, including the United States, and
may invest a significant portion of its assets in the securities of U.S.
issuers. However, the fund will invest no more than 50% of its total assets in
the securities of issuers in any one country, other than the U.S. The fund may
invest substantially in securities denominated in one or more currencies.
The fund may invest in companies located in developing countries, i.e., those
that are in the initial stages of their industrial cycle. The fund may also
invest up to 20% of its total assets in lower-quality debt securities, i.e.,
"junk bonds."
The portfolio managers invest fund assets by initially determining the
industry sectors that they believe provide the most advantageous investment
opportunities for meeting the fund's investment objective. If the portfolio
managers determine that certain sectors are facing slow or negative growth, they
will not invest fund assets in those sectors at that time. The portfolio
managers then analyze specific companies within these sectors for possible
investment. In analyzing specific companies for possible investment, the
portfolio managers ordinarily look for several of the following characteristics:
above-average per share earnings growth; high return on invested capital; a
healthy balance sheet; sound financial and accounting policies and overall
financial strength; strong competitive advantages; effective research and
product development and marketing; development of new technologies; efficient
service; pricing flexibility; strong management; and general operating
characteristics that will enable the companies to compete successfully in their
respective markets. The portfolio managers consider whether to sell a particular
security when any of those factors materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currency, or multinational currency units), money market
instruments, or high-quality 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.
Because the fund focuses its investments in particular industries, an
investment in the fund may be more volatile than that of other investment
companies that do not concentrate their investments in such a manner. The
value of the shares of the fund will be especially susceptible to factors
affecting the industries in which it focuses. In particular, each of the
industries is subject to governmental regulation that may have a material effect
on the products and services offered by companies in that industry.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
These factors may affect the prices of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past, experienced
high rates of inflation or sharply devalued their currencies against the
1
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AIM GLOBAL TRENDS FUND
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U.S. dollar, thereby causing the value of investments in companies located in
those countries to decline. Transaction costs are often higher in developing
countries and there may be delays in settlement procedures.
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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
unable to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
2
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AIM GLOBAL TRENDS FUND
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PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
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.
Prior to August 27, 1999, the fund was not actively managed and invested its
assets in other AIM funds (that were actively managed) based on the industry
weighting of the companies comprising the Morgan Stanley Capital International
("MSCI") All Country World Index. Those AIM funds invested in the same global
industry sectors the fund does: consumer products and services, financial
services, health care, infrastructure, natural resources, and telecommunications
and technology. Prior to that date, the fund, as a shareholder in other AIM
funds, was indirectly bearing its pro rata share of the fees and expenses
incurred by those funds.
ANNUAL TOTAL RETURNS
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The following bar chart shows the performance of the fund's Class A shares for
the year ended December 31, 1998. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
<TABLE>
<CAPTION>
ANNUAL
YEAR ENDED TOTAL
DECEMBER 31 RETURN
- ----------- ------
<S> <C>
1998 9.37%
</TABLE>
During the period shown in the bar chart, the highest quarterly return was
19.49% (quarter ended December 31, 1998) and the lowest quarterly return was
- -17.89% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index. The fund's performance reflects payment of
sales loads.
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(for the periods ended SINCE INCEPTION
December 31, 1998 1 YEAR INCEPTION DATE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A 4.18% 1.07% 09/15/97
Class B 3.83 1.35 09/15/97
Class C -- 7.94 01/02/98
MSCI All Country World Index(1) 21.72 17.16(2) 08/31/97(2)
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The MSCI All Country World Index measures the performance of securities
listed on the major world stock exchanges of 47 markets, including both
developed and emerging markets.
(2) The average annual total return given is since the date closest to the
inception date of the class with the longest performance history.
3
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AIM GLOBAL TRENDS FUND
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FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) 4.75% None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None(1) 5.00% 1.00%
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(2) CLASS A CLASS B CLASS C
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.98% 0.98% 0.98%
Distribution and/or
Service (12b-1) Fees 0.50 1.00 1.00
Other Expenses 0.80 0.83 0.83
Total Annual Fund
Operating Expenses 2.28 2.81 2.81
Expense
Reimbursement(3) 0.28 0.31 0.31
Net Expenses 2.00 2.50 2.50
- -------------------------------------------------------
</TABLE>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) Expenses have been restated to reflect current fees.
(3) The investment advisor has contractually agreed to limit the fund's net
expenses.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more than
the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. To the extent fees are waived or
expenses are reimbursed, 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>
Class A $695 $1,153 $1,637 $2,966
Class B 784 1,171 1,684 3,012
Class C 384 871 1,484 3,138
- ----------------------------------------------
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------
<S> <C> <C> <C> <C>
Class A $695 $1,153 $1,637 $2,966
Class B 284 871 1,484 3,012
Class C 284 871 1,484 3,138
- ----------------------------------------------
</TABLE>
4
<PAGE> 7
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AIM GLOBAL TRENDS FUND
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FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 125
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
Prior to August 27, 1999, the advisor received no direct compensation for its
services because the fund was not actively managed. The fund's advisory fees
were paid indirectly, by the other AIM funds in which the fund invested. The
advisor currently receives compensation of 0.975% of the first $500 million of
average daily net assets of the fund; 0.95% on the next $500 million of such
assets; 0.925% on the next $500 million of such assets; and 0.90% on amounts
thereafter.
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 are
- - Derek S. Izuel, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1997. From 1995 to 1997 he was a full time student at the University of
Michigan. From 1991 to 1995 he was a software engineer with Bank of America.
- - Roger Mortimer, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1995.
- - Derek H. Webb, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1992.
- - Michael Yellen, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1994.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Global Trends Fund are subject to the maximum
4.75% initial sales charge as listed under the heading "CATEGORY II Initial
Sales Charges" in the "Shareholder Information--Choosing a Share Class" section
of this prospectus. Purchases of Class B and Class C shares are subject to the
contingent deferred sales charges listed in that section.
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 8
<PAGE> 9
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AIM GLOBAL TRENDS 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). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request.
During the periods shown in the financial highlights table the fund was not
actively managed and invested in other AIM funds.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------
SEPTEMBER 15,
YEAR ENDED THROUGH
DECEMBER 31, 1998(a) DECEMBER 31, 1997(a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.63 $ 11.43
Income from investment operations:
Net investment income (loss) (0.02) (0.01)
Net realized and unrealized gain (loss) on
investments 1.01 (0.31)
Net increase (decrease) from investment
operations 0.99 (0.32)
Distribution to shareholders:
From net investment income (0.02) --
From net realized gain on investments (0.14) --
In excess of net investment income -- (0.48)
Total distributions (0.16) (0.48)
Net asset value, end of period $ 11.46 $ 10.63
Total investment return(b) 9.37% (2.68)%(c)
- ---------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ---------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $17,822 $15,145
Ratio of net investment income (loss) to average
net assets (0.21)% (0.35)%(d)
Ratio of operating expenses to average net
assets 0.50% 0.50%(d)
Portfolio turnover rate(e) 28% 1%(d)
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Total investment return does not include sales charges.
(c) Not annualized.
(d) Annualized.
(e) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------
SEPTEMBER 15,
YEAR ENDED THROUGH
DECEMBER 31, 1998(a) DECEMBER 31, 1997(a)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.62 $ 11.43
Income from investment operations:
Net investment income (loss) (0.07) (0.02)
Net realized and unrealized gain (loss) on
investments 1.00 (0.32)
Net increase (decrease) from investment
operations 0.93 (0.34)
Distribution to shareholders:
From net investment income -- --
From net realized gain on investments (0.14) --
In excess of net investment income -- (0.47)
Total distributions (0.14) (0.47)
Net asset value, end of period $ 11.41 $ 10.62
Total investment return(b) 8.83% (2.83)%(c)
- ---------------------------------------------------------------------------------------------
Ratios and supplemental data:
- ---------------------------------------------------------------------------------------------
Net assets, end of period (in 000s) $25,555 $19,184
Ratio of net investment income (loss) to average
net assets (0.71)% (0.85)%(d)
Ratio of operating expenses to average net
assets 1.00% 1.00%(d)
Portfolio turnover rate(e) 28% 1%(d)
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Total investment return does not include sales charges.
(c) Not annualized.
(d) Annualized.
(e) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
6
<PAGE> 10
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AIM GLOBAL TRENDS FUND
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FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C(a)
--------------------
YEAR ENDED
DECEMBER 31, 1998(b)
- ----------------------------------------------------------------------
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.62
Income from investment operations:
Net investment income (loss) (0.08)
Net realized and unrealized gain (loss) on
investments 1.00
Net increase (decrease) from investment
operations 0.92
Distribution to shareholders:
From net investment income --
From net realized gain on investments (0.14)
In excess of net investment income --
Total distributions (0.14)
Net asset value, end of period $ 11.40
Total investment return(c) 8.94%
- ----------------------------------------------------------------------
Ratios and supplemental data:
- ----------------------------------------------------------------------
Net assets, end of period (in 000s) $ 249
Ratio of net investment income (loss) to average
net assets (0.71)%
Ratio of operating expenses to average net
assets 1.00%
Portfolio turnover rate(d) 28%
- ----------------------------------------------------------------------
</TABLE>
(a) Commencing January 1, 1998, the fund began offering Class C shares.
(b) These selected per share data were calculated based upon average shares
outstanding during the period.
(c) Total investment return does not include sales charges.
(d) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
7
<PAGE> 11
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THE AIM FUNDS
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SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about all
the AIM Funds.
CHOOSING A SHARE CLASS
Many of the AIM Funds have multiple classes of shares, each class representing
an interest in the same portfolio of investments. When choosing a share class,
you should consider the factors below:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- - Initial sales charge - No initial sales charge - No initial sales charge
- - Reduced or waived initial sales - Contingent deferred sales - Contingent deferred sales
charge for certain purchases charge on redemptions within charge on redemptions within
six years one year
- - Lower distribution and service - 12b-1 fee of 1.00% - 12b-1 fee of 1.00%
(12b-1) fee than Class B or
Class C shares (See "Fee Table
and Expense Example")
- Converts to Class A shares - Does not convert to Class A
after eight years along with shares
a pro rata portion of its
reinvested dividends and
distributions(1)
- - Generally more appropriate for - Purchase orders limited to - Generally more appropriate
long-term investors amounts less than $250,000 for short-term investors
</TABLE>
(1) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve
Shares.
AIM Global Trends Fund: If you held Class B shares on May 29,
1998 and continue to hold them, those shares will convert to
Class A shares of that fund seven years after your date of
purchase. If you exchange those shares for Class B shares of
another AIM Fund, the shares into which you exchanged will
not convert to Class A shares until eight years after your
date of purchase of the original shares.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each AIM Fund (except AIM Tax-Free Intermediate Fund) has adopted 12b-1 plans
that allow the AIM Fund to pay distribution fees to A I M Distributors, Inc.
(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 AIM 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.
A- 1 MCF--08/99
<PAGE> 12
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THE AIM FUNDS
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SALES CHARGES
Generally, you will not pay a sales charge on purchases or redemptions of Class
A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money
Market Fund. You may be charged a contingent deferred sales charge if you redeem
AIM Cash Reserve Shares of AIM Money Market Fund acquired through certain
exchanges. Sales charges on all other AIM Funds and classes of those Funds are
detailed below. As used below, the term "offering price" with respect to all
categories of Class A shares includes the initial sales charge.
INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The AIM Funds are grouped into three categories with respect to initial sales
charges. The "Other Information" section of your prospectus will tell you in
what category your particular AIM Fund is classified.
<TABLE>
<CAPTION>
CATEGORY I INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -------------------------------------------------------------
<S> <C> <C>
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY II INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
-----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CATEGORY III INITIAL SALES CHARGES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INVESTOR'S
SALES CHARGE
----------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -------------------------------------------------------------
<S> <C> <C>
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- -------------------------------------------------------------
</TABLE>
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES
You can purchase $1,000,000 or more of Class A shares at net asset value.
However, if you purchase shares of that amount in Categories I or II, they will
be subject to a contingent deferred sales charge (CDSC) of 1% if you redeem them
prior to 18 months after the date of purchase. The distributor may pay a dealer
concession and/or a service fee for purchases of $1,000,000 or more.
CONTINGENT DEFERRED SALES CHARGES FOR
CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- ----------------------------------------------------------
<S> <C> <C>
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- ----------------------------------------------------------
</TABLE>
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you have redeemed shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial consultant must
provide sufficient information at the time of purchase to verify that your
purchase qualifies for such treatment.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Rights of Accumulation
You may combine your new purchases of Class A shares with Class A shares
currently owned for the purpose of qualifying for the lower initial sales charge
rates that apply to larger purchases. The applicable initial sales charge for
the new purchase is based on the total of your current purchase and the current
value of all Class A shares you own.
Letters of Intent
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of AIM Funds during a
MCF--08/99 A- 2
<PAGE> 13
-------------
THE AIM FUNDS
-------------
13-month period. The amount you agree to purchase determines the initial sales
charge you pay. If the full face amount of the LOI is not invested by the end of
the 13-month period, your account will be adjusted to the higher initial sales
charge level for the amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain AIM Funds;
- - when using the reinstatement privilege; and
- - when a merger, consolidation, or acquisition of assets of an AIM Fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum investments for AIM Fund accounts (except for investments in AIM Mid
Cap Opportunities Fund and AIM Small Cap Opportunities Fund) are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Savings Plans (money-purchase/profit sharing $ 0 ($25 per AIM Fund investment for $25
plans, 401(k) plans, Simplified Employee Pension salary deferrals from Savings Plans)
(SEP) accounts, Salary Reduction (SARSEP)
accounts, Savings Incentive Match Plans for
Employee IRA (Simple IRA) accounts, 403(b) or
457 plans)
Automatic Investment Plans 50 50
IRA, Education IRA or Roth IRA 250 50
All other accounts 500 50
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Mail completed Account Application Mail your check and the remittance
and purchase payment to the slip from your confirmation
transfer agent, statement to the transfer agent.
A I M Fund Services, Inc.,
P.O. Box 4739,
Houston, TX 77210-4739.
By Wire Mail completed Account Application Call the transfer agent to receive
to the transfer agent. Call the a reference number. Then, use the
transfer agent at (800) 959-4246 to wire instructions at left.
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name: A I M
Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A- 3 MCF--08/99
<PAGE> 14
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC INVESTMENT PLAN
You can arrange for periodic investments in any of the AIM Funds by authorizing
the AIM Fund to withdraw the amount of your investment from your bank account on
a day or dates you specify and in an amount of at least $50. You may stop the
Automatic Investment Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one AIM Fund account to one or more other AIM Fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the 10th or 25th day of the month, whichever
you specify, in the amount you specify. The minimum amount you can exchange to
another AIM Fund is $50.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
AIM Fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same AIM Fund. You may
invest your dividends and distributions (1) into another AIM Fund in the same
class of shares; or (2) from Class A shares into AIM Cash Reserve Shares of AIM
Money Market Fund, or vice versa.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend must be at
least $5,000; or (b) in the AIM Fund receiving the dividend must be at least
$500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends into
another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your AIM Fund holdings should be rebalanced, on a percentage
basis, between two and ten of your AIM Funds on a quarterly, semiannual or
annual basis. Your portfolio will be rebalanced through the exchange of shares
in one or more of your AIM Funds for shares of the same class of one or more
other AIM Funds in your portfolio. If you wish to participate in the Program,
make changes or cancel the Program, the transfer agent must receive your request
to participate, changes, or cancellation in good order at least five business
days prior to the next rebalancing date, which is normally the 28th day of the
last month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days' prior written notice.
RETIREMENT PLANS
Shares of most of the AIM Funds can be purchased through tax-sheltered
retirement plans made available to corporations, individuals and employees of
non-profit organizations and public schools. A plan document must be adopted to
establish a retirement plan. You may use AIM Funds-sponsored retirement plans,
which include IRAs, Education IRAs, Roth IRAs, 403(b) plans, 401(k) plans,
SIMPLE IRA plans, SEP/SARSEP plans and Money Purchase/Profit Sharing plans, or
another sponsor's retirement plan. The plan custodian of the AIM Funds-sponsored
retirement plan assesses an annual maintenance fee of $10. Contact your
financial consultant for details.
REDEEMING SHARES
REDEMPTION FEES
We will not charge you any fees to redeem your shares; however, your broker or
financial consultant may charge service fees for handling these transactions.
Your shares may be subject to a contingent deferred sales charge (CDSC).
REDEMPTION OF AIM CASH RESERVE SHARES OF
AIM MONEY MARKET FUND ACQUIRED BY EXCHANGE
If you redeem AIM Cash Reserve Shares acquired by exchange from Class A shares
subject to a CDSC within 18 months of the purchase of the Class A shares, you
will be charged a CDSC.
REDEMPTION OF CLASS B SHARES OR CLASS C
SHARES ACQUIRED BY EXCHANGE FROM AIM CASH
RESERVE SHARES OF AIM MONEY MARKET FUND
We will begin the holding period for purposes of calculating the CDSC on
Class B shares or Class C shares acquired by exchange from AIM Cash Reserve
Shares of AIM Money Market Fund at the time of the exchange into Class B shares
or Class C shares.
REDEMPTION OF CLASS B SHARES ACQUIRED BY
EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
MCF--08/99 A- 4
<PAGE> 15
-------------
THE AIM FUNDS
-------------
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable. If you are
redeeming from an IRA account, you must include a statement
of whether or not you are at least 59 1/2 years old and
whether you wish to have federal income tax withheld from
your proceeds. The transfer agent may require certain other
information before you can redeem from an employer-sponsored
retirement plan. Contact your employer for details.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege.
Certain accounts, including retirement accounts and 403(b)
plans, may not redeem by telephone. The transfer agent must
receive your call during the hours the New York Stock
Exchange (NYSE) is open for business in order to effect the
redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC WITHDRAWALS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Withdrawal Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM Cash Reserve Shares of AIM Money Market Fund only)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of trading
on the NYSE, we generally will transmit payment on the next business day.
REDEMPTIONS BY CHECK
(Class A shares of AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM
Money Market Fund only)
You may redeem shares of these AIM Funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
A- 5 MCF--08/99
<PAGE> 16
-------------
THE AIM FUNDS
-------------
REINSTATEMENT PRIVILEGE (Class A shares only)
You may, within 90 days after you sell Class A shares (except Class A shares of
AIM Tax-Exempt Cash Fund), reinvest all or part of your redemption proceeds in
Class A shares of any AIM Fund at net asset value in an identically registered
account. If you sold Class A shares of AIM Limited Maturity Treasury Fund or AIM
Tax-Free Intermediate Fund, you will incur an initial sales charge reflecting
the difference between the initial sales charges on those Funds and the ones in
which you will be investing. In addition, if you paid a contingent deferred
sales charge (CDSC) on any reinstated amount, you will not be subject to a CDSC
if you later redeem that amount. You must notify the transfer agent in writing
at the time you reinstate that you are exercising your reinstatement privilege.
You may exercise this privilege only once per year.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500 or by utilizing the Automatic Investment Plan.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, at its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one AIM Fund for those
of another AIM Fund. Before requesting an exchange, review the prospectus of the
AIM Fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
PERMITTED EXCHANGES
Except as otherwise stated below, you may exchange your shares for shares of the
same class of another AIM Fund. You may exchange AIM Cash Reserve Shares of AIM
Money Market Fund for Class A shares of another AIM Fund, or vice versa. You
also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for Class B
shares or Class C shares of another AIM Fund, but only if the AIM Cash Reserve
Shares were purchased directly and not acquired by exchange. You may be required
to pay an initial sales charge when exchanging from a Fund with a lower initial
sales charge than the one into which you are exchanging. If you exchange from
Class A shares not subject to a CDSC into Class A shares subject to those
charges, you will be charged a CDSC when you redeem the exchanged shares. The
CDSC charged on redemption of those shares will be calculated starting on the
date you acquired those shares through exchange.
You also may exchange AIM Cash Reserve Shares of AIM Money Market Fund for
Advisor Class shares, but only if you acquired the AIM Cash Reserve Shares
through an exchange from Advisor Class shares.
YOU WILL NOT PAY A SALES CHARGE WHEN EXCHANGING:
(1) Class A shares with an initial sales charge (except for Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
Class A shares of another AIM Fund or AIM Cash Reserve Shares of AIM Money
Market Fund;
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund for
(a) one another;
(b) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(c) Class A shares of another AIM Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher sales charges;
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) one another;
(b) Class A shares of an AIM Fund subject to an initial sales charge (except
for Class A shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund), but only if you acquired the original
shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (except for Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(c) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund, but only if you acquired the original shares by
exchange from Class A shares subject to an initial sales charge; or
(4) Class B shares for other Class B shares, and Class C shares for other Class
C shares.
(5) AIM Cash Reserve Shares of AIM Money Market Fund for Class B shares and
Class C shares.
EXCHANGES NOT PERMITTED
You may not exchange Class A shares subject to contingent deferred sales charges
for Class A shares of AIM Limited Maturity Treasury Fund, AIM Tax-Free
Intermediate Fund or AIM Tax-Exempt Cash Fund.
MCF--08/99 A- 6
<PAGE> 17
-------------
THE AIM FUNDS
-------------
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
Beginning September 15, 1999, the following exchange condition will apply:
- - Because excessive short-term trading or market-timing activity can hurt fund
performance, you are limited to a maximum of 10 exchanges per calendar year.
If you exceed that limit, or if an AIM Fund or the distributor determines, in
its sole discretion, that your short-term trading is excessive or that you are
engaging in market-timing activity, it may reject any additional exchange
orders. An exchange is the movement out of (redemption) one AIM Fund and into
(purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds. There is no fee for exchanges. The exchange privilege is not an option
or right to purchase shares. Any of the participating AIM Funds or the
distributor may modify or discontinue this privilege at any time.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
EXCHANGING CLASS B AND CLASS C SHARES
If you make an exchange involving Class B or Class C shares, the amount of time
you held the original shares will be added to the holding period of the Class B
or Class C shares, respectively, into which you exchanged for the purpose of
calculating contingent deferred sales charges (CDSC) if you later redeem the
exchanged shares. If you redeem Class B shares acquired by exchange via a tender
offer by AIM Floating Rate Fund, you will be credited with the time period you
held the shares of AIM Floating Rate Fund for the purpose of computing the early
withdrawal charge applicable to those shares.
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE AUTOMATIC INVESTMENT PLAN AND
SYSTEMATIC WITHDRAWAL PLAN OPTIONS ON THE SAME ACCOUNT; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. AIM Money
Market Fund and AIM Tax-Exempt Cash Fund value all of their securities at
amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund, AIM
Tax-Exempt Bond Fund of Connecticut and AIM Tax-Free Intermediate Fund value
variable rate securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
The AIM Funds value all other securities and assets at their fair value.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day. In addition, if,
between the time trading ends on a particular security and the close of the
NYSE, events occur that materially affect the value of the security, the AIM
Funds may value the security at its fair value as determined in good faith by or
under the supervision of the Board of Directors or Trustees of the AIM Fund. The
effect of using fair value pricing is that an AIM Fund's net asset value will be
subject to the judgment of the Board of Directors or Trustees or its designee
instead of being determined by the market. Because some of the AIM Funds may
invest in securities that are primarily listed on foreign exchanges, the value
of those funds' shares may change on days when you will not be able to purchase
or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for
A- 7 MCF--08/99
<PAGE> 18
-------------
THE AIM FUNDS
-------------
business. AIM Money Market Fund also determines its net asset value as of
12:00 noon Eastern Time on each day the NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase,exchange and redemption orders at
the net asset value calculated after the transfer agent receives an order in
good form. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THIS
PROSPECTUS.
The foreign, state and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
MCF--08/99 A- 8
<PAGE> 19
----------------------
AIM GLOBAL TRENDS FUND
----------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark--or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov) or by sending a letter, including a duplicating fee, to the
SEC's Public Reference Section, Washington, DC 20549-6009. Please call the SEC
at 1-800-SEC-0330 for information about the Public Reference Room.
- -----------------------------------
AIM Global Trends Fund
SEC 1940 Act file number: 811-7787
- -----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GTR-PRO-1 INVEST WITH DISCIPLINE
--Registered Trademark--
<PAGE> 20
STATEMENT OF
ADDITIONAL INFORMATION
CLASS A, CLASS B, AND CLASS C SHARES OF
AIM GLOBAL TRENDS FUND
(A SERIES PORTFOLIO OF
AIM SERIES TRUST)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
---------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS
AND IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS OF
THE ABOVE-NAMED FUND, A COPY OF WHICH MAY BE OBTAINED
FREE OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS,INC.,
P.O. BOX 4739, HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 347-4246
---------------------
STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 27, 1999
RELATING TO THE AIM GLOBAL TRENDS FUND PROSPECTUS DATED AUGUST 27, 1999
<PAGE> 21
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
INTRODUCTION................................................ 1
GENERAL INFORMATION ABOUT THE TRUST......................... 1
INVESTMENT STRATEGIES AND RISKS............................. 2
Primary Investment Practices of the Fund.................. 2
Financial Services Industry............................. 3
Infrastructure Industry................................. 3
Natural Resources Industry.............................. 3
Consumer Products and Services Industry................. 4
Health Care Industry.................................... 4
Telecommunications and Technology Industry.............. 5
Other Investment Practices of the Fund.................... 6
OPTION, FUTURES AND CURRENCY STRATEGIES..................... 10
Introduction.............................................. 10
Special Risks of Options, Futures and Currency
Strategies............................................. 11
Writing Call Options...................................... 12
Writing Put Options....................................... 13
Purchasing Put Options.................................... 13
Purchasing Call Options................................... 14
Index Options............................................. 15
Interest Rate, Currency and Stock Index Futures
Contracts.............................................. 16
Options on Futures Contracts.............................. 18
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies.......................... 19
Forward Contracts......................................... 19
Foreign Currency Strategies -- Special Considerations..... 20
Cover..................................................... 20
ADDITIONAL RISK FACTORS..................................... 21
General................................................... 21
Financial Services Industry............................... 21
Infrastructure Industry................................... 22
Natural Resources Industry................................ 22
Consumer Products and Services Industry................... 22
Health Care Industry...................................... 23
Telecommunications and Technology Industry................ 23
Debt Securities........................................... 23
Investing in Smaller Companies............................ 24
Illiquid Securities....................................... 24
Foreign Securities........................................ 25
INVESTMENT LIMITATIONS...................................... 30
Investment Limitations of the Fund........................ 30
EXECUTION OF PORTFOLIO TRANSACTIONS......................... 32
Portfolio Turnover........................................ 33
MANAGEMENT.................................................. 34
Trustees and Executive Officers........................... 34
Management Services Relating to the Fund.................. 36
</TABLE>
i
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<PAGE> 23
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
Expenses of the Fund...................................... 37
THE DISTRIBUTION PLANS...................................... 37
The Class A and C Plan.................................... 37
The Class B Plan.......................................... 38
Both Plans................................................ 38
THE DISTRIBUTOR............................................. 41
Sales Charges and Dealer Concessions...................... 43
REDUCTIONS INITIAL SALES CHARGES............................ 46
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS................. 49
HOW TO PURCHASE AND REDEEM SHARES........................... 51
Backup Withholding........................................ 52
NET ASSET VALUE DETERMINATION............................... 53
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.................... 54
Reinvestment of Dividends and Distributions............... 54
Tax Matters............................................... 54
Taxation of the Fund...................................... 54
Reinstatement Privilege................................... 55
Taxation of Certain Investment Activities................. 55
Taxation of the Fund's Shareholders....................... 57
SHAREHOLDER INFORMATION..................................... 57
MISCELLANEOUS INFORMATION................................... 60
Charges for Certain Account Information................... 60
Custodian................................................. 60
Transfer Agency and Fund Accounting Services.............. 60
Independent Accountants................................... 60
Legal Matters............................................. 60
Shareholder Liability..................................... 60
Control Persons and Principal Holders of Securities....... 61
INVESTMENT RESULTS.......................................... 62
Total Return Quotations................................... 62
Performance Information................................... 63
APPENDIX A.................................................. 66
Description of Commercial Paper Ratings................... 66
Description of Bond Ratings............................... 66
Absence of Rating......................................... 67
FINANCIAL STATEMENTS........................................ FS
</TABLE>
ii
<PAGE> 24
INTRODUCTION
This Statement of Additional Information relates to the Class A, Class B and
Class C shares of AIM Global Trends Fund, formerly known as GT Global New
Dimension Fund, (the "Fund"). The Fund is a diversified series of AIM Series
Trust (the "Trust"), an open-end management investment company organized as a
Delaware business trust. The Fund seeks its investment objective by investing
substantially all of its assets in the following global industry sectors:
consumer products and services, financial services, health care infrastructure,
natural resources, and telecommunications and technology. A I M Advisors, Inc.
("A I M") serves as the investment manager of and administrator for the Fund.
The rules and regulations of the Securities and Exchange Commission (the
"SEC") require all mutual funds to furnish prospective investors certain
information concerning the activities of the Fund being considered for
investment. This information is included in a Prospectus (the "Prospectus"),
dated August 27, 1999, which relates to the Class A, Class B and Class C shares
of the Fund. Copies of the Prospectus and additional copies of this Statement of
Additional Information may be obtained without charge by writing the principal
distributor of the Fund's shares, A I M Distributors, Inc. ("AIM Distributors"),
P.O. Box 4739, Houston, TX 77210-4739, or by calling (800) 347-4246.
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 herein to sections of the Prospectus. Additionally, the
Prospectus and this Statement of Additional Information omit certain information
contained in the Trust's Registration Statement filed with the SEC. Copies of
the Registration Statement, including items omitted from the Prospectus and this
Statement of Additional Information, may be obtained from the SEC by paying the
charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE TRUST
The Trust was previously organized as a Massachusetts business trust named "GT
Global Series Trust," which was established on August 26, 1996 and which had one
series named "GT Global New Dimension Fund." On May 29, 1998, the Trust was
reorganized into a Delaware business trust, which was initially established on
May 7, 1998. The Trust currently consists of one series, the Fund. The Fund
currently offers four different classes of shares: Class A shares, Class B
shares, Class C shares and Advisor Class shares. From time to time the Board of
Trustees of the Trust may create new series of shares without the necessity of a
vote of the shareholders of the Trust. All historical financial and other
information contained in this Statement of Additional Information for periods
prior to May 29, 1998 relating to the Fund is that of GT Global New Dimension
Fund.
This Statement of Additional Information relates solely to the Class A, Class
B and Class C shares of the Fund.
The term "majority of the outstanding shares" of the Trust, of the Fund or of
a particular class of the Fund means, respectively, the vote of the lesser of
(a) 67% or more of the shares of the Trust, Fund or such class present at a
meeting of the Trust's shareholders, if the holders of more than 50% of the
outstanding shares of the Trust, the Fund or such class are present or
represented by proxy, or (b) more than 50% of the outstanding shares of the
Trust, the Fund or such class.
Class A, Class B, Class C and Advisor Class shares of the Fund have equal
rights and privileges. Each share of a particular class is entitled to one vote,
to participate equally in dividends and distributions declared by the Trust's
Board of Trustees with respect to the class of the Fund and, upon liquidation of
the Fund, to participate proportionately in the net assets of the Fund allocable
to such class remaining after satisfaction of outstanding liabilities of the
Fund allocable to such class. Fund shares are fully paid, non-assessable and
fully transferable when issued and have no preemptive rights and have such
1
<PAGE> 25
conversion and exchange rights as set forth in the Prospectus and this Statement
of Additional Information. Fractional shares have proportionately the same
rights, including voting rights, as are provided for a full share. Other than
the automatic conversion of Class B Shares to Class A Shares, there are no
conversion rights.
If any additional series of the Trust are established, on any matter submitted
to a vote of shareholders, shares of each series will be voted by its
shareholders individually when the matter affects the specific interest of that
series only, such as approval of its investment management arrangements. The
shares of the Trust's series would be voted in the aggregate on other matters,
such as the election of Trustees and ratification of the selection by the Board
of Trustees of the Trust's independent accountants.
Normally there will be no annual meeting of shareholders in any year, except
as required under the Investment Company Act of 1940, as amended ("1940 Act").
Fund shares do not have cumulative voting rights, which means that the holders
of a majority of the shares voting for the election of Trustees can elect all
the Trustees. A Trustee may be removed at any meeting of the shareholders of the
Trust by a vote of the shareholders owning at least two-thirds of the
outstanding shares. Any Trustee may call a special meeting of shareholders for
any purpose. Furthermore, Trustees shall promptly call a meeting of shareholders
solely for the purpose of removing one or more Trustees when requested in
writing to do so by shareholders holding 10% of the Trust's outstanding shares.
Pursuant to the Trust's Declaration of Trust, the Trust may issue an unlimited
number of shares of the Fund. Each share of the Fund represents an interest in
the Fund only, has a par value of $0.01 per share, represents an equal
proportionate interest in the Fund with other Fund shares and is entitled to
such dividends and other distributions out of the income earned and gain
realized on the assets belonging to the Fund as may be declared at the
discretion of the Board of Trustees. Each share of the Fund is equal in
earnings, assets and voting privileges, except that each class normally has
exclusive voting rights with respect to its distribution plan and bears the
expenses, if any, related to the distribution of its shares. Fund shares, when
issued, are fully paid and nonassessable.
INVESTMENT STRATEGIES AND RISKS
PRIMARY INVESTMENT PRACTICES OF THE FUND
The following discussion of investment strategies and risks supplements the
discussion of investment objective and risks set forth in the Prospectus under
the headings "Investment Objective and Strategies" and "Principal Risks of
Investing in the Fund."
The Fund's investment objective is long-term growth of capital. The Fund's
investment objective may not be changed without the approval of the holders of a
majority of the Fund's outstanding shares. Unless specifically noted, the Fund's
investment policies described in the Prospectus and this Statement of Additional
Information, are not fundamental policies and may be changed by the Trust's
Board of Trustees without shareholder approval.
In addition to the investment practices described in the Prospectus, the Fund
may engage in certain other investment practices, including lending their
portfolio securities; purchasing securities on a when-issued or delayed delivery
basis; entering into repurchase or reverse repurchase agreements; and borrowing
money. There is no assurance that the Fund will achieve its investment
objective.
The Fund invests primarily in six global industry sectors; consumer products
and services, financial services, health care, infrastructure, natural resources
and telecommunications and technology, so the Fund's investment performance is
directly related to the investment performance of the companies in those
sectors. In particular, each of the sectors is subject to governmental
regulation that may have a material effect on the products and services offered
by companies in these industries.
2
<PAGE> 26
Financial Services Industry
Examples of financial services companies include commercial banks and savings
institutions and loan associations and their holding companies; consumer and
industrial finance companies; diversified financial services companies;
investment banks; insurance brokerages; securities brokerage and investment
advisory companies; real estate-related companies; leasing companies; and a
variety of firms in all segments of the insurance field such as multi-line,
property and casualty and life insurance and insurance holding companies.
AIM believes an accelerating rate of global economic interdependence will lead
to significant growth in the demand for financial services. In addition, in
AIM's view, as the industries evolve, opportunities will emerge for those
companies positioned for the future. Thus, AIM expects that banking and related
financial institution consolidation in the developed countries, increased demand
for retail borrowing in developing countries, a growing need for international
trade-based financing, a rising demand for sophisticated risk management, the
proliferating number of liquid securities markets around the world, and larger
concentrations of investable assets should lead to growth in financial service
companies that are positioned for the future.
Infrastructure Industry
Examples of infrastructure companies include those engaged in designing,
developing or providing the following products and services: electricity
production; oil, gas, and coal exploration, development, production and
distribution; water supply, including water treatment facilities; nuclear power
and other alternative energy sources; transportation, including the construction
or operation of transportation systems; steel, concrete, or similar types of
products; communications equipment and services (including equipment and
services for both data and voice transmission); mobile communications and
cellular radio/paging; emerging technologies combining telephone, television
and/or computer systems; and other products and services, which, in AIM's
judgment, constitute services significant to the development of a country's
infrastructure.
AIM believes that a country's infrastructure is one key to the long-term
success of that country's economy. AIM believes that adequate energy,
transportation, water, and communications systems are essential elements for
long-term economic growth. AIM believes that many developing nations, especially
in Asia and Latin America, plan to make significant expenditures to the
development of their infrastructure in the coming years, which is expected to
facilitate increased levels of services and manufactured goods.
In the developed countries of North America, Europe, Japan and the Pacific
Rim, AIM expects that the replacement and upgrade of transportation and
communications systems should stimulate growth in the infrastructure industries
of those countries. In addition, in AIM's view, deregulation of
telecommunications and electric and gas utilities in many countries is
promoting significant changes in these industries.
AIM believes that strong economic growth in developing countries and
infrastructure replacement, upgrade, and deregulation in more developed
countries provide an environment for favorable investment opportunities in
infrastructure companies worldwide. In addition, the long-term growth rates of
certain foreign countries' economies may be substantially higher than the
long-term growth rate of the U.S. economy. An integral aspect of certain foreign
countries' economies may be the development or improvement of their
infrastructure.
Natural Resources Industry
Examples of natural resource companies include those which own, explore or
develop: energy sources (such as oil, gas and coal); ferrous and non-ferrous
metals (such as iron, aluminum, copper, nickel, zinc and lead), strategic metals
(such as uranium and titanium) and precious metals (such as gold, silver and
platinum); chemicals; forest products (such as timber, coated and uncoated tree
sheet, pulp and newsprint); other basic commodities (such as foodstuffs);
refined products (such as chemicals and
3
<PAGE> 27
steel) and service companies that sell to these producers and refiners; and
other products and services, which, in AIM's opinion are significant to the
ownership and development of natural resources and other basic commodities.
AIM believes that the liberalization of formerly socialist economies will
bring about dramatic changes in both the supply and demand for natural
resources. In addition, rapid industrialization in developing countries of Asia
and Latin America is generating new demands for industrial materials that are
affecting world commodities markets. AIM believes these changes are likely to
create investment opportunities that benefit from new sources of supply and/or
from changes in commodities prices.
AIM also believes that investments in natural resource companies offer an
opportunity to protect wealth against the capital-eroding effects of inflation.
During periods of accelerating inflation or currency uncertainty, worldwide
investment demand for natural resources, particularly precious metals, tends to
increase, and during periods of disinflation or currency stability, it tends to
decrease. AIM believes that rising commodity prices and increasing worldwide
industrial production may favorably affect share prices of natural resource
companies, and investments in such companies can offer excellent opportunities
to offset the effects of inflation.
AIM has identified four areas in the natural resources industry that it
expects will create investment opportunities: (i) improving supply/demand
fundamentals, which may result in higher commodity prices; (ii) privatization of
state-owned natural resource businesses; (iii) management which can improve
production efficiencies without correspondingly increasing commodity prices; and
(iv) service companies with emerging technologies that can enhance productivity
or reduce production costs. Of course, there is no certainty that these factors
will produce the anticipated results.
Consumer Products and Services Industry
Examples of consumer products and services companies include those that
manufacture, market, retail, or distribute: durable goods (such as homes,
household goods, automobiles, boats, furniture and appliances, and computers);
non-durable goods (such as food and beverages and apparel); media,
entertainment, broadcasting, publishing and sports-related goods and services
(such as television and radio broadcast, motion pictures, wireless
communications, gaming casinos, theme parks, restaurants and lodging); and goods
and services to companies in the foregoing industries (such as advertisers,
textile companies and distribution and shipping companies).
The Fund expects that a significant portion of its assets may be invested
in the securities of U.S. issuers from time to time, particularly those that
market their products globally. However, consumer products and services
companies of a particular nation or region of the world are often operated and
owned in their local markets, close to their customers. These companies, AIM
believes, may offer superior opportunities for capital growth as compared to
their larger, multinational counterparts. Certain global markets may be more
attractive than others from time to time; companies dependent on U.S. markets,
for example, may be outperformed by companies not dependent on U.S. markets.
AIM also believes that the demand for consumer products and services worldwide
will increase along with rising disposable incomes in both developed and
developing nations. Emerging economies, such as those in China, Southeast Asia,
Eastern Europe and Latin America, offer opportunities for the growth and
expansion of consumer markets. These regions currently comprise a growing source
of inexpensive consumer products for export and a growing source of demand for
consumer products and services as the disposable incomes of their populations
increase. In AIM's view, these changes are likely to create investment
opportunities in companies, both local and multinational, that are able to
employ innovative manufacturing, marketing, retailing and distribution methods
to open new markets and/or expand existing markets.
Health Care Industry
Examples of health care companies include those that are substantially engaged
in the design, manufacture or sale of products or services used for or in
connection with health care or medicine. Such
4
<PAGE> 28
firms may include pharmaceutical companies; firms that design,
manufacture, sell or supply medical, dental and optical products, hardware or
services; companies involved in biotechnology, medical diagnostic, and
biochemical research and development; and companies involved in the ownership
and/or operation of health care facilities.
The Fund expects that, from time to time, a significant portion of its assets
may be invested in the securities of U.S. issuers. Health care industries,
however, are global industries with significant, growing markets outside of the
United States. A sizable portion of the companies which comprise the health care
industries are headquartered outside of the United States, and many important
pharmaceutical and biotechnology discoveries and technological breakthroughs
have occurred outside of the United States, primarily in Japan, the United
Kingdom and Western Europe.
AIM believes that the global health care industries offer attractive long-term
supply/demand dynamics. While the United States, Western Europe, and Japan
presently account for a substantial portion of health care expenditures, this
should change dramatically in the coming decade if the populations of developing
countries devote an increasing percentage of income to health care.
Additionally, AIM believes demographics on aging point to a significant increase
in demand from the industrialized nations, as the elderly account for a growing
proportion of worldwide health care spending. Finally, in AIM's view, technology
will continue to expand the range of products and services offered, with new
drugs, medical devices and surgical procedures addressing medical conditions
previously considered untreatable.
In addition to these underlying trends, the United States is presently
experiencing a period of rapid and profound change in its own health care
system, marked by the rise of managed care, the formation of health care
delivery networks, and widespread consolidation across all segments of the
industry. AIM believes that this transition offers investment opportunities in
those companies acting as consolidators or otherwise gaining market share at the
expense of less efficient competitors.
Telecommunications and Technology Industry
Examples of telecommunications and technology companies include those engaged
in designing, developing or providing the following products and services:
communications equipment and services (including equipment and services for both
data and voice transmission); electronic components and equipment; broadcasting
(including television and radio, satellite, microwave and cable television and
narrowcasting); computer components, equipment, and software equipment; Internet
technology; mobile communications and cellular radio/paging; electronic mail;
local and wide area networking and linkage of word and data processing systems;
publishing and information systems; videotext and teletext; and emerging
technologies combining telephone, television and/or computer systems.
AIM believes that there are opportunities for continued growth in demand for
components, products, media and systems to collect, store, retrieve, transmit,
process, distribute, record, reproduce and use information. The pervasive
societal impact of communications and information technologies has been
accelerated by the lower costs and higher efficiencies that result from the
blending of computers with telecommunications systems. Accordingly, companies
engaged in the production of methods for using electronic and, potentially,
video technology to communicate information are expected to be important in the
Fund's portfolio. Older technologies, such as photography and print also may be
represented, however.
AIM has identified four areas in the telecommunications and technology
industry that it expects will create investment opportunities: (i) deregulation
of companies in the industry, which will allow competition to promote greater
efficiencies; (ii) privatization of state-owned telecommunications businesses;
(iii) development of infrastructure in underdeveloped countries and upgrading of
services in other countries; and (iv) emerging technologies that will enhance
productivity and reduce costs in the telecommunications industry. Of course,
there is no certainty that these factors will produce the anticipated results.
5
<PAGE> 29
SELECTION OF EQUITY INVESTMENTS AND ASSET ALLOCATION. The Fund expects that,
from time to time, a significant portion of its assets may be invested in the
securities of domestic issuers. The industries represented in the Fund, however,
are global industries with significant, growing markets outside of the United
States. A sizable proportion of the companies that comprise the industries in
which the Fund invests are headquartered outside of the United States.
For these reasons, AIM believes that a portfolio composed only of securities
of U.S. issuers does not provide the greatest potential return from an
investment by the Fund. AIM uses its financial expertise in markets located
throughout the world and the substantial global resources of AMVESCAP PLC in
attempting to identify those countries and companies then providing the greatest
potential for long-term capital appreciation. In this fashion, AIM seeks to
enable shareholders to capitalize on the substantial investment opportunities
and the potential for long-term capital presented by the industries represented
in the Fund.
OTHER INVESTMENT PRACTICES OF THE FUND
U.S. GOVERNMENT SECURITIES. The Fund may invest in various direct obligations
of the U.S. Treasury and obligations issued or guaranteed by the U.S. government
or one of its agencies or instrumentalities (collectively, "U.S. government
securities"). Among the U.S. government securities that may be held by the Fund
are securities that are supported by the full faith and credit of the United
States; securities that are supported by the right of the issuer to borrow from
the U.S. Treasury; and securities that are supported solely by the credit of the
instrumentality.
There may be times when, in AIM's opinion, prevailing market, economic or
political conditions warrant reducing the proportion of the Fund's assets
invested in equity securities and increasing the proportion held in cash (U.S.
dollars, foreign currencies or multinational currency units) or invested in debt
securities or high quality money market instruments issued by corporations, or
the United States, or a foreign government. A portion of the Fund's assets
normally will be held in cash (U.S. dollars, foreign currencies or multinational
currency units) or invested in foreign or domestic high quality money market
instruments pending investment of proceeds from new sales of Fund shares to
provide for ongoing expenses and to satisfy redemptions.
In certain countries, governmental restrictions and other limitations on
investment may affect the Fund's ability to invest in such countries. In
addition, in some instances only special classes of securities may be purchased
by foreigners and the market prices, liquidity and rights with respect to those
securities may vary from shares owned by nationals. AIM is not aware at this
time of the existence of any investment or exchange control regulations which
might substantially impair the operations of the Fund as described in the Fund's
Prospectus and Statement of Additional Information. Restrictions may in the
future, however, make it undesirable to invest in certain countries. The Fund
does not have a present intention of making any significant investment in any
country or stock market in which AIM considers the political or economic
situation to threaten the Fund with substantial or total loss of its investment
in such country or market.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Fund may invest in the
securities of investment companies within the limitations of the 1940 Act. These
limitations currently provide that, in general, the Fund may purchase shares of
an investment company unless (a) such a purchase would cause the Fund to own in
the aggregate more than 3% of the total outstanding voting stock of the
investment company or (b) such a purchase would cause the Fund to have more than
5% of its assets invested in the investment company or more than 10% of its
assets invested in an aggregate of all such investment companies. Investment in
closed-end investment companies may involve the payment of substantial premiums
above the value of such companies' portfolio securities. The Fund does not
intend to invest in such investment companies unless, in AIM's judgment, the
potential benefits of such investments justify the payment of any applicable
premiums. The return on such securities will be reduced by operating expenses of
such companies, including payments to the investment managers of those
investment companies.
6
<PAGE> 30
DEPOSITARY RECEIPTS. The Fund may hold securities of foreign issuers in the
form of American Depositary Receipts ("ADRs"), American Depositary Shares
("ADSs") and European Depositary Receipts ("EDRs") or other securities
convertible into securities of eligible foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities for which
they may be exchanged. ADRs and ADSs are typically issued by an American bank or
trust company and evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), are issued in Europe typically by foreign banks
and trust companies and evidence ownership of either foreign or domestic
securities. Generally, ADRs and ADSs in registered form are designed for use in
U.S. securities markets and EDRs in bearer form are designed for use in European
securities markets. For purposes of the Fund's investment policies, the Fund's
investments in ADRs, ADSs and EDRs will be deemed to be investments in the
equity securities representing securities of foreign issuers into which they may
be converted.
ADR facilities may be established as either "unsponsored" or "sponsored."
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions, and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass-through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as dividend payment fees of the
depository), although ADR holders continue to bear certain other costs (such as
deposit and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The Fund may invest in both sponsored and unsponsored ADRs.
WARRANTS OR RIGHTS. Warrants or rights may be acquired by the Fund in
connection with other securities or separately and provide the Fund with the
right to purchase at a later date other securities of the issuer. Warrants are
securities permitting, but not obligating, their holder to subscribe for other
securities or commodities. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered more speculative than
certain other types of investments. In addition, the value of a warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to its expiration date.
LENDING OF FUND SECURITIES. For the purpose of realizing additional income,
the Fund may make secured loans of its securities holdings amounting to not more
than 30% of its total assets. Securities loans are made to broker/dealers or
institutional investors pursuant to agreements requiring that the loans be
continuously secured by collateral consisting of cash, U.S. government
securities, or certain irrevocable letters of credit at least equal at all times
to the value of the securities lent plus any accrued interest, "marked to
market" on a daily basis. The Fund may pay reasonable administrative and
custodial fees in connection with the loan of their securities. While the
securities loan is outstanding, the Fund will continue to receive the equivalent
of the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Fund will have a right to call each loan and obtain the securities within the
stated settlement period. The Fund will not have the right to vote equity
securities while they are being lent, but it may call in a loan in anticipation
of any important vote. The risks in lending portfolio securities, as with other
extensions of secured credit,
7
<PAGE> 31
consist of possible delays in receiving additional collateral or in recovery
of the securities and possible loss of rights in the collateral should the
borrower fail financially. Loans will only be made to firms deemed by AIM to
be of good standing and will not be made unless, in AIM's judgment, the
consideration to be earned from such loans would justify the risk.
COMMERCIAL BANK OBLIGATIONS. For the purposes of the Fund's investment
policies with respect to bank obligations, obligations of foreign branches of
U.S. banks and of foreign banks are obligations of the issuing bank and may be
general obligations of the parent bank. Such obligations may, however, be
limited by the terms of a specific obligation and by government regulation. As
with investments in non-U.S. securities in general, investments in the
obligations of foreign branches of U.S. banks and of foreign banks may subject
the Fund to investment risks that are different in some respects from those of
investments in obligations of U.S. issuers. Although the Fund will typically
acquire obligations issued and supported by the credit of U.S. or foreign banks
having total assets at the time of purchase of $1 billion or more, this $1
billion figure is not an investment policy or restriction of the Fund. For the
purposes of calculation with respect to the $1 billion figure, the assets of a
bank will be deemed to include the assets of its U.S. and non-U.S. branches.
REPURCHASE AGREEMENTS. A repurchase agreement is a transaction in which the
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer on an
agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, including possible decline in the market value of the
underlying securities and delays and costs to the Fund if the other party to the
repurchase agreement becomes bankrupt, the Fund intends to enter into repurchase
agreements only with banks and dealers believed by AIM to present minimal credit
risks in accordance with guidelines established by the Board of Trustees. AIM
will review and monitor the creditworthiness of such institutions under the
Board's general supervision.
The Fund will invest only in repurchase agreements collateralized at all times
in an amount at least equal to the repurchase price plus accrued interest. To
the extent that the proceeds from any sale of such collateral upon a default in
the obligation to repurchase were less than the repurchase price, the Fund would
suffer a loss. If the financial institution that is party to the repurchase
agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or
other liquidation proceedings, there may be restrictions on the Fund's ability
to sell the collateral and it could suffer a loss. However, with respect to
financial institutions whose bankruptcy or liquidation proceedings are subject
to the U.S. Bankruptcy Code, the Fund intends to comply with provisions under
such code that would allow the immediate resale of such collateral. The Fund
will not enter into a repurchase agreement with a maturity of more than seven
days if, as a result, more than 15% of the value of its net assets would be
invested in such repurchase agreements and other illiquid investments.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS. The Fund may
borrow from banks or may borrow through reverse repurchase agreements and "roll"
transactions in connection with meeting requests for the redemptions of the
Fund's shares. The Fund's borrowings will not exceed 33 1/3% of its total
assets, i.e., the Fund's total assets at all times will equal at least 300% of
the amount of outstanding borrowings. If market fluctuations in the value of the
Fund's securities holdings or other factors cause the ratio of its total assets
to outstanding borrowings to fall below 300%, within three days (excluding
Sundays and holidays) of such event the Fund may be required to sell portfolio
securities to restore the 300% asset coverage, even though from an investment
standpoint such sales might be disadvantageous. The Fund may also borrow up to
5% of its total assets for temporary or emergency purposes other than to meet
redemptions. However, no additional investments will be made if the Fund's
borrowings exceed 5% of its total assets. Any borrowing by the Fund may cause
greater fluctuation in the value of its shares than would be the case if it
did not borrow.
The Fund's fundamental investment limitations permit it to borrow money for
leveraging purposes. However, the Fund is currently prohibited, pursuant to a
non-fundamental investment policy, from borrowing money in order to purchase
securities. Nevertheless, this policy may be changed in the future
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by the Board. If the Fund employs leverage in the future, it would be subject
to certain additional risks. Use of leverage creates an opportunity for
greater growth of capital but would exaggerate any increases or decreases in
the net asset value of the Fund. When the income and gains on securities
purchased with the proceeds of borrowings exceed the costs of such borrowings,
the Fund's earnings or net asset value will increase faster than otherwise
would be the case; conversely, if such income and gains fail to exceed such
costs, the Fund's earnings or net asset value would decline faster than would
otherwise be the case.
The Fund may enter into reverse repurchase agreements. A reverse repurchase
agreement is a borrowing transaction in which the Fund transfers possession of
securities to another party, such as a bank or broker/dealer, in return for
cash, and agrees to repurchase the securities in the future at an agreed upon
price, which includes an interest component. The Fund may also engage in "roll"
borrowing transactions, which involve the sale of Government National Mortgage
Association certificates or other securities together with a commitment (for
which the Fund may receive a fee) to purchase similar, but not identical,
securities at a future date. The Fund will segregate cash or liquid securities
in an amount sufficient to cover its obligations under "roll" transactions and
reverse repurchase agreements with broker/dealers. No segregation is required
for reverse repurchase agreements with banks.
WHEN-ISSUED OR FORWARD COMMITMENT SECURITIES. The Fund may purchase debt
securities on a "when-issued" basis and may purchase or sell such securities on
a "forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. The price, which is generally expressed in yield
terms, is fixed at the time that the commitment is made, but delivery and
payment for the securities take place at a later date. When-issued securities
and forward commitments may be sold prior to the settlement date, but the Fund
will purchase or sell when-issued securities or enter into forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. No income accrues on securities that have been purchased
pursuant to a forward commitment or on a when-issued basis prior to delivery to
the Fund. If the Fund disposes of the right to acquire a when-issued security
prior to its acquisition or disposes of its right to deliver or receive against
a forward commitment, it may incur a gain or loss. At the time that the Fund
enters into a transaction on a when-issued or forward commitment basis, the Fund
will segregate cash or liquid securities equal to the value of the when-issued
or forward commitment securities with its custodian and will mark to market
daily such assets. There is a risk that the securities may not be delivered and
that the Fund may incur a loss.
SHORT SALES. The Fund may make short sales of securities. A short sale is a
transaction in which the Fund sells a security in anticipation that the market
price of that security will decline. The Fund may make short sales (i) as a form
of hedging to offset potential declines in long positions in securities it owns,
or anticipates acquiring, or in similar securities, and (ii) in order to
maintain flexibility in its securities holdings.
When the Fund makes a short sale of a security it does not own, it must borrow
the security sold short and deliver it to the broker/dealer or other
intermediary through which it made the short sale. The Fund may have to pay a
fee to borrow particular securities and will often be obligated to pay over any
payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security when the borrowing is
called or expires will be secured by collateral deposited with the intermediary.
The Fund will also be required to deposit collateral with its custodian to the
extent, if any, necessary so that the value of both collateral deposits in the
aggregate is at all times equal to at least 100% of the current market value of
the security sold short. Depending on arrangements made with the intermediary
from which it borrowed the security regarding payment of any amounts received by
it on such security, the Fund may not receive any payments (including interest)
on its collateral deposited with such intermediary.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, it will incur a
loss; conversely, if the price declines, the Fund will realize a gain. Any gain
will be decreased, and any loss increased, by the transaction costs associated
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with the transaction. Although the Fund's gain is limited by the price at which
it sold the security short, its potential loss theoretically is unlimited.
The Fund will make a short sale if, after giving effect to the sale, the
market value of the securities sold short exceeds 25% of the value of its total
assets or its aggregate short sales of the securities of any one issuer exceed
the lesser of 2% of its net assets or 2% of the securities of any class of the
issuer. Moreover, the Fund may engage in short sales only with respect to
securities listed on a national securities exchange.
TEMPORARY DEFENSIVE STRATEGIES. The Fund retains the flexibility to respond
promptly to changes in market and economic conditions. Accordingly, in the
interest of preserving shareholders' capital, AIM may employ a temporary
defensive investment strategy if it determines such a strategy to be warranted
due to market, economic or political conditions. Under a defensive strategy,
the Fund may invest up to 100% of their total assets in cash and/or high
quality debt securities and money market instruments. To the extent the Fund
adopts a temporary defensive posture, it will not be invested so as to achieve
directly its investment objective.
In addition, pending investment of proceeds from new sales of the shares or to
meet its ordinary daily cash needs, the Fund may hold cash and/or may invest in
high quality debt instruments and money market instruments. The Fund may hold
cash and/or may invest in money market instruments under similar circumstances.
Money market instruments in which the Fund may invest include, but are not
limited to, United States government securities; high-grade commercial paper;
bank certificates of deposit; bankers' acceptances and repurchase agreements
related to any of the foregoing. "High-grade commercial paper" refers to
commercial paper rated A-1 by Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), or P-1 by Moody's Investors Service, Inc. ("Moody's")
or, if not rated, determined by AIM to be of comparable quality.
PRIVATIZATIONS. The governments of some foreign countries have been engaged in
programs of selling part or all of their stakes in government owned or
controlled enterprises ("privatizations"). AIM believes that privatizations may
offer opportunities for significant capital appreciation and intends to invest
assets of the Fund in privatizations in appropriate circumstances. In certain
foreign countries, the ability of foreign entities such as the Fund to
participate in privatizations may be limited by local law, or the terms on which
the Fund may be permitted to participate may be less advantageous than those for
local investors. There can be no assurance that foreign governments will
continue to sell companies currently owned or controlled by them or that
privatization programs will be successful.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
INTRODUCTION
The Fund may use forward currency 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). The
Fund may invest in such instruments up to the full value of its portfolio
assets.
To attempt to hedge against adverse movements in exchange rates between
currencies, the Fund may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date. Such contracts may
involve the purchase or sale of a foreign currency against the U.S. dollar or
may involve two foreign currencies. The Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to its
portfolio positions. The Fund also may purchase and sell put and call options on
currencies, futures contracts on currencies and options on such future contracts
to hedge against movements in exchange rates.
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In addition, the Fund may purchase and sell put and call options on equity and
debt securities to hedge against the risk of fluctuations in the prices of
securities held by the Fund or that AIM intends to include in the Fund's
holders. The Fund also may purchase and sell put and call options on stock
indexes to hedge against overall fluctuations in the securities markets
generally or in a specific market sector.
Further, the Fund may sell stock index futures contracts and may purchase put
options or write call options on such futures contracts to protect against a
general stock market decline or a decline in a specific market sector that could
affect adversely the Fund's holders. The Fund also may purchase stock index
futures contracts and purchase call options or write put options on such
contracts to hedge against a general stock market or market sector advance and
thereby attempt to lessen the cost of future securities acquisitions. The Fund
may use interest rate futures contracts and options thereon to hedge the debt
portion of its portfolio against changes in the general level of interest rates.
SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use by the Fund of options, futures contracts and forward currency
contracts ("Forward Contracts") involves special considerations and risks, as
described below. Risks pertaining to particular instruments are described in the
sections that follow.
(1) Successful use of most of these instruments depends upon AIM's
ability to predict movements of the overall securities and currency
markets, which requires different skills than predicting changes in the
prices of individual securities. While AIM is experienced in the use of
these instruments, there can be no assurance that any particular strategy
adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
investments being hedged. For example, if the value of an instrument used
in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the
markets in which the hedging instrument is traded. The effectiveness of
hedges using hedging instruments on indices will depend on the degree of
correlation between price movements in the index and price movements in the
investments being hedged.
(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. For example, if the Fund entered
into a short hedge because AIM projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by
a decline in the price of the hedging instrument. Moreover, if the price of
the hedging instrument declined by more than the increase in the price of
the security, the Fund could suffer a loss. In either such case, the Fund
would have been in a better position had it not hedged at all.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract or option thereon at any particular
time.
(5) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties (i.e.,
instruments other than purchased options). 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. The Fund's ability to close out a
position in an instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of the other party to the transaction ("contra
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party") to enter into a transaction closing out the position. Therefore,
there is no assurance that any position can be closed out at a time and
price that is favorable to the Fund.
WRITING CALL OPTIONS
The Fund may write (sell) call options on securities, indices and currencies.
Call options generally will be written on securities and currencies that, in the
opinion of AIM, are not expected to make any major price moves in the near
future but that, over the long term, are deemed to be attractive investments for
the Fund.
A call option gives the holder (buyer) the right to purchase a security or
currency 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 writer of a call option continues, he or she may be
assigned an exercise notice, requiring him or her to deliver the underlying
security 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 writer effects a closing purchase transaction by purchasing an option
identical to that previously sold.
Portfolio securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent with
the Fund's investment objective. 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 or currency above the exercise price, and retains the
risk of loss should the price of the security or currency decline. Unlike one
who owns securities or currencies not subject to an option, the Fund has no
control over when it may be required to sell the underlying securities 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 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 or currency, which will be
increased or offset by the premium received. The Fund does not consider a
security or currency covered by a call option to be "pledged" as that term is
used in their policies that limit the pledging or mortgaging of their assets.
Writing call options can serve as a limited short hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security or currency at less than its market value.
The premium that the Fund receives for writing a call option is deemed to
constitute the market value of an option. The premium the Fund will receive from
writing a call option will reflect, among other things, the current market price
of the underlying investment, the relationship of the exercise price to such
market price, the historical price volatility of the underlying investment, and
the length of the option period. In determining whether a particular call option
should be written, AIM will consider the reasonableness of the anticipated
premium and the likelihood that a liquid secondary market will exist for those
options.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security or currency from
being called or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date, or both.
The Fund will pay transaction costs in connection with the writing of options
and in entering into closing purchase contracts. Transaction costs relating to
options activity are normally higher than those applicable to purchases and
sales of portfolio securities.
The exercise price of the options may be below, equal to or above the current
market values of the underlying securities, indices or currencies at the time
the options are written. From time to time, the
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Fund may purchase an underlying security or currency for delivery in
accordance with the exercise of an option, rather than delivering such
security or currency from its portfolio. In such cases, additional costs will
be incurred.
The Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more, respectively, than the premium
received from writing the option. Because increases in the market price of a
call option generally will reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Fund.
WRITING PUT OPTIONS
The Fund may write put options on securities, indices and currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) the obligation to buy, the underlying security or currency at the
exercise price at any time until (American style) or on (European style) the
expiration date. The operation of put options in other respects, including their
related risks and rewards, is substantially identical to that of call options.
The Fund generally would write put options in circumstances where AIM wishes
to purchase the underlying security or currency for the Fund's holdings at a
price lower than the current market price of the security or currency. In such
event, 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. Since the Fund would also receive interest on debt securities or currencies
maintained to cover the exercise price of the option, this technique could be
used to enhance current return during periods of market uncertainty. The risk in
such a transaction would be that the market price of the underlying security or
currency would decline below the exercise price less the premium received.
Writing put options can serve as a limited long hedge because increases in the
value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be obligated
to purchase the security or currency at greater than its market value.
PURCHASING PUT OPTIONS
The Fund may purchase put options on securities, indices and currencies. As
the holder of a put option, the Fund would have the right to sell the underlying
security 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 or currency
("protective put") owned by the Fund in order to protect against an anticipated
decline in the value of the security or currency. Such hedge protection is
provided only during the life of the put option when the Fund, as the holder of
the put option, is able to sell the underlying security or currency at the put
exercise price regardless of any decline in the underlying security's market
price or currency's exchange value. The premium paid for the put option and any
transaction costs would reduce any profit otherwise available for distribution
when the security or currency is eventually sold.
The Fund may also purchase put options at a time when it does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, that the Fund seeks to benefit from a decline in the
market price of the underlying security or currency. If the put option is not
sold when it has remaining value, and if the market price of the underlying
security or currency remains equal to or greater than the exercise price during
the life of the put option, the Fund will lose its entire investment in the put
option. In order for the purchase of a put option to be profitable, the market
price of the underlying security or currency must decline sufficiently below the
exercise price to cover the premium and transaction costs, unless the put option
is sold in a closing sale transaction.
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PURCHASING CALL OPTIONS
The Fund may purchase call options on securities, indices and currencies. As
the holder of a call option, the Fund would have the right to purchase the
underlying security 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 or currency for its portfolio. Utilized in this fashion, the
purchase of call options would enable the Fund to acquire the security or
currency at the exercise price of the call option plus the premium paid. At
times, the net cost of acquiring the security or currency in this manner may
be less than the cost of acquiring the security or currency directly. This
technique may also be useful to the Fund in purchasing a large block of
securities that would be more difficult to acquire by direct market purchases.
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 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 or currencies
it owns to avoid realizing losses that would result in a reduction of its
current return. For example, where the Fund has written a call option on an
underlying security or currency having a current market value below the price at
which it purchased the security or currency, an increase in the market price
could result in the exercise of the call option written by the Fund and the
realization of a loss on the underlying security or currency. Accordingly, the
Fund could purchase a call option on the same underlying security or currency,
which could be exercised to fulfill its delivery obligations under its written
call (if it is exercised). This strategy could allow the Fund to avoid selling
the portfolio security or currency at a time when it has an unrealized loss;
however, the Fund would have to pay a premium to purchase the call option plus
transaction costs.
Aggregate premiums paid for put and call options will not exceed 5% of the
Fund's total assets at the time of each purchase.
The Fund may attempt to accomplish objectives similar to those involved in
using Forward Contracts by purchasing put or call options on currencies. A put
option gives the Fund as purchaser the right (but not the obligation) to sell a
specified amount of currency at the exercise price at any time until (American
style) or on (European style) the expiration date of the option. A call option
gives the Fund as purchaser the right (but not the obligation) to purchase a
specified amount of currency at the exercise price at any time until (American
style) or on (European style) the expiration date of the option. The Fund might
purchase a currency put option, for example, to protect itself against a decline
in the dollar value of a currency in which it holds or anticipates holding
securities. If the currency's value should decline against the dollar, the loss
in currency value should be offset, in whole or in part, by an increase in the
value of the put. If the value of the currency instead should rise against the
dollar, any gain to the Fund would be reduced by the premium it had paid for the
put option. A currency call option might be purchased, for example, in
anticipation of, or to protect against, a rise in the value against the dollar
of a currency in which the Fund anticipates purchasing securities.
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 market will
exist for any particular option at any specific time.
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The staff of the SEC considers purchased OTC options to be illiquid
securities. The Fund may also sell OTC options and, in connection therewith,
segregate assets or cover its obligations with respect to OTC options written by
it. The assets used as cover for OTC options written by the Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to
purchase or write only those exchange-traded options for which there appear to
be liquid secondary markets. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party or by a
transaction in the secondary market if any such market exists. Although the Fund
will enter into OTC options only with contra parties 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 contra
party, the Fund might be unable to close out an OTC option position at any time
prior to its expiration.
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. When the Fund writes a
call on an index, it receives a premium and agrees that, prior to the expiration
date, the purchaser of the call, upon exercise of the call, will receive from
the Fund an amount of cash if the closing level of the index upon which the call
is based is greater than the exercise price of the call. The amount of cash
is equal to the difference between the closing price of the index and the
exercise price of the call times a specified multiple (the "multiplier"),
which determines the total dollar value for each point of such difference.
When the Fund buys a call on an index, it pays a premium and has the same
rights as to such call as are indicated above. When the Fund buys a put on
an index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put, upon the Fund's exercise of the put, to deliver
to the Fund an amount of cash if the closing level of the index upon which the
put is based is less than the exercise price of the put, which amount of cash is
determined by the multiplier, as described above for calls. When the Fund writes
a put on an index, it receives a premium and the purchaser has the right, prior
to the expiration date, to require the Fund to deliver to it an amount of cash
equal to the difference between the closing level of the index and the exercise
price times the multiplier, if the closing level is less than the exercise
price.
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 vary
from the value of the index.
Even if the Fund could assemble a securities portfolio that exactly reproduced
the composition of the underlying index, it still would not be fully covered
from a risk standpoint because of the "timing risk" inherent in writing index
options. When an index option is exercised, the amount of cash that the holder
is entitled to receive is determined by the difference between the exercise
price and the closing index level on the date when the option is exercised. As
with other kinds of options, the Fund, as the call writer, will not know that it
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying
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security, such as common stock, because there the writer's obligation is to
deliver the underlying security, not to pay its value as of a fixed time in
the past. So long as the writer already owns the underlying security, it can
satisfy its settlement obligations by simply delivering it, and the risk that
its value may have declined since the exercise date is borne by the exercising
holder. In contrast, even if the writer of an index call holds securities that
exactly match the composition of the underlying index, it will not be able to
satisfy its assignment obligations by delivering those securities against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time
it learns that it has been assigned, the index may have declined, with a
corresponding decline in the value of its securities portfolio. This "timing
risk" is an inherent limitation on the ability of index call writers to cover
their risk exposure by holding securities positions.
If the Fund purchases an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
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.
The Fund only will enter into Futures Contracts that are traded 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 by the Commodity Futures Trading
Commission ("CFTC"). Futures are exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts could
be used to reduce the Fund's exposure to interest rate, currency exchange rate
and stock market fluctuations, the Fund may be able to hedge its exposure more
effectively and at a lower cost through using Futures Contracts.
A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (security
or currency) for a specified price at a designated date, time and place. A stock
index Futures Contract 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 at which the Futures Contract is originally struck; 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 Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and payment
for financial instruments or currencies, Futures Contracts usually are closed
out before the delivery date. Closing out an open Futures Contract sale or
purchase is effected by entering into an offsetting Futures Contract purchase or
sale, respectively, for the same aggregate amount of the identical financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, the Fund realizes a gain; if it is
more, the Fund realizes a loss. Conversely, if the offsetting sale price is more
than the original purchase price, the Fund realizes a gain; if it is less, the
Fund realizes a loss. The transaction costs must also be included in these
calculations. There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular Futures
Contract at
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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 Futures Contract.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of September deutschmarks on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in September, the "delivery month") by
the purchase of another Futures Contract of September deutschmarks on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Fund.
The Fund's Futures transactions will be entered into for hedging purposes
only; that is, Futures Contracts will be sold to protect against a decline in
the price of securities or currencies that the Fund owns, or Futures Contracts
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 Contracts 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 Contracts. A margin deposit made when the Futures Contract
is entered into ("initial margin") is intended to ensure the Fund's performance
under the Futures Contract. The margin required for a particular Futures
Contract is set by the exchange on which the Futures Contract 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 Contract more or less valuable, a process
known as marking-to-market.
Risks of Using Futures Contracts. The prices of Futures Contracts are volatile
and are influenced by, among other things, actual and anticipated changes in
interest rates and currency exchange rates, and in stock market movements, which
in turn are affected by fiscal and monetary policies and national and
international political and economic events.
There is a risk of imperfect correlation between changes in prices of Futures
Contracts and prices of the securities or currencies in the Fund's portfolio
being hedged. The degree of imperfection of correlation depends upon
circumstances such as variations in speculative market demand for Futures and
for securities or currencies, including technical influences in Futures trading;
and differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading. A
decision of whether, when and how to hedge involves skill and judgment, and even
a well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the Futures Contract were closed out.
Thus, a purchase or sale of a Futures Contract may result in losses in excess of
the amount invested in the Futures Contract.
Most U.S. Futures exchanges limit the amount of fluctuation permitted in
Futures Contract and options on Futures Contracts prices during a single trading
day. The daily limit establishes the maximum amount that the price of a Futures
Contract or option may vary either up or down from the previous day's settlement
price at the end of a trading session. Once the daily limit has been reached in
a particular type of Futures Contract or option, no trades may be made on that
day at a price beyond that limit. The daily limit governs only price movement
during a particular trading day and therefore does not limit potential
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<PAGE> 41
losses, because the limit may prevent the liquidation of unfavorable positions.
Futures Contracts and option prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of positions and subjecting some traders to
substantial losses.
If the Fund were unable to liquidate a Futures or option on 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.
Certain characteristics of the Futures market might increase the risk that
movements in the prices of Futures Contracts or options on Futures might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the Futures and options on Futures
markets are subject to daily variation margin calls and might be compelled to
liquidate Futures or options on Futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
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,
which represents the amount by which the market price of the Futures Contract,
at exercise, exceeds (in the case of a call) or is less than (in the case of a
put) the exercise price of the option on the Futures Contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the securities, currencies
or index upon which the Futures Contract is based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
The purchase of call options on Futures can serve as a long hedge, and the
purchase of put options on Futures can serve as a short hedge. Writing call
options on Futures can serve as a limited short hedge, and writing put options
on Futures can serve as a limited long hedge, using a strategy similar to that
used for writing options on securities, foreign currencies or indices.
If the Fund writes an option on a Futures Contract, it will be required to
deposit initial and variation margin pursuant to requirements similar to those
applicable to Futures Contracts. Premiums received from the writing of an option
on a Futures Contract are included in the initial margin deposit.
The Fund may seek to close out an option position by selling an option
covering the same Futures Contract and having the same exercise price and
expiration date. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market.
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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 liquidation value of the Fund, after taking into account unrealized profits
and unrealized losses on any contracts it has entered into. In general, a call
option on a Futures Contract is "in-the-money" if the value of the underlying
Futures Contract exceeds the strike, i.e., exercise, price of the call; a put
option on a Futures Contract is "in-the-money" if the value of the underlying
Futures Contract is exceeded by the strike price of the put. This guideline may
be modified by the Board, without a shareholder vote. This limitation does not
limit the percentage of the Fund's assets at risk to 5%.
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.
The Fund engages in forward currency transactions in anticipation of, or to
protect itself against, fluctuations in exchange rates. The Fund might sell a
particular foreign currency forward, for example, when it holds bonds
denominated in a foreign currency but anticipates, and seeks to be protected
against, a decline in the currency against the U.S. dollar. Similarly, the Fund
might sell the U.S. dollar forward when it holds bonds denominated in U.S.
dollars but anticipates, and seeks to be protected against, a decline in the
U.S. dollar relative to other currencies. Further, the Fund might purchase a
currency forward to "lock in" the price of securities denominated in that
currency that it anticipates purchasing.
Forward Contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and their customers. A
Forward Contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. The Fund will enter into such Forward Contracts
with major U.S. or foreign banks and securities or currency dealers in
accordance with guidelines approved by the Board.
The Fund may enter into Forward Contracts either with respect to specific
transactions or with respect to overall investments. The precise matching of the
Forward Contract amounts and the value of specific securities generally will not
be possible because the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the date the Forward Contract is entered into and the date it
matures. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and if a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency the Fund is
obligated to deliver. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Forward Contracts involve the risk that
anticipated currency movements will not be predicted accurately, causing the
Fund to sustain losses on these contracts and transaction costs.
At or before the maturity of a Forward Contract requiring the Fund to sell a
currency, it either may sell a security and use the sale proceeds to make
delivery of the currency or retain the security and offset its contractual
obligation to deliver the currency by purchasing a second contract pursuant to
which it will obtain, on the same maturity date, the same amount of the currency
that it is obligated to deliver. Similarly, the Fund may close out a Forward
Contract requiring it to purchase a specified currency by entering into a second
contract, if its contra party agrees, entitling it to sell the same amount of
the same currency on the maturity date of the first contract. The Fund would
realize a gain or loss as a result of
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entering into such an offsetting Forward Contract under either circumstance
to the extent the exchange rate or rates between the currencies involved moved
between the execution dates of the first contract and the offsetting contract.
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.
FOREIGN CURRENCY STRATEGIES -- SPECIAL CONSIDERATIONS
The Fund may use options on foreign currencies, Futures on foreign currencies,
options on Futures on foreign currencies and Forward Contracts to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated. Such currency hedges can protect against price movements in a
security that the Fund owns or intends to acquire that are attributable to
changes in the value of the currency in which it is denominated. Such hedges do
not, however, protect against price movements in the securities that are
attributable to other causes.
The Fund might seek to hedge against changes in the value of a particular
currency when no Futures Contract, Forward Contract or option involving that
currency is available or one of such contracts is more expensive than certain
other contracts. In such cases, the Fund may hedge against price movements in
that currency by entering into a contract on another currency or basket of
currencies, the values of which the portfolio manager believes will have a
positive correlation to the value of the currency being hedged. The risk that
movements in the price of the contract will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Futures Contracts, options on Futures Contracts, Forward
Contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of Futures Contracts, Forward
Contracts or options, the Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirements that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or Futures markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying
markets that cannot be reflected in the markets for the Futures contracts or
options until they reopen.
Settlement of Futures Contracts, Forward Contracts and options involving
foreign currencies might be required to take place within the country issuing
the underlying currency. Thus, the Fund might be required to accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
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,
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or other options, Forward Contracts or Futures Contracts or (2) cash,
receivables and 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.
Assets used as cover or held in a segregated account 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.
ADDITIONAL RISK FACTORS
GENERAL
Equity securities, particularly common stocks, generally represent the most
junior position in an issuer's capital structure, and entitle holders to an
interest in the assets of the issuer, if any, remaining after all more senior
claims have been satisfied. The value of equity securities held by the Fund will
fluctuate in response to general market and economic developments, as well as
developments affecting the particular issuers of such securities. The value of
debt securities held by the Fund generally will fluctuate with changes in the
perceived creditworthiness of the issuers of such securities and interest rates.
FINANCIAL SERVICES INDUSTRY
Companies in the financial services sector are subject to rapid business
changes, significant competition, value fluctuations due to the concentration of
loans in particular industries significantly affected by economic conditions
(such as real estate or energy), and volatile performance dependent upon the
availability and cost of capital and prevailing interest rates. In addition,
general economic conditions significantly affect these companies. Credit and
other losses resulting from the financial difficulty of borrowers or other third
parties potentially may have an adverse effect on companies in these industries.
Foreign banks, particularly those of Japan, have reported financial difficulties
attributed to increased competition, regulatory changes, and general economic
difficulties.
The financial services area in the United States currently is changing
relatively rapidly as existing distinctions between various financial service
segments become less clear. For instance, recent business combinations have
included insurance, finance, and securities brokerage under single ownership.
Some primarily retail corporations have expanded into securities and insurance
fields. Investment banking, securities brokerage, and investment advisory
companies are subject to government regulation and risk due to securities
trading and underwriting activities.
Many of the investment considerations discussed in connection with banks,
savings institutions and loan associations, and finance companies also apply to
insurance companies. The performance of insurance company investments will be
subject to risk from several factors. The earnings of insurance companies will
be affected by interest rates, pricing (including severe pricing competition
from time to time), claims activity, marketing competition and general economic
conditions. Particular insurance lines also will be influenced by specific
matters. Property and casualty insurance profits may be affected by certain
weather catastrophes and other disasters. Life and health insurers' profits may
be affected by mortality and morbidity rates. Individual companies may be
exposed to material risks, including reserve inadequacy, problems in investment
portfolios (due to real estate or "junk" bond holdings, for example), and the
inability to collect from reinsurance carriers. Insurance companies are subject
to extensive governmental regulation, including the imposition of maximum rate
levels, which may not be adequate for some lines of business. Proposed or
potential anti-trust or tax law changes also may affect adversely insurance
companies' policy sales, tax obligations, and profitability.
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INFRASTRUCTURE INDUSTRY
The nature of regulation of infrastructure industries continues to evolve in
both the United States and foreign countries, and changes in governmental policy
and the need for regulatory approvals may have a material effect on the products
and services offered by companies in the infrastructure industries. Electric,
gas, water, and most telecommunications companies in the United States, for
example, are subject to both federal and state regulation affecting permitted
rates of return and the kinds of services that may be offered. Government
regulation may also hamper the development of new technologies. Adverse
regulatory developments could therefore potentially affect the performance of
the Fund.
In addition, many infrastructure companies have historically been subject to
the risks attendant to increases in fuel and other operating costs, high
interest costs on borrowed funds, costs associated with compliance with
environmental, and other safety regulations and changes in the regulatory
climate. Changes in prevailing interest rates may also affect the Infrastructure
Fund's share values because prices of equity and debt securities of
infrastructure companies tend to increase when interest rates decline and
decrease when interest rates rise. Further, competition is intense for many
infrastructure companies. As a result, many of these companies may be adversely
affected in the future and such companies may be subject to increased share
price volatility. In addition, many companies have diversified into oil and gas
exploration and development, and therefore returns may be more sensitive to
energy prices.
Some infrastructure companies, such as water supply companies, operate in
highly fragmented market sectors due to local ownership. In addition, some of
these companies are mature and experience little or no growth. Either of these
factors could have a material effect on infrastructure companies and could
therefore affect the performance of the Fund.
NATURAL RESOURCES INDUSTRY
The Fund invests in companies that engage in the exploration, development, and
distribution of coal, oil and gas in the United States. These companies are
subject to significant federal and state regulation, which may affect rates of
return on such investments and the kinds of services that may be offered. In
addition, many natural resource companies historically have been subject to
significant costs associated with compliance with environmental and other safety
regulations. Governmental regulation may also hamper the development of new
technologies.
Further, competition is intense for many natural resource companies. As a
result, many of these companies may be adversely affected in the future and the
value of the securities issued by such companies may be subject to increased
price volatility. Such companies may also be subject to irregular fluctuations
in earnings due to changes in the availability of money, the level of interest
rates, and other factors.
The value of securities of natural resource companies will fluctuate in
response to market conditions for the particular natural resources with which
the issuers are involved. The price of natural resources will fluctuate due to
changes in worldwide levels of inventory, and changes, perceived or actual, in
production and consumption. With respect to precious metals, such price
fluctuations may be substantial over short periods of time. In addition, the
value of natural resources may fluctuate directly with respect to various stages
of the inflationary cycle and perceived inflationary trends and are subject to
numerous factors, including national and international politics.
CONSUMER PRODUCTS AND SERVICES INDUSTRY
The performance of consumer products and services companies relates closely to
the actual and perceived performance of the overall economy, interest rates, and
consumer confidence. In addition, many consumer products and services companies
have unpredictable earnings, due in part to changes in consumer tastes and
intense competition. As a result of either of these factors, consumer products
and services companies may be subject to increased share price volatility.
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The consumer products and services industry may also be subject to greater
government regulation than many other industries. Changes in governmental policy
and the need for regulatory approvals may have a material effect on the products
and services offered by companies in the consumer products and services
industries. Such governmental regulations may also hamper the development of new
business opportunities.
HEALTH CARE INDUSTRY
Health care industries generally are subject to substantial governmental
regulation. Changes in governmental policy or regulation could have a material
effect on the demand for products and services offered by companies in the
health care industries and therefore could affect the performance of the Fund.
Regulatory approvals are generally required before new drugs and medical devices
or procedures may be introduced and before the acquisition of additional
facilities by health care providers. In addition, the products and services
offered by such companies may be subject to rapid obsolescence caused by
technological and scientific advances.
TELECOMMUNICATIONS AND TECHNOLOGY INDUSTRY
Telecommunications and technology industries may be subject to greater
governmental regulation than many other industries and changes in governmental
policy and the need for regulatory approvals may have a material effect on the
products and services offered by companies in those industries. Telephone
operating companies in the United States, for example, are subject to both
federal and state regulation affecting permitted rates of return and the kinds
of services that may be offered. In addition, certain types of companies in the
telecommunications and technology industries are engaged in fierce competition
for market share that could result in increased share price volatility.
DEBT SECURITIES
The value of the debt securities held by the Fund generally will vary
conversely with market interest rates. If interest rates in a market fall, the
value of the debt securities held by the Fund ordinarily will rise. If market
interest rates increase, however, the debt securities owned by the Fund in that
market will be likely to decrease in value.
Debt rated Baa by Moody's is considered by Moody's to have speculative
characteristics. Debt rated BB, B, CCC, CC or C by S&P, and debt rated Ba, B,
Caa, Ca or C by Moody's is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. For S&P, BB indicates the lowest
degree of speculation for such lower quality debt and C the highest degree of
speculation. For Moody's, Baa indicates the lowest degree of speculation for
such lower quality debt and C the highest degree of speculation. While such
lower quality debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions. Debt rated C by Moody's or S&P is the lowest rated debt that is not
in default as to principal or interest, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Lower quality debt securities also are generally considered to be subject to
greater risk than securities with higher ratings with regard to a deterioration
of general economic conditions. These lower quality debt securities are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds." See
Appendix A for a description of the various debt ratings.
Ratings of debt securities represent the rating agency's opinion regarding
their quality and are not a guarantee of quality. Rating agencies attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also, rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than a rating
indicates.
The market values of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to
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economic conditions and generally have more volatile prices than higher
quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of lower quality securities because such securities are
generally unsecured and may be subordinated to the claims of other creditors of
the issuer.
Lower quality debt securities of corporate issuers frequently have call or
buy-back features that permit the issuer to call or repurchase the security from
the Fund. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security, resulting in a decreased return for investors. In addition, the Fund
may have difficulty disposing of lower quality securities because they may have
a thin trading market. There may be no established retail secondary market for
many of these securities, and the Fund anticipates that such securities could be
sold only to a limited number of dealers or institutional investors. The lack of
a liquid secondary market also may have an adverse impact on market prices of
such instruments and may make it more difficult for the Fund to obtain accurate
market quotations for purposes of valuing their portfolio investments. The Fund
may also acquire lower quality debt securities during an initial underwriting or
which are sold without registration under applicable securities laws. Such
securities involve special considerations and risks.
In addition to the foregoing, factors that could have an adverse effect on the
market value of lower quality debt securities in which the Fund may invest
include: (i) potential adverse publicity; (ii) heightened sensitivity to general
economic or political conditions; and (iii) the likely adverse impact of a major
economic recession. The Fund may also incur additional expenses to the extent it
is required to seek recovery upon a default in the payment of principal or
interest on portfolio holdings, and the Fund may have limited legal recourse in
the event of a default.
AIM attempts to minimize the speculative risks associated with investments in
lower quality securities through credit analysis and by carefully monitoring
current trends in interest rates, political developments and other factors.
INVESTING IN SMALLER COMPANIES
While the Fund's holdings normally will include securities of established
suppliers of traditional products and services, the Fund may invest in smaller
companies which can benefit from the development of new products and services.
These smaller companies may present greater opportunities for capital
appreciation, but may also involve greater risks than large, established
issuers. Such smaller companies may have limited resources, and their securities
may trade less frequently and in more limited volume than the securities of
larger, more established companies. As a result, the prices of the securities of
such smaller companies may fluctuate to a greater degree than the prices of the
securities of other issuers.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities.
Securities may be considered illiquid if the Fund cannot reasonably expect
within seven days to sell the securities for approximately the amount at which
it values such securities. See "Investment Limitations." The sale of illiquid
securities, if they can be sold at all, generally will require more time and
result in higher brokerage charges or dealer discounts and other selling
expenses than will the sale of liquid securities such as securities eligible for
trading on U.S. securities exchanges or in OTC markets. Moreover, restricted
securities, which may be illiquid for purposes of this limitation, often sell,
if at all, at a price lower than similar securities that are liquid.
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Illiquid securities include those that are subject to restrictions contained
in the securities laws of other countries. However, securities that are freely
marketable in the country where they are principally traded, but would not be
freely marketable in the United States, will not be considered illiquid. Where
registration is required, the Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended (the "1933 Act"),
including private placements, repurchase agreements, commercial paper, foreign
securities and corporate bonds and notes. These instruments are often restricted
securities because the securities are sold in transactions not requiring
registration. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend either on an
efficient institutional market in which such unregistered securities can be
readily resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not dispositive of the
liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the registration
requirements of the 1933 Act for resales of certain securities to qualified
institutional buyers. Institutional markets for restricted securities have
developed as a result of Rule 144A, providing both readily ascertainable values
for restricted securities and the ability to liquidate an investment to satisfy
share redemption orders. Such markets include automated systems for the trading,
clearance and settlement of unregistered securities of domestic and foreign
issuers, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc. An insufficient number of qualified institutional
buyers interested in purchasing Rule 144A-eligible restricted securities held by
the Fund, however, could affect adversely the marketability of such portfolio
securities, and the Fund might be unable to dispose of such securities promptly
or at favorable prices.
With respect to liquidity determinations generally, the Board has the ultimate
responsibility for determining whether specific securities, including restricted
securities pursuant to Rule 144A under the 1933 Act, are liquid or illiquid. The
Board has delegated the function of making day-to-day determinations of
liquidity to AIM, in accordance with procedures approved by the Board. AIM takes
into account a number of factors in reaching liquidity decisions, including (i)
the frequency of trading in the security, (ii) the number of dealers that make
quotes for the security, (iii) the number of dealers that have undertaken to
make a market in the security, (iv) the number of other potential purchasers and
(v) the nature of the security and how trading is effected (e.g., the time
needed to sell the security, how offers are solicited and the mechanics of
transfer). AIM monitors the liquidity of securities held by the Fund and
periodically reports such determinations to the Board. If the liquidity
percentage restriction of the Fund is satisfied at the time of investment, a
later increase in the percentage of illiquid securities held by the Fund
resulting from a change in market value or assets will not constitute a
violation of that restriction. If as a result of a change in market value or
assets, the percentage of illiquid securities held by the Fund increases above
the applicable limit, AIM will take appropriate steps to bring the aggregate
amount of illiquid assets back within the prescribed limitations as soon as
reasonably practicable, taking into account the effect of any disposition on the
Fund. AIM believes that carefully selected investments in joint ventures,
cooperatives, partnerships and state enterprises that are illiquid
(collectively, "Special Situations") could enable the Fund to achieve capital
appreciation substantially exceeding the appreciation it would realize if it did
not make such investments. However, in order to attempt to limit investment
risk, the Fund will invest no more than 5% of its total assets in Special
Situations.
FOREIGN SECURITIES
Political, Social and Economic Risks. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, rate of savings and capital
reinvestment, resource self sufficiency and balance of payments positions.
Investing in securities of non-U.S. companies may entail additional risks due to
the potential political,
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social and economic instability of certain countries and the risks of
expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment convertibility of currencies into U.S.
dollars and on repatriation of capital invested. In the event of such
expropriation, nationalization, confiscatory taxation or other confiscation by
any country, the Fund could lose its entire investment in any such country. In
addition, governmental regulation in certain foreign countries may impose
interest rate controls, credit controls, and price controls. These factors could
have a material effect on foreign companies and could therefore affect the
performance of the Fund.
Religious, Political and Ethnic Instability. Certain countries in which the
Fund may invest may have groups that advocate radical religious or revolutionary
philosophies or support ethnic independence. Any disturbance on the part of such
individuals could carry the potential for widespread destruction or confiscation
of property owned by individuals and entities foreign to such country and could
cause the loss of the Fund's investment in those countries. Instability may also
result from, among other things, (i) authoritarian governments or military
involvement in political and economic decision-making, including changes in
government through extra-constitutional means, (ii) popular unrest associated
with demands for improved political, economic and social conditions; and (iii)
hostile relations with neighboring or other countries. Such political, social
and economic instability could disrupt the principal financial markets in which
the Fund invests and adversely affect the value of its assets.
Foreign Investment Restrictions. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Fund. These restrictions
or controls may at times limit or preclude investments in certain securities and
may increase the cost and expenses of the Fund. For example, certain countries
require prior governmental approval before investments by foreign persons may be
made or may limit the amount of investment by foreign persons in a particular
company or limit the investment by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals. Moreover, the national policies
of certain countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some countries
require governmental approval for the repatriation of investment income, capital
or the proceeds of securities sales by foreign investors. In addition, if there
is a deterioration in a country's balance of payments or for other reasons, a
country may impose restrictions on foreign capital remittances abroad. The Fund
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
Non-Uniform Corporate Disclosure Standards and Governmental Regulation.
Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most of the foreign securities held by the Fund will not
be registered with the SEC or regulators of any foreign country, nor will the
issuers thereof be subject to the SEC's reporting requirements. Thus, there will
be less available information concerning most foreign issuers of securities held
by the Fund than is available concerning U.S. issuers. In instances where the
financial statements of an issuer are not deemed to reflect accurately the
financial situation of the issuer, the Sub-advisor will take appropriate steps
to evaluate the proposed investment, which may include on-site inspection of the
issuer, interviews with its management and consultations with accountants,
bankers and other specialists. There is substantially less publicly available
information about foreign companies than there are reports and ratings published
about U.S. companies. In addition, where public information is available, it may
be less reliable than such information regarding U.S. issuers. Issuers of
securities in foreign jurisdictions are generally not subject to the same degree
of regulation as are U.S. issuers with respect to such matters as restrictions
on market manipulation, insider trading rules, shareholder proxy requirements
and timely disclosure of information.
Currency Fluctuations. Because the Fund, under normal circumstances, will
invest a substantial portion of its total assets in the securities of foreign
issuers that are denominated in foreign currencies, the strength or weakness of
the U.S. dollar against such foreign currencies will account for part of the
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Fund's investment performance. A decline in the value of any particular currency
against the U.S. dollar will cause a decline in the U.S. dollar value of the
Fund's holdings of securities and cash denominated in that currency and,
therefore, will cause an overall decline in its net asset value and any net
investment income and capital gains derived from such securities to be
distributed in U.S. dollars to the shareholders. Moreover, if the value
of the foreign currencies in which the Fund receives its income falls relative
to the U.S. dollar between receipt of the income and the making of
distributions, the Fund may be required to liquidate securities if it has
insufficient cash in U.S. dollars to meet distribution requirements.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors, including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the relative
movement of interest rates and the pace of business activity in the other
countries and the United States, and other economic and financial conditions
affecting the world economy.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, and Spain are members of the European Economic and
Monetary Union (the "EMU"). The EMU has established a common European currency
for participating countries which is known as the "euro." Each participating
country supplemented its existing currency with the euro on January 1, 1999, and
will replace its existing 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 after January 1, 1999.
The introduction of the euro presents unique risks and uncertainties,
including how outstanding financial contracts will be treated after January 1,
1999; the establishment of exchange rates for existing currencies and the euro;
and the creation of suitable clearing and settlement systems for the euro. These
and other factors could cause market disruptions and could adversely affect the
value of securities held by the Fund.
Although the Fund values its assets daily in terms of U.S. dollars, the Fund
does not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund will do so, from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
sell that currency to the dealer.
Adverse Market Characteristics. Securities of many foreign issuers may be less
liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the United
States, and foreign securities transactions usually are subject to fixed
commissions, which generally are higher than negotiated commissions on U.S.
transactions. In addition, foreign securities transactions may be subject to
difficulties associated with the settlement of such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause it to miss
attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. AIM will consider such difficulties when determining
the allocation of the Fund's assets, although AIM does not believe that such
difficulties will have a material adverse effect on the Fund's portfolio trading
activities.
The Fund may use foreign custodians, which may charge higher custody fees than
those attributable to domestic investing and may involve risks in addition to
those related to its use of U.S. custodians. Such risks include uncertainties
relating to (1) determining and monitoring the foreign custodian's financial
strength, reputation and standing, (2) maintaining appropriate safeguards
concerning
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the Fund's investments, and (3) possible difficulties in obtaining
and enforcing judgments against such custodians.
Withholding Taxes. The Fund's net investment income from securities of foreign
issuers may be subject to withholding taxes by the foreign issuer's country,
thereby reducing that income or delaying the receipt of income when those taxes
may be recaptured. See "Dividends, Distributions and Tax Matters."
Concentration. To the extent the Fund invests a significant portion of its
assets in securities of issuers located in a particular country or region of the
world, it may be subject to greater risks and may experience greater volatility
than the Fund that is more broadly diversified geographically.
Special Considerations Affecting Western European Countries. The countries
that are members of the European Economic Community ("Common Market") (Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, Sweden and the United Kingdom) eliminated
certain import tariffs and quotas and other trade barriers with respect to one
another over the past several years. AIM believes that this deregulation should
improve the prospects for economic growth in many Western European countries.
Among other things, the deregulation could enable companies domiciled in one
country to avail themselves of lower labor costs existing in other countries. In
addition, this deregulation could benefit companies domiciled in one country by
opening additional markets for their goods and services in other countries.
Since, however, it is not clear what the exact form or effect of these Common
Market reforms will be on business in Western Europe, it is impossible to
predict the long-term impact of the implementation of these programs on the
securities owned by the Fund.
Special Considerations Affecting Russia and Eastern European Countries.
Investing in Russia and Eastern European countries involves a high degree of
risk and special considerations not typically associated with investing in the
U.S. securities markets and should be considered highly speculative. Such risks
include the following: (1) delays in settling portfolio transactions and risk of
loss arising out of the system of share registration and custody; (2) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgment; (3) pervasiveness of corruption and crime in the
economic system; (4) currency exchange rate volatility and the lack of
available currency hedging instruments; (5) higher rates of inflation
(including the risk of social unrest associated with periods of
hyper-inflation) and high unemployment; (6) controls on foreign investment
and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on a fund's
ability to exchange local currencies for U.S. dollars; (7) political
instability and social unrest and violence; (8) the risk that the governments of
Russia and Eastern European countries may decide not to continue to support the
economic reform programs implemented recently and could follow radically
different political and/or economic policies to the detriment of investors,
including non-market-oriented policies such as the support of certain industries
at the expense of other sectors or investors, or a return to the centrally
planned economy that existed when such countries had a communist form of
government; (9) the financial condition of companies in these countries,
including large amounts of inter-company debt which may create a payments crisis
on a national scale; (10) dependency on exports and the corresponding importance
of international trade; (11) the risk that the tax system in these countries
will not be reformed to prevent inconsistent, retroactive and/or exorbitant
taxation; and (12) the underdeveloped nature of the securities markets.
Special Considerations Affecting Japan. Japan's economic growth has declined
significantly since 1990. The general government position has deteriorated as a
result of weakening economic growth and stimulative measures taken to support
economic activity and to restore financial stability. Although the decline in
interest rates and fiscal stimulation packages have helped to contain
recessionary forces, uncertainties remain. Japan is also heavily dependent upon
international trade, so its economy is especially sensitive to trade barriers
and disputes. Japan has had difficult relations with its trading partners,
particularly the United States, where the trade imbalance is the greatest. It is
possible that trade sanctions and other protectionist measures could impact
Japan adversely in both the short and the long term.
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The common stocks of many Japanese companies trade at high price-earnings
ratios. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially in the United States. In general, however, reported net income in
Japan is understated relative to U.S. accounting standards and this is one
reason why price-earnings ratios of the stocks of Japanese companies have tended
historically to be higher than those for U.S. stocks. In addition, Japanese
companies have tended to have higher growth rates than U.S. companies and
Japanese interest rates have generally been lower than in the United States,
both factors which tend to result in lower discount rates and higher
price-earnings ratios in Japan than in the United States.
The Japanese securities markets are less regulated than those in the United
States. Evidence has emerged from time to time of distortion of market prices to
serve political or other purposes. Shareholders' rights are not always equally
enforced. In addition, Japan's banking industry is undergoing problems related
to bad loans and declining values in real estate.
Special Considerations Affecting Pacific Region Countries. Certain of the
risks associated with international investments are heightened for investments
in Pacific region countries. For example, some of the currencies of Pacific
region countries have experienced steady devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain countries, such as India, face serious exchange constraints.
Jurisdictional disputes also exist between South Korea and North Korea. In
addition, the Fund may invest in Hong Kong, which reverted to Chinese
administration on July 1, 1997. Investments in Hong Kong may be subject to
expropriation, nationalization or confiscation, in which case the Fund could
lose its entire investment in Hong Kong. In addition, the reversion of Hong Kong
also presents a risk that the Hong Kong dollar will be devalued and a risk of
possible loss of investor confidence in Hong Kong's currency, stock market and
assets.
Special Considerations Affecting Latin American Countries. Most Latin American
countries have experienced substantial, and in some periods extremely high,
rates of inflation for many years. Inflation and rapid fluctuations in inflation
rates have had and may continue to have very negative effects on the economies
and securities markets of certain Latin American countries. Certain Latin
American countries are also among the largest debtors to commercial banks and
foreign governments. At times certain Latin American countries have declared
moratoria on the payment of principal and/or interest on external debt. In
addition, certain Latin American securities markets have experienced high
volatility in recent years.
Latin American countries may also close certain sectors of their economies to
equity investments by foreigners. Further, due to the absence of securities
markets and publicly owned corporations and due to restrictions on direct
investment by foreign entities, investments may only be made in certain Latin
American countries solely or primarily through governmentally approved
investment vehicles or companies.
Certain Latin American countries may have managed currencies that are
maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on foreign investors. For example, in late 1994, the value of the Mexican
peso lost more than one-third of its value relative to the U.S. dollar.
Special Considerations Affecting Emerging Markets. Many investments in
emerging markets are considered speculative and therefore may offer greater
return potential, but have significantly greater risk. Investing in the
securities of companies in emerging markets may entail special risks relating
to potential political and economic instability and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, convertibility of currencies into U.S. dollars and on repatriation
of capital invested. In the event of such expropriation, nationalization or
other confiscation by any country, the Fund could lose its entire investment
in any such country.
Emerging securities markets are substantially smaller, less developed, less
liquid and more volatile than the major securities markets. The limited size of
emerging securities markets and limited
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trading value in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that affect
the quality of the securities. For example, limited market size may cause
prices to be unduly influenced by traders who control large positions. Adverse
publicity and investors' perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of portfolio securities,
especially in these markets. In addition, securities traded in certain
emerging markets may be subject to risks due to the inexperience of financial
intermediaries, a lack of modern technology, the lack of a sufficient capital
base to expand business operations, and the possibility of permanent or
temporary termination of trading.
Settlement mechanisms in emerging securities markets may be less efficient and
reliable than in more developed markets. In such emerging securities there may
be share registration and delivery delays or failures.
Many emerging market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates and corresponding currency devaluations have had
and may continue to have negative effects on the economies and securities
markets of certain emerging market countries.
INVESTMENT LIMITATIONS
INVESTMENT LIMITATIONS OF THE FUND
The following fundamental limitations of the Fund cannot be changed without
the affirmative vote of a majority of the outstanding shares of the Fund.
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 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 will not make investments that will result in the concentration
(as that term may be defined or interpreted by the 1940 Act Laws,
Interpretations and Exemptions of its investments in the securities of
issuers primarily engaged in the same industry. This restriction does not
limit the Fund's investment in (i) obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities, (ii) tax-exempt
obligations issued by government or political subdivisions of governments,
or (iii) bank instruments. In complying with this restriction, the Fund
will not consider a bank-issued guaranty or financial guaranty insurance as
a separate security.
3. The Fund may, notwithstanding any other fundamental investment policy or
limitation, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objectives, policies and limitations as the Fund.
4. The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions.
5. 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.
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6. 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.
7. The Fund may not make personal loans or loans to persons who control or are
under the 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 purchasing debt obligations, entering into repurchase
agreements, loaning its assets to broker-dealers or institutional
investors, or investing in loans, including assignments and participation
interests.
8. The Fund will not purchase or sell physical commodities unless acquired as
a result of owning securities or other instruments, but the Fund may
purchase, sell or enter into financial options and futures, forward and
spot currency contracts, swap transactions and other financial contracts or
derivative instruments.
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 Fund follows internal guidelines
relating to certain of these restrictions which the adviser must follow in
managing the Fund. Any changes to these guidelines, which are set forth below,
require the approval of the Board of Trustees.
1. In complying with the diversification restriction set forth in (1) above,
the Fund will not, with respect to 75% of its total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities). If, as a
result, (i) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (ii) the fund would hold more than 10% of
the outstanding voting securities of that issuer. The fund may (i) purchase
securities of other investment companies as permitted by Section 12(d)(1)
of the 1940 Act and (ii) invest its assets in securities of other money
market funds and lend money to other investment companies and their series
portfolios that have AIM as an investment adviser, subject to the terms and
conditions of any exemptive orders issued by the SEC.
2. In complying with the concentration restriction set forth in (2) above,
the Fund may invest up to 25% of its total assets in the securities of
issuers whose principal business activities are in the same industry.
3. Notwithstanding the restriction set forth in (3) above, the Fund may not
invest all of its assets in the securities of a single open-end management
investment company with the same fundamental investment objectives,
policies and limitations as the Fund.
4. In complying with the borrowing restriction set forth in (4) above, the
Fund may borrow money in an amount not exceeding 33% of its total assets
(including the amount borrowed) less liabilities (other than borrowings).
The Fund may borrow from banks, broker/dealers or other investment
companies or their series portfolios that have AIM or an affiliate of AIM
as an investment adviser (an "AIM Fund"). The Fund may not borrow for
leveraging, but may borrow for temporary or emergency purposes, in
anticipation of or in response to adverse market conditions, or for cash
management purposes. The Fund may not purchase additional securities when
any borrowing from banks exceed 5% of the Fund's total assets.
5. In complying with the lending restrictions set forth in (7) above, the Fund
may lend up to 33% of its total assets and may lend money to another AIM
Fund, on such terms and conditions as the SEC may require in an exemptive
order.
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6. The Fund will not invest more than 15% of its net assets in illiquid
securities, a term which means securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the amount
at which the Fund has valued the securities and includes, among other
things, repurchase agreements maturing in more than seven days;
7. The Fund will not purchase portfolio securities while borrowings in excess
of 5% of its total assets are outstanding;
8. The Fund will not purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions and except that
the Fund may make margin deposits in connection with its use of financial
options and futures, forward and spot currency contracts, swap transactions
and other financial contract or derivative instruments;
9. The Fund will not engage in short sales of securities or maintain a short
position, except that the Fund may maintain short positions in connection
with its use of financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments; or
10. The Fund will not purchase securities of other investment companies,
except to the extent permitted by the 1940 Act Laws, Interpretations and
Exemptions and except that this limitation does not apply to securities
received or acquired as dividends, through offers of exchange, or as a
result of reorganization, consolidation, or merger.
If a percentage restriction on investment or utilization of assets in an
investment policy or restriction is adhered to at the time an investment is
made, a later change in percentage ownership of a security or kind of securities
resulting from changing market values or a similar type of event will not be
considered a violation of the Fund's investment policies or restrictions. The
Fund may exchange securities, exercise conversion or subscription rights,
warrants or other rights to purchase common stock or other equity securities and
may hold, except to the extent limited by the 1940 Act, any such securities so
acquired without regard to the Fund's investment policies and restrictions. The
original cost of the securities so acquired will be included in any subsequent
determination of the Fund's compliance with the investment percentage
limitations referred to above and in the Prospectus.
EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by the Board, AIM is responsible for the
execution of the Fund's securities transactions and the selection of
broker/dealers who execute such transactions on behalf of the Fund. In executing
transactions, AIM seeks the best net results for the Fund, taking into account
such factors as the price (including the applicable brokerage commission or
dealer spread), size of the order, difficulty of execution and operational
facilities of the firm involved. Although AIM generally seeks reasonably
competitive commission rates and spreads, payment of the lowest commission or
spread is not necessarily consistent with the best net results. While the Fund
may engage in soft dollar arrangements for research services, as described
below, it has no obligation to deal with any broker/dealer or group of
broker/dealers in the execution of portfolio transactions.
Consistent with the interests of the Fund, AIM may select broker/dealers to
execute the Fund's portfolio transactions on the basis of the research and
brokerage services they provide to AIM for its use in managing the Fund and its
other advisory accounts. Such services may include furnishing analyses, reports
and information concerning issuers, industries, securities, geographic regions,
economic factors and trends, portfolio strategy, and performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). Research and brokerage services
received from such broker are in addition to, and not in lieu of, the services
required to be performed by AIM under investment advisory contracts. A
commission paid to such broker may be higher than that which another qualified
broker would have charged for effecting the same transaction, provided that AIM
determines in good faith that such commission is reasonable in terms either of
that particular
32
<PAGE> 56
transaction or the overall responsibility of AIM to the Fund and its other
clients and that the total commissions paid by the Fund will be reasonable in
relation to the benefits it receives over the long term. Research services
may also be received from dealers who execute portfolio transactions in OTC
markets.
AIM may allocate brokerage transactions to broker/dealers who have entered
into arrangements under which the broker/dealer allocates a portion of the
commissions paid by the Fund toward payment of its expenses, such as custodian
fees.
Investment decisions for the Fund and for other investment accounts managed by
AIM are made independently of each other in light of differing conditions.
However, the same investment decision occasionally may be made for two or more
of such accounts, including the Fund. In such cases, simultaneous transactions
may occur. Purchases or sales are then allocated as to price or amount in a
manner deemed fair and equitable to all accounts involved. While in some cases
this practice could have a detrimental effect upon the price or value of the
security as far as the Fund is concerned, in other cases AIM believes that
coordination and the ability to participate in volume transactions will be
beneficial to the Fund.
Under a policy adopted by the Board, and subject to the policy of obtaining
the best net results, AIM may consider a broker/dealer's sale of the shares of
the Fund and the other portfolios for which AIM serves as investment manager or
administrator in selecting broker/ dealers for the execution of portfolio
transactions. This policy does not imply a commitment to execute portfolio
transactions through all broker/dealers that sell shares of the Fund and such
other portfolios.
The Fund contemplates purchasing most foreign equity securities in OTC markets
or stock exchanges located in the countries in which the respective principal
offices of the issuers of the various securities are located, if that is the
best available market. The fixed commissions paid in connection with most such
foreign stock transactions generally are higher than negotiated commissions on
U.S. transactions. There generally is less government supervision and regulation
of foreign stock exchanges and brokers than in the United States. Foreign
security settlements may in some instances be subject to delays and related
administrative uncertainties.
Foreign equity securities may be held by the Fund in the form of ADRs, ADSs,
EDRs, CDRs or securities convertible into foreign equity securities. ADRs, ADSs,
EDRs and CDRs may be listed on stock exchanges, or traded in the OTC markets in
the United States or Europe, as the case may be. ADRs, like other securities
traded in the United States, will be subject to negotiated commission rates. The
foreign and domestic debt securities and money market instruments in which the
Fund may invest are generally traded in the OTC markets.
The Fund does not have any obligation to deal with any broker/dealer or group
of broker/dealers in the execution of securities transactions. The Fund
contemplates that, consistent with the policy of obtaining the best net results,
brokerage transactions may be conducted through certain companies that are
affiliated with AIM. The Board has adopted procedures in conformity with Rule
17e-1 under the 1940 Act to ensure that all brokerage commissions paid to such
affiliates are reasonable and fair in the context of the market in which they
are operating. Any such transactions will be effected and related compensation
paid only in accordance with applicable SEC regulations.
The Fund may engage in certain principal and agency transactions with banks
and their affiliates that own 5% or more of the outstanding voting securities of
the Fund, provided the conditions of an exemptive order received by the Fund
from the SEC are met. In addition, the Fund may purchase or sell a security from
or to another AIM Fund provided the Fund follows procedures adopted by the
Boards of Directors/Trustees of the various AIM Funds, including the Trust.
These inter-fund transactions do not generate brokerage commissions but may
result in custodial fees or taxes or other related expenses.
33
<PAGE> 57
PORTFOLIO TURNOVER
Although the Fund does not intend generally to trade for short-term profits,
the securities held by the Fund will be sold whenever management believes it is
appropriate to do so, without regard to the length of time a particular security
may have been held. Portfolio turnover rate is calculated by dividing the lesser
of sales or purchases of portfolio securities by the Fund's average month-end
portfolio value, excluding short-term investments. The portfolio turnover rate
will not be a limiting factor when management deems portfolio changes
appropriate. Higher portfolio turnover involves correspondingly greater
brokerage commissions and other transaction costs that the Fund will bear
directly, and may result in the realization of net capital gains that are
taxable when distributed to the Fund's shareholders.
Prior to August 27, 1999, the Fund invested substantially all of its assets in
the AIM Theme Funds and periodically rebalanced its investments among those
funds. For the fiscal year ended December 31, 1998 and the period of September
15, 1997 through December 31, 1997, the portfolio turnover rates were 28% and
1%, respectively.
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Trustees and Executive Officers are listed below. Unless otherwise
indicated, the address of each Executive Officer is 11 Greenway Plaza, Suite
100, Houston, Texas 77046.
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION DURING AT LEAST THE
NAME, ADDRESS AND AGE WITH REGISTRANT PAST 5 YEARS
- -------------------------- ------------------------ ----------------------------------------------------
<S> <C> <C>
*ROBERT H. GRAHAM, (52) Trustee, Chairman of the Director, President and Chief Executive Officer,
Board and President A I M Management Group Inc.; Director and President,
A I M Advisors, Inc.; Director and Senior Vice
President, A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc. and
Fund Management Company; and Director, AMVESCAP PLC
C. DEREK ANDERSON, (57) Trustee President, Plantagenet Capital Management, LLC (an
220 Sansome Street investment partnership); Chief Executive Officer,
Suite 400 Plantagenet Holdings, Ltd. (an investment banking
San Francisco, CA 94104 firm); Director, Anderson Capital Management, Inc.
since 1988; Director, PremiumWear, Inc. (formerly
Munsingwear, Inc.) (a casual apparel company); and
Director, 'R' Homes, Inc. and various other
companies.
FRANK S. BAYLEY, (59) Trustee Partner, law firm of Baker & McKenzie; and Director
Two Embarcadero Center and Chairman, C.D. Stimson Company (a private
Suite 2400 investment company).
San Francisco, CA 94111
</TABLE>
- ---------------------
* A trustee who is an "interested person" of the Trust and AIM as defined in
1940 Act.
34
<PAGE> 58
<TABLE>
<CAPTION>
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST
NAME, ADDRESS AND AGE REGISTRANT THE PAST 5 YEARS
- -------------------------- ------------------------ ----------------------------------------------------
<S> <C> <C>
ARTHUR C. PATTERSON, (55) Trustee Managing Partner, Accel Partners (a venture capital
428 University Avenue firm); and Director, Viasoft and PageMart, Inc.
Palo Alto, CA 94301 (both public software companies) and several other
privately held software and communications
companies.
RUTH H. QUIGLEY, (64) Trustee Private investor; and President, Quigley Friedlander
1055 California Street & Co., Inc. (a financial advisory services firm)
San Francisco, CA 94108 from 1984 to 1986.
MELVILLE B. COX, (55) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services, Inc.
and Fund Management Company.
GARY T. CRUM, (51) Vice President Director and President, A I M Capital Management,
Inc.; Director and Senior Vice President, A I M
Management Group Inc. and A I M Advisors, Inc.; and
Director, A I M Distributors, Inc. and AMVESCAP PLC.
CAROL F. RELIHAN, (44) Vice President Director, Senior Vice President, General Counsel and
Secretary, A I M Advisors, Inc.; Senior Vice
President, General Counsel and Secretary, A I M
Management Group Inc.; Director, Vice President and
General Counsel, Fund Management Company; Vice
President and General Counsel, A I M Fund Services,
Inc.; and Vice President, A I M Capital Management,
Inc. and A I M Distributors, Inc.
SAMUEL D. SIRKO, (39) Vice President and Assistant General Counsel and Assistant Secretary of
Secretary A I M Management Group Inc., A I M Capital
Management Inc., A I M Distributors, Inc., A I M
Fund Services, Inc., and Fund Management Company;
and Vice President, Assistant General Counsel and
Assistant Secretary of A I M Advisors, Inc.
</TABLE>
35
<PAGE> 59
<TABLE>
<S> <C> <C>
DANA R. SUTTON, (40) Vice President and Vice President and Fund Controller, A I M Advisors,
Treasurer Inc.; and Assistant Vice President and Assistant
Treasurer, Fund Management Company.
</TABLE>
- ---------------
The Board of Trustees has a Nominating and Audit Committee, comprised of Miss
Quigley and Messrs. Anderson, Bayley and Patterson, which is responsible for
nominating persons to serve as Trustees, reviewing audits of the Trust and its
funds and recommending firms to serve as independent auditors of the Trust. All
of the Trust's Trustees also serve as directors or trustees of some or all of
the other investment companies managed, administered or advised by AIM. All of
the Trust's executive officers hold similar offices with some or all of the
other investment companies managed, administered or advised by AIM. Each Trustee
who is not a director, officer or employee of AIM or any other affiliated
company is paid an annual retainer component, plus a per-meeting fee component
and reimbursed travel and other expenses incurred in connection with attendance
at such meetings.
For the fiscal year ended December 31, 1998, Mr. Anderson, Mr. Bayley, Mr.
Patterson and Ms. Quigley, who are not directors, officers or employees of AIM
or any affiliated company, received total compensation of $7,700, $7,100, $7,400
and $7,700, respectively, from the Trust for their services as Trustees. For the
fiscal year ended December 31, 1998, Mr. Anderson, Mr. Bayley, Mr. Patterson and
Miss Quigley, who are not directors, officers or employees of AIM or any other
affiliated company, received total compensation of $106,850, $90,650, $98,600
and $99,500, respectively, from the investment companies managed or administered
by AIM for which he or she served as a Trustee. Fees and expenses disbursed to
the Trustees contained no accrued or payable pension or retirement benefits.
Other Trustees and officers receive no compensation or expense reimbursement
from the Trust. As of June 21, 1999, the Trustees and officers of the Trust, as
a group, owned less than 1% of the outstanding shares of any class of the Trust.
MANAGEMENT SERVICES RELATING TO THE FUND
AIM was organized in 1976, and along with its subsidiaries, manages or
advises approximately 125 investment portfolios encompassing a broad range of
investment objectives.
AIM is a direct, wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), a holding company that has been engaged in the financial services
business since 1976. AIM is the sole shareholder of the Funds' principal
underwriter, AIM Distributors.
AIM Management is an indirect wholly owned subsidiary of AMVESCAP PLC, 11
Devonshire Square, London, EC2M 4YR, England. AMVESCAP PLC and its subsidiaries
are independent investment management groups that have a significant presence in
the institutional and retail segment of the investment management industry in
North America and Europe, and a growing presence in Asia.
In addition to the investment resources of their Houston office, AIM draws
upon the expertise, personnel, data and systems of other offices in Atlanta,
Boston, Dallas, Denver, Louisville, Miami, Portland (Oregon), Frankfurt, Hong
Kong, London, Singapore, Sydney, Tokyo and Toronto. In managing the Fund, the
Advisor employs a team approach, taking advantage of its investment resources
around the world.
AIM serves as the Fund's investment manager under an investment management
contract between the Trust and AIM ("Master Investment Advisory Agreement," the
"Agreement"). As investment
36
<PAGE> 60
manager, AIM makes all investment decisions for the Fund, and, as administrator,
administers the Fund's affairs. Among other things, AIM furnishes the services
and pays the compensation and travel expenses of persons who perform the
executive, administrative, clerical and bookkeeping functions of the Fund and
provides suitable office space, necessary small office equipment and utilities.
The Agreement may be renewed with respect to the Fund for additional one-year
terms, provided that any such renewal has been specifically approved at least
annually by (i) the Fund's Board of Trustees or the vote of a majority of the
Fund's outstanding voting securities (as defined in the 1940 Act) and (ii) a
majority of Trustees who are not parties to the Agreement or "interested
persons" of any such party (as defined in the 1940 Act), cast in person at a
meeting called for the specific purpose of voting on such approval. The
Agreement and the Administration Contract provide that with respect to the Fund,
either the Trust or AIM may terminate either the Agreement or the Administration
Contract without penalty upon sixty days' written notice to the other party. The
Agreement terminates in the event of its assignment (as defined in the 1940
Act).
For investment advisory services, the Fund pays AIM fees, computed daily and
paid monthly, based on its average daily net assets, at the annualized rate of
0.975% on the first $500 million, 0.95% on the next $500 million, 0.925% on the
next $500 million and 0.90% on the amounts thereafter. The investment advisory
fees paid by the Fund are higher than those paid by most mutual funds. AIM has
undertaken to limit the Fund's expenses (exclusive of brokerage commissions,
taxes, interest and extraordinary expenses) to the annual rate of 2.00%, 2.50%
and 2.50% of the average daily net assets of the Fund's Class A, Class B and
Class C shares, respectively, until June 30, 2000.
AIM may from time to time further 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.
AIM also serves as administrator to the Fund under a Master Administrative
Services Agreement between the Trust and AIM ("Administration Contract").
EXPENSES OF THE FUND
The Fund pays all expenses not assumed by AIM, AIM Distributors and other
agents. These expenses include, in addition to the investment advisory fees
discussed above, administration, distribution, transfer agency, pricing and
accounting agency and brokerage fees, legal and audit expenses, custodian fees,
trustees' fees, organizational fees, fidelity bond and other insurance premiums,
taxes, extraordinary expenses and expenses of reports and prospectuses sent to
existing investors. Expenditures, including costs incurred in connection with
the purchase or sale of portfolio securities, which are capitalized in
accordance with generally accepted accounting principles applicable to
investment companies, are accounted for as capital items and not as expenses.
The ratio of the Fund's expenses to its relative net assets can be expected to
be higher than the expense ratios of funds investing solely in domestic
securities, since the cost of maintaining the custody of foreign securities and
the rate of investment management fees paid by the Fund generally are higher
than the comparable expenses of such other funds.
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN
The Trust has adopted a Master Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act relating to the Class A and Class C shares of the Fund (the "Class
A and C Plan"). The Class A and C Plan provides that the Class A shares pay
0.50% per annum of their average daily net assets as compensation to AIM
Distributors for the purpose of financing any activity which is primarily
intended to
37
<PAGE> 61
result in the sale of Class A shares. Under the Class A and C Plan, Class C
shares of the Fund pay compensation to AIM Distributors at an annual rate
of 1.00% of the average daily net assets attributable to Class C shares.
Activities appropriate for financing under the Class A and C Plan include, but
are not limited to, the following: printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
overhead; preparation and distribution of advertising material and sales
literature; expenses of organizing and conducting sales seminars; supplemental
payments to dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements; and costs of
administering the Class A and C Plan.
The Class A and C Plan is designed to compensate AIM Distributors, on a
quarterly basis, for certain promotional and other sales-related costs, and to
implement a dealer incentive program which provides for periodic payments to
selected dealers who furnish continuing personal shareholder services to their
customers who purchase and own Class A or Class C shares of the Fund. Payments
can also be directed by AIM Distributors to selected institutions who have
entered into service agreements with respect to Class A and Class C shares of
the Fund and who provide continuing personal services to their customers who own
Class A and Class C shares of the Fund. The service fees payable to selected
institutions are calculated at the annual rate of 0.25% of the average daily net
asset value of those Fund shares that are held in such institution's customers'
accounts which were purchased on or after a prescribed date set forth in the
Class A and C Plan.
Of the aggregate amount payable under the Class A and C Plan, payments to
dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund,
in amounts of up to 0.25% of the average net assets of the Fund attributable to
the customers of such dealers or financial institutions are characterized as a
service fee, and payments to dealers and other financial institutions in excess
of such amount and payments to AIM Distributors would be characterized as an
asset-based sales charge pursuant to the Class A and C Plan. The Class A and C
Plan also imposes a cap on the total amount of sales charges, including
asset-based sales charges, that may be paid by the Trust with respect to the
Fund. The Class A and C Plan does not obligate the Fund to reimburse AIM
Distributors for the actual expenses AIM Distributors may incur in fulfilling
its obligations under the Class A and C Plan on behalf of the Fund. Thus, under
the Class A and C Plan, 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.
THE CLASS B PLAN
The Trust has also adopted a Master Distribution Plan pursuant to Rule 12b-1
under the 1940 Act relating to Class B shares of the Fund (the "Class B Plan,"
and collectively with the Class A and C Plan, the "Plans"). Under the Class B
Plan, the Fund pays compensation to AIM Distributors at an annual rate of 1.00%
of the average daily net assets attributable to Class B shares. Of such amount,
the Fund pays a service fee of 0.25% of the average daily net assets
attributable to Class B shares to selected dealers and other institutions which
furnish continuing personal shareholder services to their customers who purchase
and own Class B shares. Amounts paid in accordance with the Class B Plan may be
used to finance any activity primarily intended to result in the sale of Class B
shares, including but not limited to printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
overhead; preparation and distribution of advertising material and sales
literature; expenses of organizing and conducting sales seminars; supplemental
payments to dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements; and costs of
administering the Class B Plan.
BOTH PLANS
Pursuant to an incentive program, AIM Distributors may enter into agreements
("Shareholder Service Agreements") with investment dealers selected from time to
time by AIM Distributors for the provision of distribution assistance in
connection with the sale of the Fund's shares to such dealers' customers, and
for the provision of continuing personal shareholder services to customers who
may from time to time directly or beneficially own shares of the Funds. The
distribution assistance and continuing
38
<PAGE> 62
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 the several special investment plans
offered in connection with the purchase of the Fund's shares; assisting in the
establishment and maintenance of customer accounts and records and in the
processing of purchase and redemption transactions; investing dividends and any
capital gains distributions automatically in the Fund's shares; and providing
such other information and services as the Fund or the customer may reasonably
request.
Under the Plans, in addition to the Shareholder Service Agreements authorizing
payments to selected dealers, banks may enter into Shareholder Service
Agreements authorizing payments under the Plans to be made to banks which
provide services to their customers who have purchased shares. Services provided
pursuant to Shareholder Service Agreements with banks may include some or all of
the following: answering shareholder inquiries regarding the Fund, performing
sub-accounting; establishing and maintaining shareholder accounts and records;
processing customer purchase and redemption transactions; providing periodic
statements showing a shareholder's account balance and the integration of such
statements with those of other transactions and balances in the shareholder's
other accounts serviced by the bank; forwarding applicable prospectuses, proxy
statements, reports and notices to bank clients who hold Fund shares;
and such other administrative services as the Fund reasonably may request, to
the extent permitted by applicable statute, rule or regulation. Similar
agreements may be permitted under the Plans for institutions which provide
recordkeeping for and administrative services to 401(k) plans.
Financial intermediaries and any other person entitled to receive compensation
for selling Fund shares may receive different compensation for selling shares of
one particular class over another.
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 or acquired
through exchange. Fees calculated in this manner shall be paid only to those
selected dealers or other institutions who are dealers or institutions of record
at the close of business on the last business day of the applicable payment
period for the account in which the Fund's shares are held.
Payments pursuant to the Plans are subject to any applicable limitations
imposed by rules of the National Association of Securities Dealers, Inc.
("NASD"). The Plans conform to rules of the NASD by limiting payments made to
dealers and other financial institutions who provide continuing personal
shareholder services to their customers who purchase and own shares of the Fund
to no more than 0.25% per annum of the average daily net assets of the funds
attributable to the customers of such dealers or financial institutions, and by
imposing a cap on the total sales charges, including asset based sales charges,
that may be paid by the Fund and its respective classes.
AIM Distributors may from time to time waive or reduce any portion of its
12b-1 fee for Class A shares and Class C shares. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM Distributors will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Fund's detriment during the
period stated in the agreement between AIM Distributors and the Fund.
Under the Plans, certain financial institutions which have entered into
service agreements and which sell shares of the Fund on an agency basis, may
receive payments from the Funds, pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent for the Fund, in
making dealer incentive and shareholder servicing payments under the Plans.
These payments are an obligation of the Fund and not of AIM Distributors.
Financial intermediaries and any other person entitled to receive
39
<PAGE> 63
compensation for selling Fund shares may receive different compensation for
selling shares of one class over another.
Prior to June 1, 1998, the Fund had a different Rule 12b-1 plan, which
operated as a "reimbursement-type" plan (the "Prior Plan") and provided for
payments to GT Global Inc., the distributor of the Fund at the time the Prior
Plan was in effect.
For the fiscal period ended December 31, 1998, the Fund paid the following
amounts under the Prior Plan and the current plan:
<TABLE>
<CAPTION>
% OF CLASS AVERAGE DAILY
NET ASSETS
---------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Prior Plan...................................... $40,450 $102,970 $ 512 0.50% 1.00% 1.00%
Current Plan.................................... $58,122 $155,976 $1,568 0.50% 1.00% 1.00%
</TABLE>
An estimate of fees by category paid by the Fund with regard to Class A, Class
B and Class C shares during the fiscal period ended December 31, 1998 follows:
<TABLE>
<S> <C>
CLASS A
Advertising............................................... $ 20,386
Printing and Mailing prospectuses, semi-annual reports and
annual reports (other than to current shareholders).... $ 1,582
Seminars.................................................. 0
Compensation to Underwriters to partially offset other
marketing expenses..................................... 0
Compensation to Dealers including Finder's Fees........... $ 76,604
Compensation to Sales Personnel........................... 0
CLASS B
Advertising............................................... $ 1,756
Printing and Mailing prospectuses, semi-annual reports and
annual reports (other than to current shareholders).... $ 166
Seminars.................................................. $ 385
Compensation to Underwriters to partially offset other
marketing expenses..................................... $194,210
Compensation to Dealers................................... $ 62,429
Compensation to Sales Personnel........................... 0
CLASS C
Advertising............................................... $ 481
Printing and Mailing prospectuses, semi-annual reports and
annual reports (other than to current shareholders).... 0
Seminars.................................................. 0
Compensation to Underwriters.............................. $ 1,560
Compensation to Dealers................................... $ 39
Compensation to Sales Personnel........................... 0
</TABLE>
The Plans require AIM Distributors to provide the Board of Trustees at least
quarterly with a written report of the amounts expended pursuant to the Plans
and the purposes for which such expenditures were made. The Board of Trustees
reviews these reports in connection with their decisions with respect to the
Plans.
40
<PAGE> 64
As required by Rule 12b-1, the Plans and related forms of Shareholder Service
Agreements were approved by the Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust and who have no direct or indirect financial interest in the operation of
the Plans or in any agreements related to the Plans ("Qualified Trustees"). In
approving the Plans in accordance with the requirements of Rule 12b-1, the
trustees considered various factors and determined that there is a reasonable
likelihood that the Plans would benefit each class of the Fund and their
respective shareholders.
The Plans do not obligate the Fund to reimburse AIM Distributors for the
actual expenses AIM Distributors may incur in fulfilling its obligations under
the Plans. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Fund will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less than
the fee it receives, AIM Distributors will retain the full amount of the fee.
Unless terminated earlier in accordance with their terms, the Plans continue
in effect from year to year thereafter, as long as such continuance is
specifically approved at least annually by the Board of Trustees, including a
majority of the Qualified Trustees.
The Plans may be terminated by the vote of a majority of the Qualified
Trustees, or, with respect to a particular class, by the vote of a majority of
the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
it may be amended by the Trustees, including a majority of the Qualified
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Qualified Trustees is committed to the discretion of the
Qualified Trustees. In the event the Class A and C Plan is amended in a manner
which the Board of Trustees determines would materially increase the charges
paid under the Class A and C Plan, the Class B shares of the Fund will no longer
convert into Class A shares of the same Fund unless the Class B shares, voting
separately, approve such amendment. If the Class B shareholders do not approve
such amendment, the Board of Trustees will (i) create a new class of shares of
the Fund which is identical in all material respects to the Class A shares as
they existed prior to the implementation of the amendment and (ii) ensure that
the existing Class B shares of the Fund will be exchanged or converted into such
new class of shares no later than the date the Class B shares were scheduled to
convert into Class A shares.
The principal differences between the Class A and C Plan, on the one hand, and
the Class B Plan, on the other hand, are: (i) the Class A and C Plan allows
payment to AIM Distributors or to dealers or financial institutions of up to
0.50% of average daily net assets of the Class A shares of the Fund, as compared
to 1.00% of such assets of the Fund's Class B shares; (ii) the Class B Plan
obligates the Class B shares to continue to make payments to AIM Distributors
following termination of the Class B shares Distribution Agreement with respect
to Class B shares sold by or attributable to the distribution efforts of AIM
Distributors and its predecessor, GT Global, Inc. unless there has been a
complete termination of the Class B Plan (as defined in such Plan) and (iii) the
Class B Plan expressly authorizes AIM Distributors to assign, transfer or pledge
its rights to payments pursuant to the Class B Plan.
THE DISTRIBUTOR
Information concerning AIM Distributors and the continuous offering of the
Fund's shares is set forth in the Prospectus under the headings "How to Purchase
Shares" and "Terms and Conditions of Purchase of the AIM Funds." Master
Distribution Agreements with AIM Distributors relating to the Class A, Class B
and Class C shares of the Funds were approved by the Board of Directors on May
7, 1998. Both such Master Distribution Agreements are hereinafter collectively
referred to as the "Distribution Agreements."
41
<PAGE> 65
The Distribution Agreements provide that AIM Distributors will bear the
expenses of printing from the final proof and distributing the Fund's
prospectuses and statements of additional information relating to public
offerings made by AIM Distributors pursuant to the Distribution Agreements
(other than those prospectuses and statements of additional information
distributed to existing shareholders of the Fund), and any promotional or sales
literature used by AIM Distributors or furnished by AIM Distributors to dealers
in connection with the public offering of the Fund's shares, including expenses
of advertising in connection with such public offerings. AIM Distributors has
not undertaken to sell any specified number of shares of any classes of the
Fund.
AIM Distributors expects to pay sales commissions from its own resources to
dealers and institutions who sell Class B and Class C shares of the Funds at the
time of such sales. Payments with respect to Class B shares will equal 4.0% of
the purchase price of the Class B shares sold by the dealer or institution, and
will consist of a sales commission equal to 3.75% of the purchase price of the
Class B shares sold plus an advance of the first year service fee of 0.25% with
respect to such shares. The portion of the payments to AIM Distributors under
the Class B Plan which constitutes an asset-based sales charge (0.75%) is
intended in part to permit AIM Distributors to recoup a portion of such sales
commissions plus financing costs. AIM Distributors anticipates that it will
require a number of years to recoup from Class B Plan payments the sales
commissions paid to dealers and institutions in connection with sales of Class B
shares. In the future, if multiple distributors serve the Fund, each such
distributor (or its assignee or transferee) would receive a share of the
payments under the Class B Plan based on the portion of the Fund's Class B
shares sold by or attributable to the distribution efforts of that distributor.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the Fund at the time of such sales. Payments with respect
to Class C shares will equal 1.00% of the purchase price of the Class C shares
sold by the dealer or institution, and will consist of a sales commission of
0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will make such
payments quarterly to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record.
The Trust (on behalf of any class of the Fund) or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors and its predecessor; provided,
however, that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments by the Fund of asset based distribution fees
and service fees to AIM Distributors. Termination of the Class B Plan or
Distribution Agreement does not affect the obligation of the Class B
shareholders to pay contingent deferred sales charges.
From time to time, AIM Distributors may transfer and sell its right to
payments under the Distribution Agreement relating to Class B Shares in order to
finance distribution expenditures in respect of Class B Shares.
The following chart reflects the total sales charges paid in connection with
the sale of Class A shares of the Fund and the amount retained by GT Global,
Inc., the Fund's distributor prior to June 1, 1998, for the fiscal period ended
December 31, 1998.
42
<PAGE> 66
<TABLE>
<CAPTION>
JANUARY 1, 1998 TO
JUNE 1, 1998
------------------
SALES AMOUNT
CHARGES RETAINED
------- --------
<S> <C> <C>
AIM Global Trends Fund...................................... $85,590 $14,589
</TABLE>
The following chart reflects the total sales charges paid in connection with
the sale of Class A shares of the Fund and the amount retained by AIM
Distributors for the period of June 1, 1998 to December 31, 1998.
<TABLE>
<CAPTION>
JUNE 1, 1998 TO
DECEMBER 31, 1998
------------------
SALES AMOUNT
CHARGES RETAINED
------- --------
<S> <C> <C>
AIM Global Trends Fund...................................... $5,303 $5,203
</TABLE>
The following chart reflects the contingent deferred sales charges paid by
Class A and Class B shareholders for the fiscal period ended December 31, 1998:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
AIM Global Trends Fund...................................... $77,466
</TABLE>
SALES CHARGES AND DEALER CONCESSIONS
CATEGORY I. Certain AIM Funds are currently sold with a sales charge ranging
from 5.50% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds include Class A shares of each of AIM Advisor Flex Fund, AIM
Advisor Large Cap Value Fund, AIM Aggressive Growth Fund, AIM Asian Growth Fund,
AIM Basic Value Fund, AIM Blue Chip Fund, AIM Capital Development Fund, AIM
Charter Fund, AIM Constellation Fund, AIM Dent Demographic Trends Fund, AIM
European Development Fund, AIM Europe Growth Fund, AIM Global Utilities Fund,
AIM Global Growth & Income Fund, AIM International Equity Fund, AIM Japan Growth
Fund, AIM Large Cap Growth Fund, AIM Mid Cap Equity Fund, AIM New Pacific Growth
Fund, AIM Select Growth Fund, AIM Small Cap Growth Fund, AIM Small Cap
Opportunities Fund, AIM Value Fund and AIM Weingarten Fund.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
- ----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $25,000........................................... 5.50% 5.82% 4.75%
$25,000 but less than $50,000............................... 5.25 5.54 4.50
$50,000 but less than $100,000.............................. 4.75 4.99 4.00
$100,000 but less than $250,000............................. 3.75 3.90 3.00
$250,000 but less than $500,000............................. 3.00 3.09 2.50
$500,000 but less than $1,000,000........................... 2.00 2.04 1.60
</TABLE>
43
<PAGE> 67
CATEGORY II. Certain AIM Funds are currently sold with a sales charge ranging
from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds are: the Class A shares of each of AIM Advisor Real Estate Fund,
AIM Balanced Fund, AIM Developing Markets Fund, AIM Emerging Markets Debt Fund,
AIM Global Aggressive Growth Fund, AIM Global Consumer Products and Services
Fund, AIM Global Financial Services Fund, AIM Global Government Income Fund, AIM
Global Growth Fund, AIM Global Health Care Fund, AIM Global Income Fund, AIM
Global Infrastructure Fund, AIM Global Resources Fund, AIM Global
Telecommunications and Technology Fund, AIM Global Trends Fund, AIM High Income
Municipal Fund, AIM High Yield Fund, AIM High Yield Fund II, AIM Income Fund,
AIM Intermediate Government Fund, AIM Latin American Growth Fund, AIM Municipal
Bond Fund, AIM Strategic Income Fund and AIM Tax-Exempt Bond Fund of
Connecticut.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
- ----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $50,000........................................... 4.75% 4.99% 4.00%
$50,000 but less than $100,000.............................. 4.00 4.17 3.25
$100,000 but less than $250,000............................. 3.75 3.90 3.00
$250,000 but less than $500,000............................. 2.50 2.56 2.00
$500,000 but less than $1,000,000........................... 2.00 2.04 1.60
</TABLE>
CATEGORY III. Certain AIM Funds are currently sold with a sales charge ranging
from 1.00% to 0.50% of the offering price on purchases of less than $1,000,000.
These AIM Funds are the Class A shares of each of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
- ----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000.......................................... 1.00% 1.01% 0.75%
$100,000 but less than $250,000............................. 0.75 0.76 0.50
$250,000 but less than $1,000,000........................... 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions as set forth below.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
44
<PAGE> 68
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. At the option of the dealer, such
incentives may take the form of payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered representatives
and their families to places within or outside the United States. The total
amount of such additional bonus payments or other consideration shall not exceed
0.25% of the public offering price of the shares sold. Any such bonus or
incentive programs will not change the price paid by investors for the purchase
of the applicable AIM Fund's shares or the amount that any particular AIM Fund
will receive as proceeds from such sales. Dealers may not use sales of the AIM
Funds' shares to qualify for any incentives to the extent that such incentives
may be prohibited by the laws of any state.
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more of Class A shares (or shares which
normally involve payment of initial sales charges), which are sold at net asset
value and are subject to a contingent deferred sales charge, for all AIM Funds
other than Class A shares of each of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund as follows: 1% of the first $2 million of such
purchases, plus 0.80% of the next $1 million of such purchases, plus 0.50% of
the next $17 million of such purchases, plus 0.25% of amounts in excess of $20
million of such purchases. AIM Distributors may make payments to dealers and
institutions who are dealers of record for purchases of $1 million or more of
Class A shares (or shares which normally involve payment of initial sales
charges), and which are sold at net asset value and are not subject to a
contingent deferred sales charge, in an amount up to 0.10% of such purchases of
Class A shares of AIM Limited Maturity Treasury Fund, and in an amount up to
0.25% of such purchases of Class A shares of AIM Tax-Free Intermediate Fund.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.00% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes
an asset-based sales charge (0.75%) is intended in part to permit AIM
Distributors to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge, (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will make such
payments quarterly to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record. These commissions
are not paid on sales to investors exempt from the CDSC, including shareholders
of record on April 30, 1995, who purchase additional shares in any of the Funds
on or after May 1, 1995, and in circumstances where AIM Distributors grants an
exemption on particular transactions.
AIM Distributors may pay investment dealers or other financial service firms
for share purchases (measured on an annual basis) of Class A Shares of all AIM
Funds except AIM Limited Maturity Treasury Fund, AIM Tax-Free Intermediate Fund
and AIM Tax-Exempt Cash Fund sold at net asset value to an employee benefit plan
as follows: 1% of the first $2 million of such purchases, plus 0.80% of the next
$1 million of such purchases, plus 0.50% of the next $17 million of such
purchases, plus 0.25% of amounts in excess of $20 million of such purchases and
up to 0.10% of the net asset value of any Class A shares
45
<PAGE> 69
of AIM Limited Maturity Treasury Fund sold at net asset value to an employee
benefit plan in accordance with this paragraph.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of shares of the AIM Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "purchaser" as hereinafter defined. Purchases of Class A shares of AIM
Tax-Exempt Cash Fund, AIM Cash Reserve Shares of AIM Money Market Fund and Class
B and Class C shares of the AIM Funds will not be taken into account in
determining whether a purchase qualifies for a reduction in initial sales
charges.
The term "purchaser" means:
- an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a pension,
profit-sharing, or other benefit plan established exclusively for the
benefit of any such person, such as an IRA, Roth IRA, a single-participant
money-purchase/profit-sharing plan or an individual participant in a 403(b)
Plan (unless such 403(b) plan qualifies as the purchaser as defined below);
- a 403(b) plan, the employer/sponsor of which is an organization described
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), if:
a. the employer/sponsor must submit contributions for all participating
employees in a single contribution transmittal (i.e., the Funds will not
accept contributions submitted with respect to individual participants);
b. each transmittal must be accompanied by a single check or wire
transfer; and
c. all new participants must be added to the 403(b) plan by submitting
an application on behalf of each new participant with the contribution
transmittal;
- a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code) and 457 plans, although more than one beneficiary or participant is
involved;
- a Simplified Employee Pension (SEP), Salary Reduction and other Elective
Simplified Employee Pension account (SAR-SEP) or a Savings Incentive Match
Plans for Employees IRA (SIMPLE IRA), where the employer has notified the
distributor in writing that all of its related employee SEP, SAR-SEP or
SIMPLE IRA accounts should be linked; or
- any other organized group of persons, whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase at a discount of redeemable securities of a
registered investment company.
Investors or dealers seeking to qualify orders for a reduced initial sales
charge must identify such orders and, if necessary, support their qualification
for the reduced charge. AIM Distributors reserves the right to determine whether
any purchaser is entitled, by virtue of the foregoing definition, to the reduced
sales charge. No person or entity may distribute shares of the AIM Funds without
payment of the applicable sales charge other than to persons or entities who
qualify for a reduction in the sales charge as provided herein.
46
<PAGE> 70
1. LETTERS OF INTENT. A purchaser, as previously defined, may pay reduced
initial sales charges by completing the appropriate section of the account
application and by fulfilling a Letter of Intent ("LOI"). The LOI privilege is
also available to holders of the Connecticut General Guaranteed Account,
established for tax qualified group annuities, for contracts purchased on or
before June 30, 1992. The LOI confirms such purchaser's intention as to the
total investment to be made in shares of the AIM Funds (except for (i) Class A
shares of AIM Tax-Exempt Cash Fund, and AIM Cash Reserve Shares of AIM Money
Market Fund, (ii) Class B and Class C shares of the AIM Funds and (iii) AIM
Floating Rate Fund) within the following 13 consecutive months. By marking the
LOI section on the account application and by signing the account application,
the purchaser indicates that he understands and agrees to the terms of the LOI
and is bound by the provisions described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI. At any time during the 13-month
period after meeting the original obligation, a purchaser may revise his
intended investment amount upward by submitting a written and signed request.
Such a revision will not change the original expiration date. By signing an LOI,
a purchaser is not making a binding commitment to purchase additional shares,
but if purchases made within the 13-month period do not total the amount
specified, the investor will pay the increased amount of sales charge as
described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the initial
purchase (or subsequent purchases if necessary) the Transfer Agent will escrow
in the form of shares an appropriate dollar amount (computed to the nearest full
share). All dividends and any capital gain distributions on the escrowed shares
will be credited to the purchaser. All shares purchased, including those
escrowed, will be registered in the purchaser's name. If the total investment
specified under this LOI is completed within the 13-month period, the escrowed
shares will be promptly released. If the intended investment is not completed,
the purchaser will pay the Transfer Agent the difference between the sales
charge on the specified amount and the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration date, he
irrevocably constitutes and appoints the Transfer Agent as his attorney to
surrender for redemption any or all shares, to make up such difference within 60
days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes to
cancel the agreement, he must give written notice to AIM Distributors. If at any
time before completing the LOI Program the purchaser requests the Transfer Agent
to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
2. RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may also
qualify for reduced initial sales charges based upon such purchaser's existing
investment in shares of any of the AIM Funds (except for (i) Class A shares of
AIM Tax-Exempt Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund
and (ii) Class B and Class C shares of the AIM Funds) at the time of the
proposed purchase. Rights of Accumulation are also available to holders of the
Connecticut General Guaranteed
47
<PAGE> 71
Account, established for tax-qualified group annuities, for contracts purchased
on or before June 30, 1992. To determine whether or not a reduced initial sales
charge applies to a proposed purchase, AIM Distributors takes into account not
only the money which is invested upon such proposed purchase, but also the value
of all shares of the AIM Funds (except for (i) Class A shares of AIM Tax-Exempt
Cash Fund and AIM Cash Reserve Shares of AIM Money Market Fund, (ii) Class B and
Class C shares of the AIM Funds and (iii) AIM Floating Rate Fund) owned by such
purchaser, calculated at their then current public offering price. If a
purchaser so qualifies for a reduced sales charge, the reduced sales charge
applies to the total amount of money then being invested by such purchaser and
not just to the portion that exceeds the breakpoint above which a reduced sales
charge applies. For example, if a purchaser already owns qualifying shares of
any AIM Fund with a value of $20,000 and wishes to invest an additional $20,000
in the Fund, with a maximum initial sales charge of 5.50%, the reduced initial
sales charge of 5.25% will apply to the full $20,000 purchase and not just to
the $15,000 in excess of the $25,000 breakpoint. To qualify for obtaining the
discount applicable to a particular purchase, the purchaser or his dealer must
furnish AFS with a list of the account numbers and the names in which such
accounts of the purchaser are registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at
net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and distributions from the
Fund; (b) exchanges of shares of certain other funds; (c) use of the
reinstatement privilege; or (d) a merger, consolidation or acquisition of assets
of the Fund.
The following purchasers will not pay initial sales charges on purchases of
Class A shares because there is a reduced sales effort involved in sales to
these purchasers:
- AIM Management and its affiliates, or their clients;
- Any current or retired officer, director or employee (and members of their
immediate family) of AIM Management, its affiliates or The AIM Family of
Funds--Registered Trademark--, and any foundation, trust or employee
benefit plan established exclusively for the benefit of, or by, such
persons;
- Any current or retired officer, director, or employee (and members of their
immediate family), of CIGNA Corporation or its affiliates, or of First Data
Investor Services Group; and any deferred compensation plan for directors of
Investment companies sponsored by CIGNA Investments, Inc. or its affiliates;
- Sales representatives and employees (and members of their immediate family)
of selling group members or financial institutions that have arrangements
with such selling group members;
- Purchases through approved fee-based programs;
- Employee benefit plans designated as qualified purchasers as defined above,
and non-qualified plans offered in conjunction therewith, provided the
initial investment in the plan(s) is at least $1 million; the sponsor signs
a $1 million LOI; the employer-sponsored plan(s) has at least 100 eligible
employees; or all plan transactions are executed through a single omnibus
account per Fund and the financial institution or service organization has
entered into the appropriate agreement with the distributor. Section 403(b)
plans sponsored by public educational institutions are not eligible for a
sales charge exception based on the aggregate investment made by the plan or
the number of eligible employees. Purchases of AIM Small Cap Opportunities
Fund by such plans are subject to initial sales charges;
- Shareholders of record of Advisor Class shares of AIM International Growth
Fund or AIM Worldwide Growth Fund on February 12, 1999 who have continuously
owned shares of the AIM Funds;
48
<PAGE> 72
- Shareholders of record of Advisor Class shares of AIM International Growth
Fund or AIM Worldwide Growth Fund on February 12, 1999 who have continuously
owned shares of the AIM Funds;
- Shareholders of record or discretionary advised clients of any investment
advisor holding shares of AIM Weingarten Fund or AIM Constellation Fund on
September 8, 1996, or of AIM Charter Fund on November 17, 1986, who have
continuously owned shares having a market value of at least $500 and who
purchase additional shares of the same Fund;
- Unitholders of G/SET series unit investment trusts investing proceeds from
such trusts in shares of AIM Weingarten Fund or AIM Constellation Fund;
provided, however, prior to the termination date of the trusts, a unitholder
may invest proceeds from the redemption or repurchase of his units only when
the investment in shares of AIM Weingarten Fund and AIM Constellation Fund
is effected within 30 days of the redemption or repurchase;
- A shareholder of the Fund that merges or consolidates with an AIM Fund or
that sells its assets to an AIM Fund in exchange for shares of an AIM Fund;
- Shareholders of the GT Global funds as of April 30, 1987 who since that date
continually have owned shares of one or more of these funds; and
- Certain former AMA Investment Advisers' shareholders who became shareholders
of the AIM Global Health Care Fund in October 1989, and who have
continuously held shares in the GT Global funds since that time.
As used above, immediate family includes an individual and his or her spouse,
children, parents and parents of spouse.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
Former GT Global funds Class A shares that are subject to a contingent
deferred sales charge and that were purchased before June 1, 1998 are entitled
to the following waivers from the contingent deferred sales charge otherwise due
upon redemption: (1) minimum required distributions made in connection with an
IRA, Keogh Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70 1/2; (2) total or partial
redemptions resulting from a distribution following retirement in the case of a
tax-qualified employer-sponsored retirement plan; (3) when a redemption results
from a tax-free return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code or from the death or disability of the employee; (4)
redemptions pursuant to the Fund's right to liquidate a shareholder's account
involuntarily; (5) redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT Global
funds, which are permitted to be made without penalty pursuant to the Code,
other than tax-free rollovers or transfers of assets, and the proceeds of which
are reinvested in the former GT Global funds; (6) redemptions made in connection
with participant-directed exchanges between options in an employer-sponsored
benefit plan; (7) redemptions made for the purpose of providing cash to fund a
loan to a participant in a tax-qualified retirement plan; (8) redemptions made
in connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (9) redemptions made in connection with
a distribution from any retirement plan or account that involves the return of
an excess deferral amount pursuant to Section 401(k)(8) or Section 402(g)(2) of
the Code; (10) redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of the Code
upon hardship of the covered employee (determined pursuant to Treasury
Regulation Section 1.401(k)-1(d)(2)); and (11) redemptions made by or for the
benefit of certain states, counties or cities, or any instrumentalities,
departments or authorities thereof where such entities are prohibited or limited
by applicable law from paying a sales charge or commission.
Former GT Global funds Class B shares purchased before June 1, 1998 are
subject to the following waivers from the contingent deferred sales charge
otherwise due upon redemption in addition to
49
<PAGE> 73
the waivers provided for redemptions of currently issued Class B shares as
described in a Prospectus: (1) total or partial redemptions resulting from a
distribution following retirement in the case of a tax-qualified
employer-sponsored retirement; (2) minimum required distributions made in
connection with an IRA, Keogh Plan or custodial account under Section 403(b) of
the Code or other retirement plan following attainment of age 70 1/2; (3)
redemptions pursuant to distributions from a tax-qualified employer-sponsored
retirement plan, which is invested in the former GT Global funds, which are
permitted to be made without penalty pursuant to the Code, other than tax-free
rollovers or transfers of assets, and the proceeds of which are reinvested in
the former GT Global funds; (4) redemptions made in connection with
participant-directed exchanges between options in an employer-sponsored benefit
plan; (5) redemptions made for the purpose of providing cash to fund a loan to a
participant in a tax-qualified retirement plan; (6) redemptions made in
connection with a distribution from any retirement plan or account that is
permitted in accordance with the provisions of Section 72(t)(2) of the Code, and
the regulations promulgated thereunder; (7) redemptions made in connection with
a distribution from a qualified profit-sharing or stock bonus plan described in
Section 401(k) of the Code to a participant or beneficiary under Section
401(k)(2)(B)(IV) of the Code upon hardship of the covered employee (determined
pursuant to Treasury Regulation Section 1.401(k)-1(d)(2)); and (8) redemptions
made by or for the benefit of certain states, counties or cities, or any
instrumentalities, departments or authorities thereof where such entities are
prohibited or limited by applicable law from paying a sales charge or
commission.
CDSCs will not apply to the following:
- Additional purchases of Class C shares of AIM Advisor Flex Fund, AIM Advisor
International Value Fund, AIM Advisor Large Cap Value Fund, and AIM Advisor
Real Estate Fund by shareholders of record on April 30, 1995, of these
Funds, except that shareholders whose broker-dealers maintain a single
omnibus account with AFS on behalf of those shareholders, perform
sub-accounting functions with respect to those shareholders, and are unable
to segregate shareholders of record prior to April 30, 1995, from
shareholders whose accounts were opened after that date will be subject to a
CDSC on all purchases made after March 1, 1996;
- Redemptions following the death or post-purchase disability of (1) any
registered shareholders on an account or (2) a settlor of a living trust, of
shares held in the account at the time of death or initial determination of
post-purchase disability;
- Certain distributions from individual retirement accounts, Section 403(b)
retirement plans, Section 457 deferred compensation plans and Section 401
qualified plans, where redemptions result from (i) required minimum
distributions to plan participants or beneficiaries who are age 70 1/2 or
older, and only with respect to that portion of such distributions that does
not exceed 12% annually of the participant's or beneficiary's account value
in a particular AIM Fund; (ii) in kind transfers of assets where the
participant or beneficiary notifies the distributor of the transfer no later
than the time the transfer occurs; (iii) tax-free rollovers or transfers of
assets to another plan of the type described above invested in Class B or
Class C shares of one or more of the AIM Funds; (iv) tax-free returns of
excess contributions or returns of excess deferral amounts; and (v)
distributions on the death or disability (as defined in the Internal Revenue
Code of 1986, as amended) of the participant or beneficiary;
- Amounts from a Systematic Withdrawal Plan of up to an annual amount of 12%
of the account value on a per fund basis, at the time the withdrawal plan is
established, provided the investor reinvests his dividends;
- Liquidation by the Fund when the account value falls below the minimum
required account size of $500;
- Investment account(s) of AIM; and
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- Class C shares where the investor's dealer of record notifies the
distributor prior to the time of investment that the dealer waives the
payment otherwise payable to him.
Upon the redemption of shares of funds in Sales Charge in Categories I and II
(see "Sales Charges and Dealer Concessions purchased in amounts of $1 million or
more, no CDSC will be applied in the following situations:
- Shares held more than 18 months;
- Redemptions from employee benefit plans designated as qualified purchasers,
as defined above, where the redemptions are in connection with employee
terminations or withdrawals, provided the total amount invested in the plan
is at least $1,000,000; the sponsor signs a $1 million LOI; or the
employer-sponsored plan has at least 100 eligible employees; provided,
however, that 403(b) plans sponsored by public educational institutions
shall qualify for the CDSC waiver on the basis of the value of each plan
participant's aggregate investment in the AIM Funds, and not on the
aggregate investment made by the plan or on the number of eligible
employees;
- Private foundations or endowment funds;
- Redemption of shares by the investor where the investor's dealer waives the
amounts otherwise payable to it by the distributor and notifies the
distributor prior to the time of investment; and
- Shares acquired by exchange from Class A shares in Categories I and II
unless the shares acquired by exchange are redeemed within 18 months of the
original purchase of the Class A shares.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of the Fund may be
purchased appears in the Prospectus under the caption "Purchasing Shares."
The sales charge normally deducted on purchases of Class A shares of the Fund
is used to compensate AIM Distributors and participating dealers for their
expenses incurred in connection with the distribution of such shares. Since
there is little expense associated with unsolicited orders placed directly with
AIM Distributors by persons, who because of their relationship with the Fund or
with AIM and its affiliates, are familiar with the Fund, or whose programs for
purchase involve little expense (e.g., because of the size of the transaction
and shareholder records required), AIM Distributors believes that it is
appropriate and in the Fund's best interests that such persons be permitted to
purchase Class A shares of the Fund through AIM Distributors without payment of
a sales charge. The persons who may purchase Class A shares of the Fund without
a sales charge are shown in the Prospectus.
Complete information concerning the method of exchanging shares of the Funds
for shares of the other mutual funds managed or advised by AIM is set forth in
the Prospectus under the caption "Exchanging Shares."
Information concerning redemption of the Fund's shares is set forth in the
Prospectus under the caption "Redeeming Shares." Shares of the AIM Funds may be
redeemed directly through AIM Distributors or through any dealer who has entered
into an agreement with AIM Distributors. In addition to the obligation of the
Fund to redeem shares, AIM Distributors also repurchases shares. AIM intends to
redeem all shares of the Fund in cash. In addition to the Fund's obligation to
redeem shares, AIM Distributors may also repurchase shares as an accommodation
to shareholders. To effect a repurchase, those dealers who have executed
Selected Dealer Agreements with AIM Distributors must phone orders to the order
desk of the Fund telephone (800) 347-4246 and guarantee delivery of all required
documents
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in good order. A repurchase is effected at the net asset value of the Fund next
determined after such order is received. Such arrangement is subject to timely
receipt by AFS of all required documents in good order. If such documents are
not received within a reasonable time after the order is placed, the order is
subject to cancellation. While there is no charge imposed by the Fund or by AIM
Distributors (other than any applicable CDSC) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the transaction.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange ("NYSE") is restricted, as determined
by applicable rules and regulations of the SEC, (b) the NYSE is closed for other
than customary weekend and holiday closings, (c) the SEC has by order permitted
such suspension, or (d) an emergency as determined by the SEC exists making
disposition of portfolio securities or the valuation of the net assets of the
Fund not reasonably practicable.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8 (for
non-resident aliens) or Form W-9 (certifying exempt status) accompanying the
registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations, withhold
31% of redemption payments and reportable dividends (whether paid or accrued) in
the case of any shareholder who fails to provide the Fund with a taxpayer
identification number ("TIN") and a certification that he is not subject to
backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect
TIN, or
(3) the investor is notified by the IRS that the investor is subject to
backup withholding because the investor failed to report all of the
interest and dividends on such investor's tax return (for reportable
interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
reportable interest, dividend, broker or barter exchange accounts opened
after 1983, or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting. A complete listing of such exempt entities appears in the
Instructions for the Requester of Form W-9 (which can be obtained from the IRS)
and includes, among others, the following:
- a corporation
- an organization exempt from tax under Section 501(a), an individual
retirement plan (IRA), or a custodial account under Section 403(b)(7)
- the United States or any of its agencies or instrumentalities
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- a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- a foreign government or any of its political subdivisions, agencies or
instrumentalities
- an international organization or any of its agencies or instrumentalities
- a foreign central bank of issue
- a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- a futures commission merchant registered with the Commodity Futures Trading
Commission
- a real estate investment trust
- an entity registered at all times during the tax year under the 1940 Act
- a common trust fund operated by a bank under Section 584(a)
- a financial institution
- a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
federal income tax withholding at a 30% rate on ordinary income dividends and
distributions and return of capital distributions. Under applicable treaty law,
residents of treaty countries may qualify for a reduced rate of withholding or a
withholding exemption.
NET ASSET VALUE DETERMINATION
The net asset value per share of the Fund is normally determined daily as of
the close of trading of the NYSE (generally 4:00 p.m. Eastern time) on each
business day of the Fund. In the event the NYSE closes early (i.e., before 4:00
p.m. Eastern time) on a particular day, the net asset value of the Fund is
determined as of the close of the NYSE on such day. Net asset value per share is
determined by dividing the value of the Fund's interests in the Fund
attributable to a class, less all its liabilities
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attributable to that class, by the total number of shares outstanding of that
class. Determination of the Fund's net asset value per share is made in
accordance with generally accepted accounting principles.
Each equity security held by a Fund 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 last available bid. Each security
traded in the over-the-counter market (but not including securities reported on
the NASDAQ National Market System) is valued at the mean between the last bid
and asked prices based upon quotes furnished by market makers for such
securities. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or absent a last sales
price, at the mean between the closing bid and asked prices on that day. Debt
securities are valued on the basis of prices provided by an independent pricing
service. Prices provided by the pricing service may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, yield, quality, coupon rate, maturity, type of issue,
individual trading characteristics and other market data. Securities for which
market quotations are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued on the
basis of amortized cost. 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 NYSE.
Generally, trading in foreign securities, 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 at 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 such
values are determined and the close of the NYSE which will not be reflected in
computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically reinvested
in additional shares of the same class of the Fund unless the shareholder has
requested in writing to receive such dividends and distributions in cash or that
they be invested in shares of another AIM Fund, subject to the terms and
conditions set forth in "Shareholder Information -- Dividends and
Distributions." If a shareholder's account does not have any shares in it on a
dividend or capital gains distribution payment date, the dividend or
distribution will be paid in cash whether or not the shareholder has elected to
have such dividends or distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
TAXATION OF THE FUND
To continue to qualify for treatment as a regulated investment company ("RIC")
under the Code, the Fund must distribute to its shareholders for each taxable
year at least 90% of its investment company taxable income (consisting generally
of net investment income and net short-term capital gain) ("Distribution
Requirement") and must meet several additional requirements. These requirements
include
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the following: (1) the Fund must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, Futures or Forward
Contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash items, U.S. government securities, securities of other RICs
and other securities, with these other securities limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the Fund's total
assets and that does not represent more than 10% of the issuer's outstanding
voting securities; and (3) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. government securities or the securities of other
RICs) of any one issuer.
Dividends and other distributions declared by the Fund in, and payable to
shareholders of record as of a date in, October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or other distribution, the shareholder will pay full price for
the shares and receive some portion of the price back as a taxable distribution.
The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
REINSTATEMENT PRIVILEGE
For federal income tax purposes, exercise of your reinstatement privilege may
increase the amount of gain or reduce the amount of loss recognized in the
original transaction, because the initial sales charge will not be taken into
account in determining such gain or loss to the extent there has been a
reduction in the initial sales charge. The wash sale rules may also act to defer
the loss.
TAXATION OF CERTAIN INVESTMENT ACTIVITIES
Foreign Taxes. Dividends and interest received by the Fund, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions ("foreign taxes") that would reduce the yield
and/or total return on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of a Fund's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible to, and may, file an election with the Internal
Revenue Service that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to any foreign taxes paid by it.
Pursuant to the election, the Fund would treat those taxes as dividends paid to
its shareholders and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his share of those taxes, (2) treat his share
of those taxes and of any dividend paid by the Fund that represents income from
foreign and U.S. possessions sources as his own income from those sources and
(3) either deduct the taxes deemed paid by him in computing his taxable income
or, alternatively, use the foregoing information in calculating the foreign tax
credit against his federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's foreign
taxes and income from sources within, and taxes paid to, foreign countries and
U.S. possessions if it makes this election. Pursuant to the Taxpayer Relief Act
of 1997 ("Tax Act"), individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign taxes included on Form 1099 and
all of whose foreign source income is "qualified passive income" may
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elect each year to be exempt from the extremely complicated foreign tax credit
limitation and will be able to claim a foreign tax credit without having to file
the detailed Form 1116 that otherwise is required.
Passive Foreign Investment Companies. The Fund may invest in the stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation -- other than a "controlled foreign corporation" (i.e., a foreign
corporation in which, on any day during its taxable year, more than 50% of the
total voting power of all voting stock therein or the total value of all stock
therein is owned, directly, indirectly or constructively, by "U.S.
shareholders," defined as U.S. persons that individually own, directly,
indirectly or constructively, at least 10% of that voting power) as to which a
Fund is a U.S. shareholder (effective with respect to the Fund for its taxable
year beginning November 1, 1998) -- that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. Under certain circumstances, the Fund will be subject to
federal income tax on a portion of any "excess distribution" received on, or of
any gain from the disposition of, stock of a PFIC (collectively "PFIC income"),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent it distributes that income to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's ordinary earnings and net capital gain (i.e., the excess
of net long-term capital gain over net short-term capital loss) -- which most
likely would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not received by the Fund from the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Effective for its taxable year beginning November 1, 1998, the Fund may elect
to "mark to market" its stock in any PFIC. "Marking-to-market," in this context,
means including in ordinary income each taxable year the excess, if any, of the
fair market value of the stock over the Fund's adjusted basis therein as of the
end of that year. Pursuant to the election, the Fund also will be allowed to
deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted
basis in PFIC stock over the fair market value thereof as of the taxable year-
end, but only to the extent of any net mark-to-market gains with respect to that
stock included in income by the Fund for prior taxable years. A Fund's adjusted
basis in each PFIC's stock subject to the election will be adjusted to reflect
the amounts of income included and deductions taken thereunder. Regulations
proposed in 1992 provided a similar election with respect to the stock of
certain PFICs.
Options, Futures and Foreign Currency Transactions. The Fund's use of hedging
transactions, such as selling (writing) and purchasing options and Futures and
entering into Forward Contracts, involves complex rules that will determine, for
federal income tax purposes, the amount, character and timing of recognition of
the gains and losses the Fund realizes in connection therewith. Gains from the
disposition of foreign currencies (except certain gains that may be excluded by
future regulations), and gains from options, Futures and Forward Contracts
derived by the Fund with respect to its business of investing in securities or
foreign currencies, will qualify as permissible income under the Income
Requirement for the Fund.
Futures and Forward Contracts that are subject to section 1256 of the Code
(other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by the Fund at the end of its taxable year
generally will be deemed to have been sold at that time at market value for
federal income tax purposes. Sixty percent of any net gain or loss recognized on
these deemed sales, and 60% of any net gain or loss realized from any actual
sales of Section 1256 Contracts, will be treated as long-term capital gain or
loss, and the balance will be treated as short-term capital gain or loss. That
60% portion will qualify for the reduced maximum tax rates on noncorporate
taxpayers' net capital gain -- 20% (10% for non-corporate taxpayers in the 15%
marginal tax bracket) for gain recognized on capital assets held for more than
12 months.
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Section 988 of the Code also may apply to gains and losses from transactions
in foreign currencies, foreign-currency-denominated debt securities and options,
Futures and Forward Contracts on foreign currencies ("Section 988" gains and
losses). Each section 988 gain or loss generally is computed separately and
treated as ordinary income or loss. In the case of overlap between sections 1256
and 988, special provisions determine the character and timing of any income,
gain or loss. The Fund attempts to monitor section 988 transactions to minimize
any adverse tax impact.
If the Fund has an "appreciated financial position" -- generally, an interest
(including an interest through an option, Futures or Forward Contract or short
sale) with respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted
basis -- and enters into a "constructive sale" of the same or substantially
similar property, the Fund will be treated as having made an actual sale
thereof, with the result that gain will be recognized at that time unless the
closed transaction exception applies. A constructive sale generally consists of
a short sale, an offsetting notional principal contract or Futures or Forward
Contract entered into by the Fund or a related person with respect to the same
or substantially similar property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale.
TAXATION OF THE FUND'S SHAREHOLDERS
Dividends and other distributions declared by the Fund, and payable to
shareholders of record as of a date, in October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any dividend or other distribution, the shareholder will pay full price for
the shares and receive some portion of the price back as a taxable distribution.
Dividends paid by the Fund to a shareholder who, as to the United States, is a
nonresident alien individual, nonresident alien fiduciary of a trust or estate,
foreign corporation or foreign partnership ("foreign shareholder") generally
will be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply, however, to a dividend paid by the Fund to a foreign
shareholder that is "effectively connected with the conduct of a U.S. trade or
business," in which case the reporting and withholding requirements applicable
to domestic shareholders will apply. A distribution of net capital gain by the
Fund to a foreign shareholder generally will be subject to U.S. federal income
tax (at the rates applicable to domestic persons) only if the distribution is
"effectively connected" or the foreign shareholder is treated as a resident
alien individual for federal income tax purposes.
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting the Fund and its shareholders. Investors are urged to
consult their own tax advisors for more detailed information and for information
regarding any foreign, state and local taxes applicable to distributions
received from the Fund.
SHAREHOLDER INFORMATION
This information supplements the discussion in the Fund's Prospectus under the
title "Shareholder Information."
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer to ensure
that all orders are transmitted on a timely basis to the Transfer Agent. Any
loss resulting from the dealer's failure to submit an order within the
prescribed time frame will be borne by that dealer. If a check used to purchase
shares
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does not clear, or if any investment order must be canceled due to nonpayment,
the investor will be responsible for any resulting loss to an AIM Fund or to AIM
Distributors.
SHARE CERTIFICATES. AIM Funds will issue share certificates upon written
request to AFS. Otherwise, shares are held on the shareholder's behalf and
recorded on the Fund books. AIM Funds will not issue certificates for shares
held in prototype retirement plans.
SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, all shares are
to be held by the Transfer Agent and all dividends and distributions are
reinvested in shares of the applicable AIM Fund by the Transfer Agent. To
provide funds for payments made under the Systematic Withdrawal Plan, the
Transfer Agent redeems sufficient full and fractional shares at their net asset
value in effect at the time of each such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the AIM Funds and AIM Cash Reserve
Shares of AIM Money Market Fund), it is disadvantageous to effect such purchases
while a Systematic Withdrawal Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Withdrawal Plan.
TERMS AND CONDITIONS OF EXCHANGES. If a shareholder is exchanging into the
Fund paying daily dividends, and the release of the exchange proceeds is delayed
for the foregoing five-day period, such shareholder will not begin to accrue
dividends until the sixth business day after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with certain
dealers and investment advisory firms to accept telephone instructions to
exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AFS at (800) 959-4246. If a
shareholder is unable to reach AFS by telephone, he may also request exchanges
by telegraph or use overnight courier services to expedite exchanges by mail,
which will be effective on the business day received by the Transfer Agent as
long as such request is received prior to NYSE Close. The Transfer Agent and AIM
Distributors may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction.
By signing an account application form, an investor appoints the Transfer
Agent as his true and lawful attorney-in-fact to surrender for redemption any
and all unissued shares held by the Transfer Agent in the designated account(s),
or in any other account with any of the AIM Funds, present or future, which has
the identical registration as the designated account(s), with full power of
substitution in the premises. The Transfer Agent and AIM Distributors are
thereby authorized and directed to accept and act upon any telephone redemptions
of shares held in any of the account(s) listed from any person who requests the
redemption proceeds to be applied to purchase shares in any one or more of the
AIM Funds, provided that such fund is available for sale and provided that the
registration and mailing address of the shares to be purchased are identical to
the registration of the shares being redeemed. An investor acknowledges by
signing the form that he understands and agrees that the Transfer Agent and AIM
Distributors may not be liable for any loss, expense or cost arising out of any
telephone exchange requests effected in accordance with the authorization set
forth in these instructions if they reasonably believe such request to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions. The Transfer Agent reserves the right to modify or
terminate the telephone exchange privilege at any time
58
<PAGE> 82
without notice. An investor may elect not to have this privilege by
marking the appropriate box on the application. Then any exchanges must be
effected in writing by the investor.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an investor
appoints the Transfer Agent as his true and lawful attorney-in-fact to surrender
for redemption any and all unissued shares held by the Transfer Agent in the
designated account(s), present or future, with full power of substitution in the
premises. The Transfer Agent and AIM Distributors are thereby authorized and
directed to accept and act upon any telephone redemptions of shares held in any
of the account(s) listed, from any person who requests the redemption. An
investor acknowledges by signing the form that he understands and agrees that
the Transfer Agent and AIM Distributors may not be liable for any loss, expense
or cost arising out of any telephone redemption requests effected in accordance
with the authorization set forth in these instructions if they reasonably
believe such request to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions. The Transfer Agent
reserves the right to cease to act as attorney-in-fact subject to this
appointment, and AIM Distributors reserves the right to modify or terminate the
telephone redemption privilege at any time without notice. An Investor may elect
not to have this privilege by marking the appropriate box on the application.
Then any redemptions must be effected in writing by the investor.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of the Fund's prospectus, signature guarantees
are required in the following situations: (1) requests to transfer the
registration of shares to another owner, (2) telephone exchange and telephone
redemption authorization forms; (3) changes in previously designated wiring or
electronic funds transfer instructions; and (4) written redemptions or exchanges
of shares previously reported as lost, whether or not the redemption amount is
under $50,000 or the proceeds are to be sent to the address of record. AIM Funds
may waive or modify any signature guarantee requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the SEC, and further
provided that such guarantor institution is listed in one of the reference
guides contained in the Transfer Agent's current Signature Guarantee Standards
and Procedures, such as certain domestic banks, credit unions, securities
dealers, or securities exchanges. The Transfer Agent will also accept signatures
with either: (1) a signature guaranteed with a medallion stamp of the STAMP
Program, or (2) a signature guaranteed with a medallion stamp of the NYSE
Medallion Signature Program, provided that in either event, the amount of the
transaction involved does not exceed the surety coverage amount indicated on the
medallion. For information regarding whether a particular institution or
organization qualifies as an "eligible guarantor institution," an investor
should contact the Client Services Department of AFS.
DIVIDENDS AND DISTRIBUTIONS. In determining the amount of capital gains, if
any, available for distribution, net capital gains are offset against available
net capital losses, if any, carried forward from previous fiscal periods.
For funds that do not declare a dividend daily, such dividends and
distributions will be reinvested at the net asset value per share determined on
the ex-dividend date. For funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the payable date.
Dividends on Class B and Class C shares are expected to be lower than those
for Class A shares or AIM Cash Reserve Shares because of higher distribution
fees paid by Class B and Class C shares. Dividends on all shares may also be
affected by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to the Transfer Agent and are effective as to
any subsequent payment if such notice is received by the Transfer Agent prior to
the record date of such payment. Any dividend and distribution in election
remains in effect until the Transfer Agent receives a revised written election
by the shareholder.
59
<PAGE> 83
Any dividend or distribution paid by the Fund which does not declare dividends
daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes.
MISCELLANEOUS INFORMATION
CHARGES FOR CERTAIN ACCOUNT INFORMATION
The Transfer Agent may impose certain copying charges for requests for copies
of shareholder account statements and other historical account information older
than the current year and the immediately preceding year.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110, acts as custodian of the Fund's assets. State
Street is authorized to establish and has established separate accounts in
foreign currencies and to cause securities of the Trust to be held in separate
accounts outside the United States in the custody of non-U.S. banks.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
The Transfer Agency and Service Agreement between the Trust and AFS, a
registered transfer agent and wholly owned subsidiary of AIM, provides that AFS
will perform certain shareholder services for the Fund for a fee per account
serviced. The Transfer Agency and Service Agreement provides that AFS will
receive a per account fee plus out-of-pocket expenses to process orders for
purchases, redemptions and exchanges of shares; prepare and transmit payments
for dividends and distributions declared by the Fund; maintain shareholder
accounts and provide shareholders with information regarding the Fund and their
accounts. The Transfer Agency and Service Agreement became effective on
September 8, 1998.
Pursuant to the Master Administrative Services Agreement, AIM serves as the
Fund's pricing and accounting agent. Under the Fund's previous administration
contract, the Fund paid no accounting fees for the fiscal years ended December
31, 1997 and 1998.
INDEPENDENT ACCOUNTANTS
The Trust's independent accountants are PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP conducts annual audits of the Fund's financial
statements, assists in the preparation of the Fund's federal and state income
tax returns and consults with the Trust as to matters of accounting, regulatory
filings, and federal and state income taxation.
The audited financial statements of the Trust included in this Statement of
Additional Information have been examined by PricewaterhouseCoopers LLP, as
stated in their opinion appearing herein, and are included in reliance upon such
opinion given upon the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036-1800, acts as counsel to the Trust and the Fund.
SHAREHOLDER LIABILITY
60
<PAGE> 84
Under Delaware law, the shareholders of the Trust enjoy the same limitations
of liability extended to shareholders of private, for-profit corporations. There
is a remote possibility, however, that under certain circumstances shareholders
of the Trust may be held personally liable for the Trust's obligations. However,
the Trust Agreement disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
trustee. If a shareholder is held personally liable for the obligations of the
Trust, the Trust Agreement provides that the shareholder shall be entitled out
of the assets belonging to the Fund (or allocable to the applicable Class), to
be held harmless from and indemnified against all loss and expense arising from
such liability in accordance with the Trust's Bylaws and applicable law. Thus,
the risk of a shareholder incurring financial loss on account of such liability
is limited to circumstances in which the Trust itself would be unable to meet
its obligations and where the other party was held not to be bound by the
disclaimer.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the holders of
5% or more of the outstanding shares of each class of the Trust's equity
securities as of June 21, 1999, and the percentage of the outstanding shares
held by such holders are set forth below.
<TABLE>
<CAPTION>
PERCENT
OWNED OF
NAME AND ADDRESS OF RECORD OWNER RECORD*
- -------------------------------- --------
<S> <C>
CLASS C
ITC Cust IRA FBO............................................ 5.34%
Edward Clark
2198 Lake Marie Drive
Santa Maria, CA 93455
ITC Cust FBO................................................ 5.22%
Brian E. Crist Roth IRA CONV
P.O. Box 1360
Anoyo Grande, CA 93421-1360
ADVISOR CLASS
LGT Asset Management 401(k) Plan............................ 81.54%
Judy Creel, Arthur Sprague, or
Robert Alley TTEES
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
LGT Asset Management 401(k) Plan............................ 13.68%
Judy Creel, Arthur Sprague, or
Robert Alley TTEES
Attn: Debbie Nettles A/C 5000201000
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
</TABLE>
- ---------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
61
<PAGE> 85
INVESTMENT RESULTS
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return is as follows:
n
P(1+T) =ERV
<TABLE>
<S> <C> <C> <C>
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).
</TABLE>
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
<TABLE>
<S> <C> <C> <C>
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.
</TABLE>
Cumulative total return across a stated period may be calculated as follows:
n
P(1+V) =ERV
<TABLE>
<S> <C> <C> <C>
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a stated
portion of, or none of, the applicable maximum sales load at
the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the end of the stated period.
</TABLE>
The cumulative total returns for Class A, Class B and Class C shares of the
Fund for the periods shown, were:
<TABLE>
<CAPTION>
PERIODS ENDED
DECEMBER 31, 1998
------------------------
1 YEAR SINCE INCEPTION
------ ---------------
<S> <C> <C>
Class A Shares.............................................. 4.18% 1.38%
Class B Shares.............................................. 3.83% 1.75%
Class C Shares.............................................. -- 7.94%
</TABLE>
The inception date of Class A, Class B and Class C shares of the Fund are
September 15, 1997, September 15, 1997 and January 2, 1998, respectively.
62
<PAGE> 86
PERFORMANCE INFORMATION
All advertisements of the Fund will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of the Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. 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, 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
a 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.
The Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for Class A shares reflects the deduction of the Fund's maximum front-end sales
charge at the time of purchase. Standardized total return for Class B and Class
C shares reflects the deduction of the maximum applicable contingent deferred
sales charge on a redemption of shares held for the period.
The Fund's total return shows its overall change in value, including changes
in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. 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.
Total return and yield figures for the Fund are neither fixed nor guaranteed,
and the Fund's principal is not insured. Performance quotations reflect
historical information and should not be considered representative of the Fund's
performance for any period in the future. Performance is a function of a number
of factors which can be expected to fluctuate. The Fund may provide performance
information in reports, sales literature and advertisements. The Fund may also,
from time to time, quote information about the Fund published or aired by
publications or other media entities which contain articles or segments relating
to investment results or other data about the Fund. Such publications or media
entities may include the following, among others:
Advertising Age
Barron's
Best's Review
Broker World
Business Week
Changing Times
Christian Science Monitor
CNBC
CNN
Consumer Reports
Economist
63
<PAGE> 87
EuroMoney
FACS of the Week
Financial Planning
Financial Product News
Financial Services Week
Financial World
Forbes
Fortune
Global Finance
Hartford Courant Inc.
Insurance Forum
Institutional Investor
Insurance Week
Investor's Daily
Journal of the American Society of CLU & ChFC
Kiplinger Letter
Money
Mutual Fund Forecaster
Mutual Fund Magazine
Nation's Business
New York Times
PBS
Pension World
Pensions & Investments
Personal Investor
Philadelphia Inquirer
Smart Money
USA Today
U.S. News & World Report
Wall Street Journal
Washington Post
The Fund and AIM Distributors may from time to time, in advertisements, sales
literature and reports furnished to present or prospective shareholders, compare
the Fund with the following, or compare the Fund's performance to performance
data of similar mutual funds as published in the following, among others:
Bank Rate National Monitor Index
Bear Stearns Foreign Bond Index
Bond Buyer Index
CDA/Wiesenberger Investment Company Services (data and mutual fund rankings and
comparisons)
CNBC/Financial News Composite Index
COFI
Consumer Price Index
Datastream
Donoghue's
Dow Jones Industrial Average
EAFE Index
First Boston High Yield Index
Fitch (publications)
Ibbotson Associates International Bond Index
International Bank for Reconstruction and Development (publications)
International Finance Corporation Emerging Markets Database
International Financial Statistics
Lehman Bond Indices
Lipper Analytical Data Services, Inc. (data and mutual fund rankings and
comparisons)
Micropal, Inc. (data and mutual fund rankings and comparisons)
Moody's Investors Service (publications)
Morgan Stanley Capital International
All Country (AC) World Index
Morgan Stanley Capital International World Indices
Morningstar, Inc. (data and mutual fund rankings and comparisons)
Nasdaq
Organization for Economic Cooperation and Development (publications)
Salomon Brothers Global Telecommunications Index
Salomon Brothers World Government Bond Index -- Non-U.S.
Salomon Brothers World Government Bond Index
Standard & Poor's (publications)
Standard & Poor's 500 Composite Stock Price Index
64
<PAGE> 88
Stangar
Wilshire Associates
World Bank (publications and reports)
The World Bank Publication of Trends in Developing Countries
Worldscope
The Fund may also compare its performance to rates on Certificates of Deposit
and other fixed rate investments such as the following:
10-year Treasuries
30-year Treasuries
30-day Treasury Bills
Information relating to foreign market performance, capitalization and
diversification is based on sources believed to be reliable but may be subject
to revision and has not been independently verified by the Fund or AIM
Distributors. Advertising for the Fund may from time to time include discussions
of general economic conditions and interest rates. Advertising for the Fund may
also include reference 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 for the Fund 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, and 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.
The information quoted will not be independently verified by the Fund or AIM
Distributors and will be based on data provided that is believed to be reliable
and accurate from sources including, but not limited to, the following:
- Consumer and trade groups
- Fortune magazine and other periodicals
- The World Bank and its publications
- The International Monetary Fund (IMF) and its publications
- IFC and its publications
- OECD and its publications
65
<PAGE> 89
APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc. ("Moody's") employs the designations "Prime-1"
and "Prime-2" to indicate commercial paper having the highest capacity for
timely repayment. Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This
normally will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") rates
commercial paper in four categories ranging from "A-1" for the highest quality
obligations to "D" for the lowest. A-1 -- This highest category indicates that
the degree of safety regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics will be denoted with a plus
sign (+) designation. A-2 -- Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1." A-3 -- Issues carrying this designation
have adequate capacity for timely payment. They are, however, more vulnerable to
the adverse effects of changes in circumstances than obligations carrying the
higher designations. B -- Issues rated "B" are regarded as having only
speculative capacity for timely payment. C -- This rating is assigned to
short-term debt obligations with a doubtful capacity for payment. D -- Debt
rated "D" is in payment default. The "D" rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.
DESCRIPTION OF BOND RATINGS
Moody's rates the long-term debt securities issued by various entities from
"Aaa" to "C." Investment Grade Ratings are the first four categories: Aaa
-- Best quality. These securities carry the smallest degree of investment risk
and are generally referred to as "gilt edged." Interest payments are protected
by a large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues. Aa -- High quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities. A -- Upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Baa -- Medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Ba -- Have speculative elements and their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class. B -- Generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small. Caa -- Poor standing.
Such issues may be in default or there may be present elements of danger with
respect to principal or interest. Ca --
66
<PAGE> 90
Speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C -- Lowest rated class of bonds. Issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
S&P rates the debt securities of various entities in categories ranging from
"AAA" to "D" according to quality. Investment grade ratings are the first four
categories: AAA -- Highest rating. Capacity to pay interest and repay principal
is extremely strong. AA -- Very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree. A
-- Has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories. BBB -- Regarded as
having adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. BB, B, CCC, CC, C -- Debt rated "BB," "B," "CCC," "CC," and "C" is
regarded, on balance, as predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. BB -- Has less near-term vulnerability
to default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BBB--"
rating. B -- Has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or
"BB--" rating. CCC -- Has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B--" rating. CC -- Typically applied to
debt subordinated to senior debt that is assigned an actual or implied "CCC"
rating. C -- Typically applied to debt subordinated to senior debt that is
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued. C1 -- Reserved for income bonds on which no interest is
being paid. D -- In payment default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. This rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (--): The ratings from "AA" to "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
NR: Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
ABSENCE OF RATING
Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the
following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
67
<PAGE> 91
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa to B in its corporate bond rating system. The
modifier 1 indicates that the company ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
68
<PAGE> 92
FINANCIAL STATEMENTS
FS
<PAGE> 93
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Trends Fund (formerly AIM New Dimension Fund
and prior to that GT Global New Dimension Fund) and Board of Trustees of AIM
Series Trust (formerly GT Global Series Trust):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Trends Fund at
December 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
FEBRUARY 19, 1999
FS-1
<PAGE> 94
PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISOR
CLASS VALUE % OF NET
AIM GLOBAL THEME FUNDS SHARES (NOTE 1) ASSETS
- ---------------------------------------------------------------------- ----------- ------------ -------------
<S> <C> <C> <C>
AIM Global Consumer Products and Services Fund ..................... 560,525 $ 14,680,148 33.0
AIM Global Financial Services Fund ................................. 476,746 9,453,864 21.3
AIM Global Infrastructure Fund ..................................... 474,400 7,040,101 15.8
AIM Global Health Care Fund ........................................ 212,889 5,126,361 11.5
AIM Global Resources Fund .......................................... 384,299 4,265,717 9.6
AIM Global Telecommunications Fund ................................. 216,883 4,157,651 9.4
------------ -----
TOTAL THEME FUND INVESTMENTS (cost $43,425,392) ...................... 44,723,842 100.6
------------ -----
TOTAL INVESTMENTS (cost $43,425,392) * .............................. 44,723,842 100.6
Other Assets and Liabilities ......................................... (276,719) (0.6)
------------ -----
NET ASSETS ........................................................... $ 44,447,123 100.0
------------ -----
------------ -----
</TABLE>
- --------------
* For Federal income tax purposes, cost is $44,126,685 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 2,594,572
Unrealized depreciation: (1,997,415)
-------------
Net unrealized appreciation: $ 597,157
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-2
<PAGE> 95
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments at value (cost $43,425,392) (Note 1).................................................. $44,723,842
Receivable for Fund shares sold................................................................... 64,727
----------
Total assets.................................................................................... 44,788,569
----------
Liabilities:
Payable for Fund shares repurchased............................................................... 251,784
Payable for service and distribution expenses (Note 2)............................................ 89,662
----------
Total liabilities............................................................................... 341,446
----------
Net assets.......................................................................................... $44,447,123
----------
----------
Class A:
Net asset value and redemption price per share ($17,821,706 DIVIDED BY 1,555,460 shares
outstanding)....................................................................................... $ 11.46
----------
----------
Maximum offering price per share (100/95.25 of $11.46) *............................................ $ 12.03
----------
----------
Class B:+
Net asset value and offering price per share ($25,555,015 DIVIDED BY 2,240,410 shares
outstanding)....................................................................................... $ 11.41
----------
----------
Class C:+
Net asset value and offering price per share ($249,327 DIVIDED BY 21,865 shares outstanding)........ $ 11.40
----------
----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($821,075 DIVIDED BY
71,690 shares outstanding)......................................................................... $ 11.45
----------
----------
Net assets consist of:
Paid in capital (Note 4).......................................................................... $44,578,806
Undistributed net investment income............................................................... 2,313
Accumulated net realized loss on investments...................................................... (1,432,446)
Net unrealized appreciation of investments........................................................ 1,298,450
----------
Total -- representing net assets applicable to capital shares outstanding........................... $44,447,123
----------
----------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-3
<PAGE> 96
STATEMENT OF OPERATIONS
Year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income............................................................................ $ 131,152
Interest income............................................................................ 3,454
----------
Total investment income.................................................................. 134,606
----------
Expenses:
Service and distribution expenses: (Note 2)
Class A...................................................................... $ 98,572
Class B...................................................................... 258,946
Class C...................................................................... 2,080 359,598
----------
Other expenses............................................................................. 1,921
----------
Total expenses............................................................................. 361,519
----------
Net investment loss.......................................................................... (226,913)
----------
Net realized and unrealized gain (loss) on investments: (Note 1)
Net realized loss on investments............................................... (1,998,812)
Capital gain distributions received............................................ 836,396
----------
Net realized loss during the year........................................................ (1,162,416)
Net unrealized appreciation during the year.............................................. 4,092,846
----------
Net realized and unrealized gain on investments.............................................. 2,930,430
----------
Net increase in net assets resulting from operations......................................... $2,703,517
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-4
<PAGE> 97
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 15,
1997
(COMMENCEMENT
OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------- --------------
<S> <C> <C>
Increase in net assets
Operations:
Net investment loss...................................................... $ (226,913) $ (31,440)
Net realized gain (loss) on investments.................................. (1,162,416) 1,983,653
Net change in unrealized appreciation (depreciation) of investments...... 4,092,846 (2,794,396)
------------- --------------
Net increase (decrease) in net assets resulting from operations........ 2,703,517 (842,183)
------------- --------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income............................................... (26,011) --
From net realized gain on investments.................................... (219,151) --
In excess of net investment income....................................... -- (583,714)
Class B:
Distributions to shareholders: (Note 1)
From net investment income............................................... -- --
From net realized gain on investments.................................... (311,471) --
In excess of net investment income....................................... -- (781,183)
Class C:+
Distributions to shareholders: (Note 1)
From net investment income............................................... -- N/A
From net realized gain on investments.................................... (2,998) N/A
In excess of net investment income....................................... -- N/A
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income............................................... (5,762) --
From net realized gain on investments.................................... (9,683) --
In excess of net investment income....................................... -- (53,046)
------------- --------------
Total distributions.................................................... (575,076) (1,417,943)
------------- --------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested......................... 26,507,554 41,029,628
Decrease from capital shares repurchased................................. (19,757,886) (3,300,488)
------------- --------------
Net increase from capital share transactions........................... 6,749,668 37,729,140
------------- --------------
Total increase in net assets............................................... 8,878,109 35,469,014
Net assets:
Beginning of year........................................................ 35,569,014 100,000
------------- --------------
End of year *............................................................ $44,447,123 $ 35,569,014
------------- --------------
------------- --------------
*Includes undistributed/accumulated net investment income (loss).......... $ 2,313 $ 28,710
------------- --------------
------------- --------------
<FN>
- --------------
+ Commencing January 1, 1998, the Fund began offering Class C shares.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-5
<PAGE> 98
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding,
total investment return, ratios and supplemental data. This information has been
derived from information provided in the financial statements and market price
data for the shares.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------ ------------------------------------
SEPTEMBER 15, 1997 SEPTEMBER 15, 1997
(COMMENCEMENT (COMMENCEMENT
YEAR ENDED OF OPERATIONS) YEAR ENDED OF OPERATIONS)
DECEMBER 31, TO DECEMBER 31, 1997 DECEMBER 31, TO DECEMBER 31, 1997
1998 (d) (d) 1998 (d) (d)
------------- --------------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 10.63 $ 11.43 $ 10.62 $ 11.43
------------- ---------- ------------- ----------
Income from investment operations:
Net investment income (loss).......... (0.02) (0.01) (0.07) (0.02)
Net realized and unrealized gain
(loss) on investments................ 1.01 (0.31) 1.00 (0.32)
------------- ---------- ------------- ----------
Net increase (decrease) from
investment operations.............. 0.99 (0.32) 0.93 (0.34)
------------- ---------- ------------- ----------
Distributions to shareholders:
From net investment income............ (0.02) -- -- --
From net realized gain on
investments.......................... (0.14) -- (0.14) --
In excess of net investment income.... -- (0.48) -- (0.47)
------------- ---------- ------------- ----------
Total distributions................. (0.16) (0.48) (0.14) (0.47)
------------- ---------- ------------- ----------
Net asset value, end of period.......... $ 11.46 $ 10.63 $ 11.41 $ 10.62
------------- ---------- ------------- ----------
------------- ---------- ------------- ----------
Total investment return (c)............. 9.37% (2.68)% (b) 8.83% (2.83)% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 17,822 $ 15,145 $ 25,555 $ 19,184
Ratio of net investment income (loss) to
average net assets..................... (0.21)% (0.35)% (a) (0.71)% (0.85)% (a)
Ratio of operating expenses to average
net assets (Note 2).................... 0.50% 0.50% (a) 1.00% 1.00% (a)
Portfolio turnover rate++............... 28% 1% (a) 28% 1% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing January 1, 1998, the Fund began offering Class C shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
FS-6
<PAGE> 99
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding,
total investment return, ratios and supplemental data. This information has been
derived from information provided in the financial statements and market price
data for the shares.
<TABLE>
<CAPTION>
ADVISOR CLASS
------------------------------------
CLASS C+ SEPTEMBER 15, 1997
------------- (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31, 1997
1998 (d) 1998 (d) (d)
------------- ------------- ---------------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 10.62 $ 10.64 $ 11.43
------------- ------------- ----------
Income from investment operations:
Net investment income (loss).......... (0.08) 0.03 0.01
Net realized and unrealized gain
(loss) on investments................ 1.00 1.00 (0.31)
------------- ------------- ----------
Net increase (decrease) from
investment operations.............. 0.92 1.03 (0.30)
------------- ------------- ----------
Distributions to shareholders:
From net investment income............ -- (0.08) --
From net realized gain on
investments.......................... (0.14) (0.14) --
In excess of net investment income.... -- -- (0.49)
------------- ------------- ----------
Total distributions................. (0.14) (0.22) (0.49)
------------- ------------- ----------
Net asset value, end of period.......... $ 11.40 $ 11.45 $ 10.64
------------- ------------- ----------
------------- ------------- ----------
Total investment return (c)............. 8.94% 9.80% (2.51)% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 249 $ 821 $ 1,241
Ratio of net investment income (loss) to
average net assets..................... (0.71)% 0.28% 0.15% (a)
Ratio of operating expenses to average
net assets (Note 2).................... 1.00% 0.00% 0.00% (a)
Portfolio turnover rate++............... 28% 28% 1% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing January 1, 1998, the Fund began offering Class C shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
FS-7
<PAGE> 100
NOTES TO
FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
AIM Global Trends Fund (the "Fund"), formerly AIM New Dimension Fund and prior
to that GT Global New Dimension Fund is a diversified series of AIM Series Trust
(the "Trust"), formerly GT Global Series Trust. The Trust is organized as a
Delaware business trust and is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company. The
Fund invests substantially all of its assets in Advisor Class shares of the AIM
theme mutual funds: AIM Global Consumer Products and Services Fund; AIM Global
Financial Services Fund; AIM Global Health Care Fund; AIM Global Infrastructure
Fund; AIM Global Resources Fund; and AIM Global Telecommunications Fund
(collectively, the "Underlying Theme Funds").
The Fund offers Class A, Class B, Class C, and Advisor Class shares, each of
which has equal rights as to assets and voting privileges. Class A, Class B, and
Class C, each have exclusive voting rights with respect to its distribution
plan. Investment income, realized and unrealized capital gains and losses of the
Fund are allocated on a pro rata basis to each Class based on the relative net
assets of each class to the total net assets of the Fund. Each class of shares
differs in its respective service and distribution expenses.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting year. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of, and completes orders, to purchase
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Investments of the Fund are valued based on the closing net asset value of
Advisor Class shares of each Underlying Theme Funds on the day of valuation, and
Short-term investments with a maturity of 60 days or less are valued at
amortized cost.
(B) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(C) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The Fund currently has a capital loss carryforward of
$731,153 which expires in 2006.
(D) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirectly wholly owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator. As of the
close of business on May 29, 1998, Liechtenstein Global Trust AG ("LGT"), the
former indirect parent organization of Chancellor LGT Asset Management, Inc.
("Chancellor LGT"), consummated a purchase agreement with AMVESCAP PLC pursuant
to which AMVESCAP PLC acquired LGT's Asset Management Division, which included
Chancellor LGT and certain other affiliates. Also, as of the close of business
May 29, 1998, A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, became the Fund's distributor, and the Trust was
reorganized from a Massachusetts business trust into a Delaware business trust.
Finally, as of the close of business on September 4, 1998, A I M Fund Services,
Inc. ("AFS"), an affiliate of the Manager and AIM Distributors, replaced GT
Global Investor Services, Inc. ("GT Services") as the transfer agent of the
Fund.
AIM Distributors serves as the Fund's distributor. For the period ended May 29,
1998, GT Global, Inc. ("GT Global"), an affiliate of the investment sub-advisor,
served as the Fund's distributor.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended December 31, 1998, AIM Distributors
retained $5,203 of such sales charges. Purchases of Class A shares exceeding
$1,000,000 may be subject to a contingent deferred sales charge ("CDSC") upon
redemption, in accordance with the Fund's current prospectus. There were no
CDSC's collected for Class A for the year ended December 31,1998. In addition,
AIM Distributors also makes ongoing shareholder servicing and trail commission
payments to dealers whose clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors from its own resources pays
FS-8
<PAGE> 101
commissions to dealers through which the sales are made. Certain redemptions of
Class B shares made within six years of purchase are subject to CDSCs, in
accordance with the Fund's current prospectus. During the year ended December
31, 1998, AIM Distributors collected such CDSCs in the amount of $77,258. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
Class C shares are not subject to initial sales charges. When Class C shares are
sold, AIM Distributors from its own resources pays commissions to dealers
through which the sales are made. Certain redemptions of Class C shares made
within one year of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. During the year ended December 31, 1998, AIM Distributors
collected such CDSCs in the amount of $208. In addition, AIM Distributors makes
ongoing shareholder servicing and trail commission payments to dealers whose
clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan"), Class B
shares ("Class B Plan") and Class C shares ("Class C"), the Fund reimbursed GT
Global for a portion of its shareholder servicing and distribution expenses.
Under the Class A Plan, the Fund was permitted to pay GT Global a service fee at
the annualized rate of up to 0.25% of the average daily net assets of the Fund's
Class A shares for GT Global's expenditures incurred in servicing and
maintaining shareholder accounts, and was permitted to pay GT Global a
distribution fee at the annualized rate of up to 0.50% of the average daily net
assets of the Fund's Class A shares, less any amounts paid by the Fund as the
aforementioned service fee, for GT Global's expenditures incurred in providing
services as distributor. All expenses for which GT Global was reimbursed under
the Class A Plan would have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to that Class B Plan and Class C
Plan, the Fund was permitted to pay GT Global a service fee at the annualized
rate of up to 0.25% of the average daily net assets of the Fund's Class B and
Class C shares for GT Global's expenditures incurred in servicing and
maintaining shareholder accounts, and was permitted to pay GT Global a
distribution fee at the annualized rate of up to 0.75% of the average daily net
assets of the Fund's Class B and Class C shares for GT Global's expenditures
incurred in providing services as distributor. Expenses incurred under the Class
B Plan and Class C Plan in excess of 1.00% annually were permitted to be carried
forward for reimbursement in subsequent years as long as that Plan continues in
effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees has adopted a Master Distribution
Plan applicable to the Fund's Class A and Class C shares (the "Class A and Class
C Plan") and Class B shares ("Class B Plan"), pursuant to which a Fund
compensates AIM Distributors for the purpose of financing any activity that is
intended to result in the sale of Class A, Class B, and Class C shares of the
Funds. Under the Class A and Class C Plan, a Fund compensates AIM Distributors
at the annualized rate of 0.50% of the average daily net assets of the Fund's
Class A shares and an aggregated amount of 1.00% of the average daily net assets
of Class C shares of the Fund. The Fund, pursuant to the Fund's Class B Plan,
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares. Of these amounts, the Fund may pay a
service fee of 0.25% of the average daily net assets of the Class A or Class B
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own the
appropriate class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge.
The Manager is the pricing and accounting agent for the Fund. The Manager will
initially assume all costs of the Fund's operation, except for service and
distribution fees as described below and non-recurring and extraordinary
expenses. The Fund, as a shareholder in the Underlying Theme Funds, indirectly
will bear its proportionate share of any investment management fees and other
expenses paid by the Underlying Theme Funds. Subject to receipt of a pending
exemptive order from the Securities and Exchange Commission, the Trust, on
behalf of the Fund, will enter into a Special Servicing Agreement ("Agreement")
with the Underlying Theme Funds, the Manager and AFS, the transfer agent. If the
Board of Trustees of the Underlying Theme Funds makes certain findings, each
Underlying Theme Fund will pay certain nondistribution-related expenses of the
Fund to the extent such expenses are less than the estimated savings to the
Underlying Theme Funds from the operation of the Fund. The Manager and AIM
Distributors also voluntarily have undertaken to limit the Underlying Theme
Fund's expenses (exclusive of brokerage commissions, taxes, interest, and
extraordinary expenses) to the maximum annual rate of 1.50% of the average daily
net assets of the Underlying Theme Fund's Advisor Class shares.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay AFS an annualized fee
of $24.85 per shareholder accounts that are open during any monthly year (this
fee includes all out-of-pocket expenses), and an annualized fee of $0.70 per
shareholder account that is closed during any monthly year. Both fees shall be
billed by AFS monthly in arrears on a prorated basis of 1/12 of the annualized
fee for all such accounts.
For the period January 1, 1998 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
was also reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
Subject to the receipt of a pending exemptive order from the Securities and
Exchange Commission, the Trust will pay each of its Trustees who is not an
employee, officer or director of the Manager or AIM Distributors $5,000 per year
plus $300 for each meeting of the board or any committee thereof attended by the
Trustee. Until such order is received, the Manager pays the trustees such fees.
FS-9
<PAGE> 102
3. PURCHASES AND SALES
For the year ended December 31, 1998, purchases and sales, other than short-term
investments, of the Underlying Theme Funds by the Fund, are as follows:
<TABLE>
<CAPTION>
AIM GLOBAL PURCHASES SALES
- ------------------------------------------------ -------------- --------------
<S> <C> <C>
Consumer Products and Services Fund............. $ 5,701,863 $ 4,562,266
Telecommunications Fund......................... $ 1,828,214 1,193,655
Financial Services Fund......................... $ 3,832,422 2,779,932
Resources Fund.................................. $ 3,479,472 1,184,858
Health Care Fund................................ $ 2,374,943 1,310,095
Infrastructure Fund............................. $ 3,414,597 1,984,449
</TABLE>
4. CAPITAL SHARES
At December 31, 1998, there were an unlimited number of shares of beneficial
interest authorized, at no par value. Transactions in capital shares of the Fund
were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
SEPTEMBER 15, 1997
(COMMENCEMENT OF
YEAR ENDED OPERATIONS)
DECEMBER 31, 1998 TO DECEMBER 31, 1997
-------------------------- --------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold................................................. 952,323 $ 10,681,667 1,560,835 $ 17,768,084
Shares issued in connection with reinvestment of
distributions ............................................ 22,552 245,281 54,891 563,181
----------- ------------ ----------- ------------
974,875 10,926,948 1,615,726 18,331,265
Shares repurchased ......................................... (843,563) (9,206,317) (194,494) (2,190,806)
----------- ------------ ----------- ------------
Net increase ............................................... 131,312 $ 1,720,631 1,421,232 $ 16,140,459
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS B
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 1,302,574 $ 14,551,138 1,832,668 $ 20,681,472
Shares issued in connection with reinvestment of
distributions ............................................ 26,664 289,152 67,039 687,825
<CAPTION>
CLASS B
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
----------- ------------ ----------- ------------
1,329,238 14,840,290 1,899,707 21,369,297
Shares repurchased ......................................... (894,609) (9,623,737) (96,841) (1,061,266)
----------- ------------ ----------- ------------
Net increase ............................................... 434,629 $ 5,216,553 1,802,866 $ 20,308,031
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS C
*
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 35,723 $ 397,022 -- $ --
Shares issued in connection with reinvestment of
distributions ............................................ 265 2,876 -- --
----------- ------------ ----------- ------------
35,988 399,898 -- --
Shares repurchased ......................................... (14,123) (146,933) -- --
----------- ------------ ----------- ------------
Net increase ............................................... 21,865 $ 252,965 -- $ --
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
ADVISOR
CLASS
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 29,946 $ 324,974 113,102 $ 1,276,664
Shares issued in connection with reinvestment of
distributions ............................................ 1,418 15,444 5,102 52,402
---------- ------------ ---------- ------------
31,364 340,418 118,204 1,329,066
Shares repurchased ......................................... (76,261) (780,899) (4,533) (48,416)
---------- ------------ ---------- ------------
Net increase (decrease) .................................... (44,897) $ (440,481) 113,671 $ 1,280,650
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
- ----------------
* The Fund began offering Class C shares on January 1, 1998.
- ----------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$543,303 as a capital gain dividend for the fiscal year ended December 31, 1998.
FS-10
<PAGE> 103
AIM GLOBAL TRENDS FUND
- --------------------------------------------------------------------------------
ADVISOR CLASS
AIM Global Trends Fund seeks to provide long-term growth of capital.
PROSPECTUS
AUGUST 27, 1999
This prospectus contains important
information. Please read it before
investing and keep it for future
reference.
The Advisor Class is closed to new
investors.
As with all other mutual fund
securities, the Securities and
Exchange Commission has not approved
or disapproved these securities or
determined whether the information
in this prospectus is adequate or
accurate. Anyone who tells you
otherwise is committing a crime.
[AIM LOGO APPEARS HERE] INVEST WITH DISCIPLINE--Registered Trademark--
<PAGE> 104
----------------------
AIM GLOBAL TRENDS FUND
----------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- -----------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- -----------------------------------------------
PERFORMANCE INFORMATION 3
- -----------------------------------------------
Annual Total Returns 3
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- -----------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- -----------------------------------------------
The Advisor 5
Advisor Compensation 5
Portfolio Managers 5
OTHER INFORMATION 5
- -----------------------------------------------
Dividends And Distributions 5
FINANCIAL HIGHLIGHTS 6
- -----------------------------------------------
SHAREHOLDER INFORMATION A-1
- -----------------------------------------------
Purchasing Shares A-1
Redeeming Shares A-2
Exchanging Shares A-3
Pricing of Shares A-4
Taxes A-4
OBTAINING ADDITIONAL INFORMATION Back Cover
- -----------------------------------------------
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK, AIM Institutional Funds, aimfunds.com, La
Familia AIM de Fondos, La Familia AIM de Fondos and Design and Invest with
Discipline are registered service marks and AIM Bank Connection, AIM Funds, AIM
Funds and Design and AIM Investor are servicemarks of A I M Management Group
Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
<PAGE> 105
----------------------
AIM GLOBAL TRENDS FUND
----------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital.
The fund seeks to meet this objective by investing, normally, at least 65% of
its total assets in equity securities of issuers in the following global
industry sectors:
- - consumer products and services
- - financial services
- - health care
- - infrastructure
- - natural resources and
- - telecommunications and technology.
The fund considers a company to be in one of these industry sectors if it (1)
derives at least 50% of either its revenues or earnings from activities related
to that industry; or (2) devotes at least 50% of its assets to such activities,
based on the company's most recent fiscal year.
The fund may invest up to 35% of its assets in equity securities of issuers in
other global industry sectors and in debt securities of U.S. and foreign
issuers. The fund will normally invest in the securities of companies located in
at least three different countries, including the United States, and may invest
a significant portion of its assets in the securities of U.S. issuers. However,
the fund will invest no more than 50% of its total assets in the securities of
issuers in any one country, other than the U.S. The fund may invest
substantially in securities denominated in one or more currencies.
The fund may invest in companies located in developing countries, i.e., those
that are in the initial stages of their industrial cycle. The fund may also
invest up to 20% of its total assets in lower-quality debt securities, i.e.,
"junk bonds."
The portfolio managers invest fund assets by initially determining the
industry sectors that they believe provide the most advantageous investment
opportunities for meeting the fund's investment objective. If the portfolio
managers determine that certain sectors are facing slow or negative growth,
they will not invest fund assets in those sectors at that time. The portfolio
managers then analyze specific companies within these sectors for possible
investment. In analyzing specific companies for possible investment, the
portfolio managers ordinarily look for several of the following characteristics:
above-average per share earnings growth; high return on invested capital; a
healthy balance sheet; sound financial and accounting policies and overall
financial strength; strong competitive advantages; effective research and
product development and marketing; development of new technologies; efficient
service; pricing flexibility; strong management; and general operating
characteristics that will enable the companies to compete successfully in their
respective markets. The portfolio managers consider whether to sell a particular
security when any of those factors materially changes.
In anticipation of or in response to adverse market conditions or for cash
management purposes, the fund may hold all or a portion of its assets in cash
(U.S. dollars, foreign currency or multinational currency units), money market
instruments, or high-quality 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.
Because the fund focuses its investments in particular industries, an
investment in the fund may be more volatile than that of other investment
companies that do not concentrate their investments in such a manner. The value
of the shares of the fund will be especially susceptible to factors affecting
the industries in which it focuses. In particular, each of the industries is
subject to governmental regulation that may have a material effect on the
products and services offered by companies in that industry.
The prices of foreign securities may be further affected by other factors,
including:
- - Currency exchange rates--The dollar value of the fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
- - Political and economic conditions--The value of the fund's foreign investments
may be adversely affected by political and social instability in their home
countries and by changes in economic or taxation policies in those countries.
- - Regulations--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available information
about foreign companies than about U.S. companies.
- - Markets--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and more volatile than U.S. securities.
These factors may affect the prices of securities issued by foreign companies
located in developing countries more than those in countries with mature
economies. For example, many developing countries have, in the past, experienced
high rates of inflation or sharply devalued their currencies against the
1
<PAGE> 106
U.S. dollar, thereby causing the value of investments in companies located in
those countries to decline. Transaction costs are often higher in developing
countries and there may be delays in settlement procedures.
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.
The value of your shares could be adversely affected if the computer systems
used by the fund's investment advisor and the fund's other service providers are
not able to distinguish the year 2000 from the year 1900.
The fund's investment advisor and independent technology consultants are
working to avoid year 2000-related problems in its systems and to obtain
assurances that other service providers are taking similar steps. Year 2000
problems may also affect issuers in whose securities the fund invests.
2
<PAGE> 107
----------------------
AIM GLOBAL TRENDS FUND
----------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
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.
Prior to August 27, 1999, the fund was not actively managed and invested its
assets in other AIM funds (that were actively managed) based on the industry
weighting of the companies comprising the Morgan Stanley Capital International
("MSCI") All Country World Index. Those AIM funds invested in the same global
industry sectors the fund does: consumer products and services, financial
services, health care, infrastructure, natural resources, and telecommunications
and technology. Prior to that date, the fund, as a shareholder in other AIM
funds, was indirectly bearing its pro rata share of the fees and expenses
incurred by those funds.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows the performance of the fund's Advisor Class for
the year ended December 31, 1998.
<TABLE>
<CAPTION>
Annual
Year ended Total
December 31, Return
- ------------ ------
<S> <C>
1998 ............................. 9.80%
</TABLE>
During the period shown in the bar chart, the highest quarterly return was
19.57% (quarter ended December 30, 1998) and the lowest quarterly return was
- -17.76% (quarter ended September 30, 1998).
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index.
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(for the periods ended SINCE INCEPTION
December 31, 1998) 1 YEAR INCEPTION DATE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advisor Class 9.80% 5.40% 09/15/97
MSCI All Country World Index(1) 21.72 17.16(2) 08/31/97(2)
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The MSCI All Country World Index measures the performance of securities
listed on the major world stock exchanges of 47 markets, including both
developed and emerging markets.
(2) The average annual total return given is since the inception date of the
Advisor Class.
3
<PAGE> 108
----------------------
AIM GLOBAL TRENDS FUND
----------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(fees paid directly from
your investment) ADVISOR CLASS
- -------------------------------------------------
<S> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering
price) None
Maximum Deferred Sales Charge
(Load)
(as a percentage of original
purchase price or redemption
proceeds, whichever is less) None
- -------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(expenses that are deducted
from fund assets)(1) ADVISOR CLASS
- -------------------------------------------------
<S> <C>
Management Fees 0.98%
Distribution and/or Service
(12b-1) Fees None
Other Expenses 0.80
Total Annual Fund Operating
Expenses 1.78
Expense Reimbursement(2) 0.28
Net Expenses 1.50
- -------------------------------------------------
</TABLE>
(1) Expenses have been restated to reflect current fees.
(2) The investment advisor has contractually agreed to limit the fund's net
expenses.
EXPENSE EXAMPLE
This example is intended to help you compare the cost of investing in the
Advisor Class of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. To the extent fees are waived or
expenses are reimbursed, 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>
Advisor Class $ 181 $ 560 $ 964 $2,095
- ----------------------------------------------------
</TABLE>
4
<PAGE> 109
----------------------
AIM GLOBAL TRENDS FUND
----------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor) serves as the fund's investment advisor and
is responsible for its day-to-day management. The advisor is located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor supervises all
aspects of the fund's operations and provides investment advisory services to
the fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in 1976.
Today, the advisor, together with its subsidiaries, advises or manages over 125
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
ADVISOR COMPENSATION
Prior to August 27, 1999, the advisor received no compensation for its services
because the fund was not actively managed. The fund's advisory fees were paid
indirectly by the other AIM funds in which the fund invested. The advisor
currently receives compensation of 0.975% of the first $500 million of average
daily net assets of the fund; 0.95% on the next $500 million of such assets;
0.925% on the next $500 million of such assets; and 0.90% on amounts thereafter.
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 portfolios are
- - Derek S. Izuel, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1997. From 1995 to 1997 he was a full time student at the University of
Michigan. From 1991 to 1995 he was a software engineer with Bank of America.
- - Roger Mortimer, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1995.
- - Derek H. Webb, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1992.
- - Michael Yellen, Portfolio Manager, who has been responsible for the fund since
1999 and has been associated with the advisor and/or its affiliates since
1994.
OTHER INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains (including
any net gains from foreign currency transactions), if any, annually.
5
<PAGE> 110
----------------------
AIM GLOBAL TRENDS FUND
----------------------
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).
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, is included in the fund's annual
report, which is available upon request.
During the periods shown in the financial highlights table the fund was not
actively managed and invested in other AIM funds.
<TABLE>
<CAPTION>
ADVISOR CLASS
-------------------------------
SEPTEMBER 15,
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998(a) 1997(a)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $10.64 $11.43
Income from investment operations:
Net investment income (loss) 0.03 0.01
Net realized and unrealized gain (loss) on investments 1.00 (0.31)
Net increase (decrease) from investment operations 1.03 (0.30)
Distributions to shareholders:
From net investment income (0.08) --
From net realized gain on investments (0.14) --
In excess of net investment income -- (0.49)
Total distributions (0.22) (0.49)
Net asset value, end of period $11.45 $10.64
Total investment return 9.80% (2.51)%(b)
- -------------------------------------------------------------------------
Ratios and supplemental data:
- -------------------------------------------------------------------------
Net assets, end of period (in 000s) $ 821 $1,241
Ratio of net investment income (loss) to average net assets 0.28% 0.15%(c)
Ratio of operating expenses to average net assets 0.00% 0.00%(c)
Portfolio turnover rate(d) 28% 1%(c)
- -------------------------------------------------------------------------
</TABLE>
(a) These selected per share data were calculated based upon average shares
outstanding during the period.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover rates are calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
6
<PAGE> 111
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION FOR ADVISOR CLASS SHARES
- --------------------------------------------------------------------------------
In addition to the fund, A I M Advisors, Inc. serves as investment advisor to
many other mutual funds (the AIM Funds). The following information is about
Advisor Class shares of all the AIM Funds.
PURCHASING SHARES
MINIMUM INVESTMENTS PER AIM FUND ACCOUNT
The minimum initial investment for Advisor Class shares is $500; and the minimum
investment for purchases of additional Advisor Class shares is $50.
HOW TO PURCHASE SHARES
Shares offered by this prospectus are available for purchase only by certain
investors and are offered at net asset value without the imposition of a
front-end or contingent deferred sales charge or Rule 12b-1 fees. Advisor Class
shares are available through financial consultants (such as financial planners,
trust companies, bank trust departments, and registered investment advisors). In
order to purchase Advisor Class shares of any of the AIM Funds, your financial
consultant, on your behalf, must submit a fully completed new account
application form directly to the transfer agent.
You may purchase shares using one of the options below.
PURCHASE OPTIONS
- -
<TABLE>
<CAPTION>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a Financial Consultant Contact your financial consultant. Same
By Mail Must be submitted by your financial Mail your check and the remittance
consultant. slip from your confirmation
statement to the transfer agent.
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
By Wire Your financial consultant must mail Call the transfer agent to receive
a completed account application to a reference number. Then, use the
the transfer agent. You or your wire instructions at left.
financial consultant may call the
transfer agent at (800) 959-4246 to
receive a reference number. Then,
use the following wire
instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number:
00100366807
Beneficiary Account Name:
A I M Fund Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By AIM Bank Connection(SM) Open your account using one of the Mail completed AIM Bank
methods described above. Connection(SM) form to the transfer
agent. Once the transfer agent has
received the form, call the
transfer agent to place your
purchase order.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-1 ADV--08/99
<PAGE> 112
-------------
THE AIM FUNDS
-------------
SPECIAL PLANS
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in
Advisor Class shares of certain AIM Funds. Unless you specify otherwise, your
dividends and distributions will automatically be reinvested in the same AIM
Fund.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in Advisor Class shares of another AIM Fund:
(1) Your account balance (a) in the AIM Fund paying the dividend or distribution
must be at least $5,000; or (b) in the AIM Fund receiving the dividend or
distribution must be at least $500;
(2) Both accounts must have identical registration information; and
(3) You must have completed an authorization form to reinvest dividends and
distributions into another AIM Fund.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this program, you can designate how the
total value of your holdings of Advisor Class shares of AIM Funds should be
rebalanced, on a percentage basis, between two and ten of your AIM Funds on a
quarterly, semiannual, or annual basis. Your portfolio will be rebalanced
through the exchange of shares in one or more of your AIM Funds for Advisor
Class shares of one or more other AIM Funds in your portfolio. If you wish to
participate in the Program, make changes or cancel the Program, the transfer
agent must receive your request to participate, changes, or cancellation in good
order at least five business days prior to the next rebalancing date, which is
normally the 28th day of the last month of the period you choose. You may
realize taxable gains from these exchanges. We may modify, suspend, or terminate
the Program at any time on 60 days' prior written notice.
EACH AIM FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY AIM FUND; OR
- WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS PROSPECTUS.
REDEEMING SHARES
REDEMPTION FEES
No redemption fee is imposed when shares are redeemed or repurchased; however,
dealers/financial institutions may charge service fees for handling repurchase
transactions.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Through a Financial Contact your financial consultant.
Consultant
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners;
(2) the name of the AIM Fund and your account number; (3) if
the transfer agent does not hold your shares, endorsed share
certificates or share certificates accompanied by an
executed stock power; and (4) signature guarantees, if
necessary (see below). The transfer agent may require that
you provide additional information, such as corporate
resolutions or powers of attorney, if applicable.
By Telephone Call the transfer agent. You will be allowed to redeem by
telephone if (1) the proceeds are to be mailed to the
address on record (if there has been no change communicated
to us within the last 30 days) or transferred electronically
to a pre-authorized checking account; (2) you do not hold
physical share certificates; (3) you can provide proper
identification information; (4) the proceeds of the
redemption do not exceed $50,000; and (5) you have not
previously declined the telephone redemption privilege. The
transfer agent must receive your call during the hours the
New York Stock Exchange (NYSE) is open for business in order
to effect the redemption at that day's closing price.
</TABLE>
- --------------------------------------------------------------------------------
ADV--08/99 A-2
<PAGE> 113
-------------
THE AIM FUNDS
-------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds at the address on record with us.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine and are not
liable for telephone instructions that are reasonably believed to be genuine.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $50,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information.
REDEMPTIONS BY THE AIM FUNDS
If your account has been open at least one year, you have not made an additional
purchase in the account during the past six calendar months, and the value of
your account falls below $500 for three consecutive months due to redemptions or
exchanges (excluding retirement accounts), the AIM Funds have the right to
redeem the account after giving you 60 days' prior written notice. You may avoid
having your account redeemed during the notice period by bringing the account
value up to $500.
If an AIM Fund determines that you have provided incorrect information in
opening an account or in the course of conducting subsequent transactions, the
AIM Fund may, in its discretion, redeem the account and distribute the proceeds
to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange Advisor Class shares in one AIM
Fund for Advisor Class shares of another AIM Fund. You also may exchange Advisor
Class shares for AIM Cash Reserve shares of AIM Money Market Fund. Before
requesting an exchange, review the prospectus of the AIM Fund you wish to
acquire.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - You must meet the minimum purchase requirements for the AIM Fund into which
you are exchanging;
- - Shares of the AIM Fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
Beginning September 15, 1999, the following exchange condition will apply:
- - Because excessive short-term trading or market-timing activity can hurt fund
performance, you are limited to a maximum of 10 exchanges per calendar year.
If you exceed that limit, or if an AIM Fund or the distributor determines, in
its sole discretion, that your short-term trading is excessive or that you are
engaging in market-timing activity, it may reject any additional exchange
orders. An exchange is the movement out of (redemption) one AIM Fund and into
(purchase) another AIM Fund.
TERMS OF EXCHANGE
Under unusual market conditions, an AIM Fund may delay the purchase of shares
being acquired in an exchange for up to five business days if it determines that
it would be materially disadvantaged by the immediate transfer of exchange
proceeds.
There is no fee for exchanges. The exchange privilege is not an option or
right to purchase shares. Any of the participating AIM Funds or the distributor
may modify or discontinue this privilege at any time.
A-3 ADV--08/99
<PAGE> 114
-------------
THE AIM FUNDS
-------------
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the AIM Funds from which and into which the exchange
is to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours the NYSE is open for business; however, you still will be
allowed to exchange by telephone even if you have changed your address of record
within the preceding 30 days.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each AIM Fund's shares is the fund's net asset value per share. The
AIM Funds value portfolio securities for which market quotations are readily
available at market value. The AIM Funds value short-term investments maturing
within 60 days at amortized cost, which approximates market value. The AIM Funds
value all other securities and assets at their fair value. Securities and other
assets quoted in foreign currencies are valued in U.S. dollars based on the
prevailing exchange rates on that day. In addition, if, between the time trading
ends on a particular security and the close of the NYSE, events occur that
materially affect the value of the security, the AIM Funds may value the
security at its fair value as determined in good faith by or under the
supervision of the Board of Trustees of the AIM Fund. The effect of using fair
value pricing is that an AIM Fund's net asset value will be subject to the
judgment of the Board of Trustees instead of being determined by the market.
Because some of the AIM Funds may invest in securities that are primarily listed
on foreign exchanges, the value of those funds' shares may change on days when
you will not be able to purchase or redeem shares.
Each AIM Fund determines the net asset value of its shares as of the close of
the NYSE on each day the NYSE is open for business.
TIMING OF ORDERS
You can purchase, exchange or redeem shares during the hours the NYSE is open
for business. The AIM Funds price purchase, exchange, and redemption orders at
the net asset value calculated after the transfer agent receives an order in
good form. An AIM Fund may postpone the right of redemption only under unusual
circumstances, as allowed by the Securities and Exchange Commission, such as
when the NYSE restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
taxable to you at different rates depending on the length of time the fund holds
its assets. Different tax rates apply to ordinary income and long-term capital
gain distributions, regardless of how long you have held your shares. Every
year, you will be sent information showing the amount of dividends and
distributions you received from each AIM Fund during the prior year.
Any long-term or short-term capital gains realized from redemptions of AIM
Fund shares will be subject to federal income tax. Exchanges of shares for
shares of another AIM Fund are treated as a sale, and any gain realized on the
transaction will generally be subject to federal income tax.
The foreign, state, and local tax consequences of investing in AIM Fund shares
may differ materially from the federal income tax consequences described above.
You should consult your tax advisor before investing.
ADV--08/99 A-4
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----------------------
AIM GLOBAL TRENDS FUND
----------------------
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark--or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us
- ---------------------------------------------------------
<TABLE>
<S> <C>
BY MAIL: A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
BY TELEPHONE: (800) 347-4246
BY E-MAIL: [email protected]
ON THE INTERNET: http://www.aimfunds.com
(prospectuses and annual
and semiannual reports
only)
</TABLE>
- ---------------------------------------------------------
You also can obtain copies of the fund's SAI and other information at the SEC's
Public Reference Room in Washington, DC, on the SEC's website
(http://www.sec.gov), or by sending a letter, including a duplicating fee, to
the SEC's Public Reference Section, Washington, DC 20549-6009. Please call the
SEC at 1-800-SEC-0330 for information about the Public Reference Room.
- -----------------------------------
AIM Global Trends Fund
SEC 1940 Act file number: 811-7787
- -----------------------------------
[AIM LOGO APPEARS HERE] www.aimfunds.com GTR-PRO-2 INVEST WITH DISCIPLINE
-- Registered Trademark --
<PAGE> 116
STATEMENT OF
ADDITIONAL INFORMATION
ADVISOR CLASS SHARES OF
AIM GLOBAL TRENDS FUND
(A SERIES PORTFOLIO OF
AIM SERIES TRUST)
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
_______________________
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS
AND IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS OF
THE ABOVE-NAMED FUND, A COPY OF WHICH MAY BE OBTAINED
FREE OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC.,
P.O. BOX 4739, HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 347-4246
_______________________
STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 27, 1999
RELATING TO THE AIM GLOBAL TRENDS FUND PROSPECTUS DATED AUGUST 27, 1999
<PAGE> 117
TABLE OF CONTENTS
PAGE
----
INTRODUCTION..................................................................1
GENERAL INFORMATION ABOUT THE TRUST...........................................1
INVESTMENT STRATEGIES AND RISKS...............................................2
Primary Investment Practices of the Fund...........................2
Financial Services Industry..............................3
Infrastructure Industry..................................3
Natural Resources Industry...............................3
Consumer Products and Services Industry..................4
Health Care Industry.....................................4
Telecommunications and Technology Industry...............5
Other Investment Practices of the Fund.............................6
OPTIONS, FUTURES AND CURRENCY STRATEGIES.....................................10
Introduction......................................................10
Special Risks of Options, Futures and Currency Strategies.........11
Writing Call Options..............................................12
Writing Put Options...............................................13
Purchasing Put Options............................................13
Purchasing Call Options...........................................14
Index Options.....................................................15
Interest Rate, Currency and Stock Index Futures Contracts.........16
Options on Futures Contracts......................................18
Limitations on Use of Futures, Options on Futures and
Certain Options on Currencies..................................19
Forward Contracts.................................................19
Foreign Currency Strategies --Special Considerations..............20
Cover.............................................................21
ADDITIONAL RISK FACTORS......................................................21
General...........................................................21
Financial Services Industry.......................................21
Infrastructure Industry...........................................22
Natural Resources Industry........................................22
Consumer Products and Services Industry...........................23
Health Care Industry..............................................23
Telecommunications and Technology Industry........................23
Debt Securities...................................................23
Investing in Smaller Companies....................................24
Illiquid Securities...............................................25
Foreign Securities................................................26
INVESTMENT LIMITATIONS.......................................................30
Investment Limitations of the Fund................................30
EXECUTION OF PORTFOLIO TRANSACTIONS..........................................32
Portfolio Turnover................................................34
MANAGEMENT...................................................................34
Trustees and Executive Officers...................................34
Management Services Relating to the Fund..........................37
Expenses of the Fund..............................................38
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<PAGE> 118
Distribution Services Relating to the Fund........................38
HOW TO PURCHASE AND REDEEM SHARES............................................38
Backup Withholding................................................39
NET ASSET VALUE DETERMINATION................................................40
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS.....................................41
Reinvestment of Dividends and Distributions.......................41
Tax Matters.......................................................41
Taxation of the Fund..............................................41
Reinstatement Privilege...........................................42
Taxation of Certain Investment Activities.........................42
Taxation of the Fund's Shareholders...............................44
SHAREHOLDER INFORMATION......................................................44
MISCELLANEOUS INFORMATION....................................................49
Charges for Certain Account Information...........................49
Custodian.........................................................49
Transfer Agency and Fund Accounting Services......................49
Independent Accountants...........................................49
Legal Matters.....................................................50
Shareholder Liability.............................................50
Control Persons and Principal Holders of Securities...............50
INVESTMENT RESULTS...........................................................51
Total Return Quotations...........................................51
Performance Information...........................................52
APPENDIX A...................................................................55
Description of Commercial Paper Ratings...........................55
Description of Bond Ratings.......................................56
Absence of Rating.................................................56
FINANCIAL STATEMENTS.........................................................FS
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<PAGE> 119
INTRODUCTION
This Statement of Additional Information relates to the Advisor
Class shares of AIM Global Trends Fund, formerly known as GT Global New
Dimension Fund, (the "Fund"). The Fund is a diversified series of AIM Series
Trust (the "Trust"), an open-end management investment company organized as a
Delaware business trust. The Fund seeks its investment objective by investing
substantially all of its assets in shares in the following global industry
sectors: consumer products and services, financial services, health care,
infrastructure, natural resources, and telecommunications and technology. A I M
Advisors, Inc. ("AIM") serves as the investment manager of and administrator
for the 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 a fund being considered for
investment. This information is included in a Prospectus (the "Prospectus"),
dated August 27, 1999, which relates to the Advisor Class shares of the Fund.
Copies of the Prospectus and additional copies of this Statement of Additional
Information may be obtained without charge by writing the principal distributor
of the Fund's shares, A I M Distributors, Inc. ("AIM Distributors"), P.O. Box
4739, Houston, Texas 77210-4739, or by calling (800) 347-4246.
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 herein to sections of the Prospectus.
Additionally, the Prospectus and this Statement of Additional Information omit
certain information contained in the Trust's Registration Statement filed with
the SEC. Copies of the Registration Statement, including items omitted from the
Prospectus and this Statement of Additional Information, may be obtained from
the SEC by paying the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE TRUST
The Trust was previously organized as a Massachusetts business trust
named "GT Global Series Trust," which was established on August 26, 1996 and
which had one series named "GT Global New Dimension Fund." On May 29, 1998, the
Trust was reorganized into a Delaware business trust, which was initially
established on May 7, 1998. The Trust currently consists of one series, the
Fund. The Fund currently offers four different classes of shares: Class A
shares, Class B shares, Class C shares and Advisor Class shares. From time to
time the Board of Trustees of the Trust may create new series of shares without
the necessity of a vote of the shareholders of the Trust. All historical
financial and other information contained in this Statement of Additional
Information for periods prior to May 29, 1998 relating to the Fund is that of
GT Global New Dimension Fund.
This Statement of Additional Information relates solely to the
Advisor Class shares of the Fund.
The term "majority of the outstanding shares" of the Trust, of the
Fund or of a particular class of the Fund means, respectively, the vote of the
lesser of (a) 67% or more of the shares of the Trust, Fund or such class
present at a meeting of the Trust's shareholders, if the holders of more than
50% of the outstanding shares of the Trust, the Fund or such class are present
or represented by proxy, or (b) more than 50% of the outstanding shares of the
Trust, the Fund or such class.
Class A, Class B, Class C and Advisor Class shares of the Fund have
equal rights and privileges. Each share of a particular class is entitled to
one vote, to participate equally in dividends and distributions declared by the
Trust's Board of Trustees with respect to the class of the Fund and, upon
liquidation of the Fund, to participate proportionately in the net assets of
the Fund allocable to such class remaining after satisfaction of outstanding
liabilities of the Fund allocable to such class. Fund shares are fully paid,
non-assessable and fully transferable when issued and have no preemptive rights
and have such conversion and exchange rights as set forth in the Prospectus and
this Statement of Additional
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<PAGE> 120
Information. Fractional shares have proportionately the same rights, including
voting rights, as are provided for a full share. Other than the automatic
conversion of Class B shares to Class A shares, there are no conversion rights.
If any additional series of the Trust are established, on any matter
submitted to a vote of shareholders, shares of each series will be voted by its
shareholders individually when the matter affects the specific interest of that
series only, such as approval of its investment management arrangements. The
shares of the Trust's series would be voted in the aggregate on other matters,
such as the election of Trustees and ratification of the selection by the Board
of Trustees of the Trust's independent accountants.
Normally there will be no annual meeting of shareholders in any
year, except as required under the Investment Company Act of 1940, as amended
("1940 Act"). Fund shares do not have cumulative voting rights, which means
that the holders of a majority of the shares voting for the election of
Trustees can elect all the Trustees. A Trustee may be removed at any meeting of
the shareholders of the Trust by a vote of the shareholders owning at least
two-thirds of the outstanding shares. Any Trustee may call a special meeting of
shareholders for any purpose. Furthermore, Trustees shall promptly call a
meeting of shareholders solely for the purpose of removing one or more Trustees
when requested in writing to do so by shareholders holding 10% of the Trust's
outstanding shares.
Pursuant to the Trust's Declaration of Trust, the Trust may issue an
unlimited number of shares of the Fund. Each share of the Fund represents an
interest in the Fund only, has a par value of $0.01 per share, represents an
equal proportionate interest in the Fund with other Fund shares and is entitled
to such dividends and other distributions out of the income earned and gain
realized on the assets belonging to the Fund as may be declared at the
discretion of the Board of Trustees. Each share of the Fund is equal in
earnings, assets and voting privileges, except that each class normally has
exclusive voting rights with respect to its distribution plan and bears the
expenses, if any, related to the distribution of its shares. Fund shares, when
issued, are fully paid and nonassessable.
INVESTMENT STRATEGIES AND RISKS
PRIMARY INVESTMENT PRACTICES OF THE FUND
The following discussion of investment strategies and risks
supplements the discussion of investment objective and risks set forth in the
Prospectus under the headings "Investment Objective and Strategies" and
"Principal Risks of Investing in the Fund."
The Fund's investment objective is long-term growth of capital. The
Fund's investment objective may not be changed without the approval of the
holders of a majority of the Fund's outstanding shares. Unless specifically
noted, the Fund's investment policies described in the Prospectus and this
Statement of Additional Information, are not fundamental policies and may be
changed by the Trust's Board of Trustees without shareholder approval.
In addition to the investment practices described in the Prospectus,
the Fund may engage in certain other investment practices, including lending
their portfolio securities; purchasing securities on a when-issued or delayed
delivery basis; entering into repurchase or reverse repurchase agreements; and
borrowing money. There is no assurance that any Fund will achieve its
investment objective.
The Fund invests primarily in six global industry sectors: consumer
products and services, financial services, health care, infrastructure, natural
resources, and telecommunications and technology, so the Fund's investment
performance is directly related to the investment performance of the companies
in those sectors. In particular, each of the sectors is subject to governmental
regulation that may have a material effect on the products and services offered
by companies in these industries.
2
<PAGE> 121
Financial Services Industry
Examples of financial services companies include commercial banks
and savings institutions and loan associations and their holding companies;
consumer and industrial finance companies; diversified financial services
companies; investment banks; insurance brokerages; securities brokerage and
investment advisory companies; real estate-related companies; leasing
companies; and a variety of firms in all segments of the insurance field such
as multi-line, property and casualty and life insurance and insurance holding
companies.
AIM believes an accelerating rate of global economic interdependence
will lead to significant growth in the demand for financial services. In
addition, in AIM's view, as the industries evolve, opportunities will emerge
for those companies positioned for the future. Thus, AIM expects that banking
and related financial institution consolidation in the developed countries,
increased demand for retail borrowing in developing countries, a growing need
for international trade-based financing, a rising demand for sophisticated risk
management, the proliferating number of liquid securities markets around the
world, and larger concentrations of investable assets should lead to growth in
financial service companies that are positioned for the future.
Infrastructure Industry
Examples of infrastructure companies include those engaged in
designing, developing or providing the following products and services:
electricity production; oil, gas, and coal exploration, development, production
and distribution; water supply, including water treatment facilities; nuclear
power and other alternative energy sources; transportation, including the
construction or operation of transportation systems; steel, concrete, or
similar types of products; communications equipment and services (including
equipment and services for both data and voice transmission); mobile
communications and cellular radio/paging; emerging technologies combining
telephone, television and/or computer systems; and other products and services,
which, in AIM's judgment, constitute services significant to the development of
a country's infrastructure.
AIM believes that a country's infrastructure is one key to the
long-term success of that country's economy. AIM believes that adequate energy,
transportation, water, and communications systems are essential elements for
long-term economic growth. AIM believes that many developing nations,
especially in Asia and Latin America, plan to make significant expenditures to
the development of their infrastructure in the coming years, which is expected
to facilitate increased levels of services and manufactured goods.
In the developed countries of North America, Europe, Japan and the
Pacific Rim, AIM expects that the replacement and upgrade of transportation and
communications systems should stimulate growth in the infrastructure industries
of those countries. In addition, in AIM's view, deregulation of
telecommunications and electric and gas utilities in many countries is
promoting significant changes in these industries.
AIM believes that strong economic growth in developing countries and
infrastructure replacement, upgrade, and deregulation in more developed
countries provide an environment for favorable investment opportunities in
infrastructure companies worldwide. In addition, the long-term growth rates of
certain foreign countries' economies may be substantially higher than the
long-term growth rate of the U.S. economy. An integral aspect of certain
foreign countries' economies may be the development or improvement of their
infrastructure.
Natural Resources Industry
Examples of natural resource companies include those which own,
explore or develop: energy sources (such as oil, gas and coal); ferrous and
non-ferrous metals (such as iron, aluminum, copper, nickel, zinc and lead),
strategic metals (such as uranium and titanium) and precious metals (such as
gold, silver and platinum); chemicals; forest products (such as timber, coated
and uncoated tree sheet, pulp and newsprint); other basic commodities (such as
foodstuffs); refined products (such as chemicals and
3
<PAGE> 122
steel) and service companies that sell to these producers and refiners; and
other products and services, which, in AIM's opinion are significant to the
ownership and development of natural resources and other basic commodities.
AIM believes that the liberalization of formerly socialist economies
will bring about dramatic changes in both the supply and demand for natural
resources. In addition, rapid industrialization in developing countries of Asia
and Latin America is generating new demands for industrial materials that are
affecting world commodities markets. AIM believes these changes are likely to
create investment opportunities that benefit from new sources of supply and/or
from changes in commodities prices.
AIM also believes that investments in natural resource companies
offer an opportunity to protect wealth against the capital-eroding effects of
inflation. During periods of accelerating inflation or currency uncertainty,
worldwide investment demand for natural resources, particularly precious
metals, tends to increase, and during periods of disinflation or currency
stability, it tends to decrease. AIM believes that rising commodity prices and
increasing worldwide industrial production may favorably affect share prices of
natural resource companies, and investments in such companies can offer
excellent opportunities to offset the effects of inflation.
AIM has identified four areas in the natural resources industry that
it expects will create investment opportunities: (i) improving supply/demand
fundamentals, which may result in higher commodity prices; (ii) privatization
of state-owned natural resource businesses; (iii) management which can improve
production efficiencies without correspondingly increasing commodity prices;
and (iv) service companies with emerging technologies that can enhance
productivity or reduce production costs. Of course, there is no certainty that
these factors will produce the anticipated results.
Consumer Products and Services Industry
Examples of consumer products and services companies include those
that manufacture, market, retail, or distribute: durable goods (such as homes,
household goods, automobiles, boats, furniture and appliances, and computers);
non-durable goods (such as food and beverages and apparel); media,
entertainment, broadcasting, publishing and sports-related goods and services
(such as television and radio broadcast, motion pictures, wireless
communications, gaming casinos, theme parks, restaurants and lodging); and
goods and services to companies in the foregoing industries (such as
advertisers, textile companies and distribution and shipping companies).
The Fund expects that a significant portion of its assets may be
invested in the securities of U.S. issuers from time to time, particularly
those that market their products globally. However, consumer products and
services companies of a particular nation or region of the world are often
operated and owned in their local markets, close to their customers. These
companies, AIM believes, may offer superior opportunities for capital growth as
compared to their larger, multinational counterparts. Certain global markets
may be more attractive than others from time to time; companies dependent on
U.S. markets, for example, may be outperformed by companies not dependent on
U.S. markets.
AIM also believes that the demand for consumer products and services
worldwide will increase along with rising disposable incomes in both developed
and developing nations. Emerging economies, such as those in China, Southeast
Asia, Eastern Europe and Latin America, offer opportunities for the growth and
expansion of consumer markets. These regions currently comprise a growing
source of inexpensive consumer products for export and a growing source of
demand for consumer products and services as the disposable incomes of their
populations increase. In AIM's view, these changes are likely to create
investment opportunities in companies, both local and multinational, that are
able to employ innovative manufacturing, marketing, retailing and distribution
methods to open new markets and/or expand existing markets.
Health Care Industry
Examples of health care companies include those that are
substantially engaged in the design, manufacture or sale of products or
services used for or in connection with health care or medicine. Such
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<PAGE> 123
firms may include pharmaceutical companies; firms that design, manufacture,
sell or supply medical, dental and optical products, hardware or services;
companies involved in biotechnology, medical diagnostic, and biochemical
research and development; and companies involved in the ownership and/or
operation of health care facilities.
The Fund expects that, from time to time, a significant portion of
its assets may be invested in the securities of U.S. issuers. Health care
industries, however, are global industries with significant, growing markets
outside of the United States. A sizable portion of the companies which comprise
the health care industries are headquartered outside of the United States, and
many important pharmaceutical and biotechnology discoveries and technological
breakthroughs have occurred outside of the United States, primarily in Japan,
the United Kingdom and Western Europe.
AIM believes that the global health care industries offer attractive
long-term supply/demand dynamics. While the United States, Western Europe, and
Japan presently account for a substantial portion of health care expenditures,
this should change dramatically in the coming decade if the populations of
developing countries devote an increasing percentage of income to health care.
Additionally, AIM believes demographics on aging point to a significant
increase in demand from the industrialized nations, as the elderly account for
a growing proportion of worldwide health care spending. Finally, in AIM'S view,
technology will continue to expand the range of products and services offered,
with new drugs, medical devices and surgical procedures addressing medical
conditions previously considered untreatable.
In addition to these underlying trends, the United States is
presently experiencing a period of rapid and profound change in its own health
care system, marked by the rise of managed care, the formation of health care
delivery networks, and widespread consolidation across all segments of the
industry. AIM believes that this transition offers investment opportunities in
those companies acting as consolidators or otherwise gaining market share at
the expense of less efficient competitors.
Telecommunications and Technology Industry
Examples of telecommunications and technology companies include
those engaged in designing, developing or providing the following products and
services: communications equipment and services (including equipment and
services for both data and voice transmission); electronic components and
equipment; broadcasting (including television and radio, satellite, microwave
and cable television and narrowcasting); computer components, equipment and
software equipment; Internet technology; mobile communications and cellular
radio/paging; electronic mail; local and wide area networking and linkage of
word and data processing systems; publishing and information systems; videotext
and teletext; and emerging technologies combining telephone, television and/or
computer systems.
AIM believes that there are opportunities for continued growth in
demand for components, products, media and systems to collect, store, retrieve,
transmit, process, distribute, record, reproduce and use information. The
pervasive societal impact of communications and information technologies has
been accelerated by the lower costs and higher efficiencies that result from
the blending of computers with telecommunications systems. Accordingly,
companies engaged in the production of methods for using electronic and,
potentially, video technology to communicate information are expected to be
important in the Fund's portfolio. Older technologies, such as photography
and print also may be represented, however.
AIM has identified four areas in the telecommunications and
technology industry that it expects will create investment opportunities: (i)
deregulation of companies in the industry, which will allow competition to
promote greater efficiencies; (ii) privatization of state-owned
telecommunications businesses; (iii) development of infrastructure in
underdeveloped countries and upgrading of services in other countries; and (iv)
emerging technologies that will enhance productivity and reduce costs in the
telecommunications industry. Of course, there is no certainty that these
factors will produce the anticipated results.
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<PAGE> 124
SELECTION OF EQUITY INVESTMENTS AND ASSET ALLOCATION. The Fund
expects that, from time to time, a significant portion of its assets may be
invested in the securities of domestic issuers. The industries represented in
the Fund, however, are global industries with significant, growing markets
outside of the United States. A sizable proportion of the companies that
comprise the industries in which the Fund invests are headquartered outside of
the United States.
For these reasons, AIM believes that a portfolio composed only of
securities of U.S. issuers does not provide the greatest potential return from
an investment by the Fund. AIM uses its financial expertise in markets located
throughout the world and the substantial global resources of AMVESCAP PLC in
attempting to identify those countries and companies then providing the
greatest potential for long-term capital appreciation. In this fashion, AIM
seeks to enable shareholders to capitalize on the substantial investment
opportunities and the potential for long-term capital presented by the industry
represented in the Fund.
OTHER INVESTMENT PRACTICES OF THE FUND
U.S. GOVERNMENT SECURITIES. The Fund may invest in various direct
obligations of the U.S. Treasury and obligations issued or guaranteed by the
U.S. government or one of its agencies or instrumentalities (collectively,
"U.S. government securities"). Among the U.S. government securities that may be
held by the Fund are securities that are supported by the full faith and credit
of the United States; securities that are supported by the right of the issuer
to borrow from the U.S. Treasury; and securities that are supported solely by
the credit of the instrumentality.
There may be times when, in AIM's opinion, prevailing market,
economic or political conditions warrant reducing the proportion of the Fund's
assets invested in equity securities and increasing the proportion held in cash
(U.S. dollars, foreign currencies or multinational currency units) or invested
in debt securities or high quality money market instruments issued by
corporations, or the United States, or a foreign government. A portion of the
Fund's assets normally will be held in cash (U.S. dollars, foreign currencies
or multinational currency units) or invested in foreign or domestic high
quality money market instruments pending investment of proceeds from new sales
of Fund shares, to provide for ongoing expenses and to satisfy redemptions.
In certain countries, governmental restrictions and other
limitations on investment may affect the Fund's ability to invest in such
countries. In addition, in some instances only special classes of securities
may be purchased by foreigners and the market prices, liquidity and rights with
respect to those securities may vary from shares owned by nationals. AIM is not
aware at this time of the existence of any investment or exchange control
regulations which might substantially impair the operations of the Fund as
described in the Fund's Prospectus and Statement of Additional Information.
Restrictions may in the future, however, make it undesirable to invest in
certain countries. The Fund has no present intention of making any significant
investment in any country or stock market in which AIM considers the political
or economic situation to threaten the Fund with substantial or total loss of
its investment in such country or market.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of investment companies within the limitations of the 1940 Act.
These limitations currently provide that, in general, the Fund may purchase
shares of an investment company unless (a) such a purchase would cause the Fund
to own in the aggregate more than 3% of the total outstanding voting stock of
the investment company or (b) such a purchase would cause the Fund to have more
than 5% of its assets invested in the investment company or more than 10% of
its assets invested in an aggregate of all such investment companies.
Investments in closed-end investment companies may involve the payment of
substantial premiums above the value of such companies' portfolio securities.
The Fund does not intend to invest in such investment companies unless, in
AIM's judgment, the potential benefits of such investments justify the payment
of any applicable premiums. The return on such securities will be reduced by
operating expenses of such companies, including payments to the investment
managers of those investment companies.
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DEPOSITARY RECEIPTS. The Fund may hold securities of foreign issuers
in the form of American Depositary Receipts ("ADRs"), American Depositary
Shares ("ADSs") and European Depositary Receipts ("EDRs") or other securities
convertible into securities of eligible foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities for which
they may be exchanged. ADRs and ADSs are typically issued by an American bank
or trust company and evidence ownership of underlying securities issued by a
foreign corporation. EDRs, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), are issued in Europe typically by foreign banks
and trust companies and evidence ownership of either foreign or domestic
securities. Generally, ADRs and ADSs in registered form are designed for use in
U.S. securities markets and EDRs in bearer form are designed for use in
European securities markets. For purposes of the Fund's investment policies,
its Fund's investments in ADRs, ADSs and EDRs will be deemed to be investments
in the equity securities representing securities of foreign issuers into which
they may be converted.
ADR facilities may be established as either "unsponsored" or
"sponsored." While ADRs issued under these two types of facilities are in some
respects similar, there are distinctions between them relating to the rights
and obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-cash
distributions, and the performance of other services. The depository of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited securities
or to pass-through voting rights to ADR holders in respect of the deposited
securities. Sponsored ADR facilities are created in generally the same manner
as unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depository. The deposit agreement sets
out the rights and responsibilities of the issuer, the depository and the ADR
holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as
dividend payment fees of the depository), although ADR holders continue to bear
certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities. The Fund may invest in both sponsored and
unsponsored ADRs.
WARRANTS OR RIGHTS. Warrants or rights may be acquired by the Fund
in connection with other securities or separately and provide the Fund with the
right to purchase at a later date other securities of the issuer. Warrants are
securities permitting, but not obligating, their holder to subscribe for other
securities or commodities. Warrants do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets of
the issuer. As a result, warrants may be considered more speculative than
certain other types of investments. In addition, the value of a warrant does
not necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to its expiration
date.
LENDING OF FUND SECURITIES. For the purpose of realizing additional
income, the Fund may make secured loans of its securities holdings amounting to
not more than 30% of its total assets. Securities loans are made to
broker/dealers or institutional investors pursuant to agreements requiring that
the loans be continuously secured by collateral consisting of cash, U.S.
government securities, or certain irrevocable letters of credit at least equal
at all times to the value of the securities lent plus any accrued interest,
"marked to market" on a daily basis. The Fund may pay reasonable administrative
and custodial fees in connection with the loan of their securities. While the
securities loan is outstanding, the Fund will continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities,
as well as interest on the investment of the collateral or a fee from the
borrower. The Fund will have a right to call each loan and obtain the
securities within the stated settlement period. The Fund will not have the
right to vote equity securities while they are being lent, but it may call in a
loan in anticipation of any important vote. The risks in lending portfolio
securities, as with other extensions of secured credit,
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consist of possible delays in receiving additional collateral or in recovery of
the securities and possible loss of rights in the collateral should the
borrower fail financially. Loans will only be made to firms deemed by AIM to be
of good standing and will not be made unless, in AIM's judgment, the
consideration to be earned from such loans would justify the risk.
COMMERCIAL BANK OBLIGATIONS. For the purposes of the Fund's
investment policies with respect to bank obligations, obligations of foreign
branches of U.S. banks and of foreign banks are obligations of the issuing bank
and may be general obligations of the parent bank. Such obligations may,
however, be limited by the terms of a specific obligation and by government
regulation. As with investments in non-U.S. securities in general, investments
in the obligations of foreign branches of U.S. banks and of foreign banks may
subject the Fund to investment risks that are different in some respects from
those of investments in obligations of U.S. issuers. Although the Fund will
typically acquire obligations issued and supported by the credit of U.S. or
foreign banks having total assets at the time of purchase of $1 billion or
more, this $1 billion figure is not an investment policy or restriction of the
Fund. For the purposes of calculation with respect to the $1 billion figure,
the assets of a bank will be deemed to include the assets of its U.S. and
non-U.S. branches.
REPURCHASE AGREEMENTS. A repurchase agreement is a transaction in
which the Fund purchases securities from a bank or recognized securities dealer
and simultaneously commits to resell the securities to the bank or dealer on an
agreed-upon date or upon demand and at a price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased securities.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, including possible decline in the market value of
the underlying securities and delays and costs to the Fund if the other party
to the repurchase agreement becomes bankrupt, the Fund intends to enter into
repurchase agreements only with banks and dealers believed by AIM to present
minimal credit risks in accordance with guidelines established by the Board of
Trustees. AIM will review and monitor the creditworthiness of such institutions
under the applicable Board's general supervision.
The Fund will invest only in repurchase agreements collateralized at
all times in an amount at least equal to the repurchase price plus accrued
interest. To the extent that the proceeds from any sale of such collateral upon
a default in the obligation to repurchase were less than the repurchase price,
the Fund would suffer a loss. If the financial institution that is party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings, there may be restrictions on the
Fund's ability to sell the collateral and it could suffer a loss. However, with
respect to financial institutions whose bankruptcy or liquidation proceedings
are subject to the U.S. Bankruptcy Code, the Fund intends to comply with
provisions under such code that would allow the immediate resale of such
collateral. The Fund will not enter into a repurchase agreement with a maturity
of more than seven days if, as a result, more than 15% of the value of its net
assets would be invested in such repurchase agreements and other illiquid
investments.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS.
The Fund may borrow from banks or may borrow through reverse repurchase
agreements and "roll" transactions in connection with meeting requests for the
redemptions of the Fund's shares. The Fund's borrowings will not exceed 33 1/3%
of its total assets, i.e., the Fund's total assets at all times will equal at
least 300% of the amount of outstanding borrowings. If market fluctuations in
the value of the Fund's securities holdings or other factors cause the ratio of
its total assets to outstanding borrowings to fall below 300%, within three
days (excluding Sundays and holidays) of such event that Fund may be required
to sell portfolio securities to restore the 300% asset coverage, even though
from an investment standpoint such sales might be disadvantageous. The Fund may
also borrow up to 5% of its total assets for temporary or emergency purposes
other than to meet redemptions. However, no additional investments will be made
if the Fund's borrowings exceed 5% of its total assets. Any borrowing by the
Fund may cause greater fluctuation in the value of its shares than would be the
case if it did not borrow.
The Fund's fundamental investment limitations permit it to borrow
money for leveraging purposes. However, the Fund is currently prohibited,
pursuant to a non-fundamental investment policy, from borrowing money in order
to purchase securities. Nevertheless, this policy may be changed in the future
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by the Board. If the Fund employs leverage in the future, it would be subject
to certain additional risks. Use of leverage creates an opportunity for greater
growth of capital but would exaggerate any increases or decreases in the net
asset value of the Fund. When the income and gains on securities purchased with
the proceeds of borrowings exceed the costs of such borrowings, the Fund's
earnings or net asset value will increase faster than otherwise would be the
case; conversely, if such income and gains fail to exceed such costs, the
Fund's earnings or net asset value would decline faster than would otherwise be
the case.
The Fund may enter into reverse repurchase agreements. A reverse
repurchase agreement is a borrowing transaction in which the Fund transfers
possession of securities to another party, such as a bank or broker/dealer, in
return for cash, and agrees to repurchase the securities in the future at an
agreed upon price, which includes an interest component. The Fund may also
engage in "roll" borrowing transactions, which involve the sale of Government
National Mortgage Association certificates or other securities together with a
commitment (for which the Fund may receive a fee) to purchase similar, but not
identical, securities at a future date. The Fund will segregate cash or liquid
securities in an amount sufficient to cover its obligations under "roll"
transactions and reverse repurchase agreements with broker/dealers. No
segregation is required for reverse repurchase agreements with banks.
WHEN-ISSUED OR FORWARD COMMITMENT SECURITIES. The Fund may purchase
debt securities on a "when-issued" basis and may purchase or sell such
securities on a "forward commitment" basis in order to hedge against
anticipated changes in interest rates and prices. The price, which is generally
expressed in yield terms, is fixed at the time that the commitment is made, but
delivery and payment for the securities take place at a later date. When-issued
securities and forward commitments may be sold prior to the settlement date,
but the Fund will purchase or sell when-issued securities or enter into forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. No income accrues on securities that have been
purchased pursuant to a forward commitment or on a when-issued basis prior to
delivery to the Fund. If the Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it may incur a gain or loss.
At the time that the Fund enters into a transaction on a when-issued or forward
commitment basis, the Fund will segregate cash or liquid securities equal to
the value of the when-issued or forward commitment securities with its
custodian and will mark to market daily such assets. There is a risk that the
securities may not be delivered and that the Fund may incur a loss.
SHORT SALES. The Fund may make short sales of securities. A short
sale is a transaction in which the Fund sells a security in anticipation that
the market price of that security will decline. The Fund may make short sales
(i) as a form of hedging to offset potential declines in long positions in
securities it owns, or anticipates acquiring, or in similar securities, and
(ii) in order to maintain flexibility in its securities holdings.
When the Fund makes a short sale of a security it does not own, it
must borrow the security sold short and deliver it to the broker/ dealer or
other intermediary through which it made the short sale. The Fund may have to
pay a fee to borrow particular securities and will often be obligated to pay
over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security when the
borrowing is called or expires will be secured by collateral deposited with the
intermediary. The Fund will also be required to deposit collateral with its
custodian to the extent, if any, necessary so that the value of both collateral
deposits in the aggregate is at all times equal to at least 100% of the current
market value of the security sold short. Depending on arrangements made with
the intermediary from which it borrowed the security regarding payment of any
amounts received by it on such security, the Fund may not receive any payments
(including interest) on its collateral deposited with such intermediary.
If the price of the security sold short increases between the time
of the short sale and the time the Fund replaces the borrowed security, it will
incur a loss; conversely, if the price declines, the Fund will realize a gain.
Any gain will be decreased, and any loss increased, by the transaction costs
associated
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with the transaction. Although the Fund's gain is limited by the price at which
it sold the security short, its potential loss theoretically is unlimited.
The Fund will not make a short sale if, after giving effect to the
sale, the market value of the securities sold short exceeds 25% of the value of
its total assets or its aggregate short sales of the securities of any one
issuer exceed the lesser of 2% of its net assets or 2% of the securities of any
class of the issuer. Moreover, the Fund may engage in short sales only with
respect to securities listed on a national securities exchange.
TEMPORARY DEFENSIVE STRATEGIES. The Fund retains the flexibility to
respond promptly to changes in market and economic conditions. Accordingly, in
the interest of preserving shareholders' capital, AIM may employ a temporary
defensive investment strategy if it determines such a strategy to be warranted
due to market, economic or political conditions. Under a defensive strategy,
the Fund may invest up to 100% of their total assets in cash and/or high
quality debt securities and money market instruments. To the extent the Fund
adopts a temporary defensive posture, it will not be invested so as to achieve
directly its investment objective.
In addition, pending investment of proceeds from new sales of the
shares or to meet its ordinary daily cash needs, the Fund may hold cash and/or
may invest in high quality debt instruments and money market instruments. The
Fund may hold cash and/or may invest in money market instruments under similar
circumstances. Money market instruments in which the Fund may invest include,
but are not limited to, United States government securities; high-grade
commercial paper; bank certificates of deposit; bankers' acceptances and
repurchase agreements related to any of the foregoing. "High-grade commercial
paper" refers to commercial paper rated A-1 by Standard & Poor's, a division of
The McGraw-Hill Companies, Inc., ("S&P") or P-1 by Moody's Investors Service,
Inc. ("Moody's") or, if not rated, determined by AIM to be of comparable
quality.
PRIVATIZATIONS. The governments of some foreign countries have been
engaged in programs of selling part or all of their stakes in government owned
or controlled enterprises ("privatizations"). AIM believes that privatizations
may offer opportunities for significant capital appreciation and intends to
invest assets of the Fund in privatizations in appropriate circumstances. In
certain foreign countries, the ability of foreign entities such as the Fund to
participate in privatizations may be limited by local law, or the terms on
which the Fund may be permitted to participate may be less advantageous than
those for local investors. There can be no assurance that foreign governments
will continue to sell companies currently owned or controlled by them or that
privatization programs will be successful.
OPTIONS, FUTURES AND CURRENCY STRATEGIES
INTRODUCTION
The Fund may use forward currency 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). The Fund may invest in such instruments up to the full value of
its portfolio assets.
To attempt to hedge against adverse movements in exchange rates
between currencies, the Fund may enter into forward currency contracts for the
purchase or sale of a specified currency at a specified future date. Such
contracts may involve the purchase or sale of a foreign currency against the
U.S. dollar or may involve two foreign currencies. The Fund may enter into
forward currency contracts either with respect to specific transactions or with
respect to its portfolio positions. The Fund also may purchase and sell put and
call options on currencies, futures contracts on currencies and options on such
future contracts to hedge against movements in exchange rates.
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In addition, the Fund may purchase and sell put and call options on
equity and debt securities to hedge against the risk of fluctuations in the
prices of securities held by the Fund or that AIM intends to include in the
Fund's holders. The Fund also may purchase and sell put and call options on
stock indexes to hedge against overall fluctuations in the securities markets
generally or in a specific market sector.
Further, the Fund may sell stock index futures contracts and may
purchase put options or write call options on such futures contracts to protect
against a general stock market decline or a decline in a specific market sector
that could affect adversely the Fund's holders. The Fund also may purchase
stock index futures contracts and purchase call options or write put options on
such contracts to hedge against a general stock market or market sector advance
and thereby attempt to lessen the cost of future securities acquisitions. The
Fund may use interest rate futures contracts and options thereon to hedge the
debt portion of its portfolio against changes in the general level of interest
rates.
SPECIAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES
The use by the Fund of options, futures contracts and forward
currency contracts ("Forward Contracts") involves special considerations and
risks, as described below. Risks pertaining to particular instruments are
described in the sections that follow.
(1) Successful use of most of these instruments depends upon AIM's
ability to predict movements of the overall securities and currency
markets, which requires different skills than predicting changes in
the prices of individual securities. While AIM is experienced in the
use of these instruments, there can be no assurance that any
particular strategy adopted will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of the
investments being hedged. For example, if the value of an instrument
used in a short hedge increased by less than the decline in value of
the hedged investment, the hedge would not be fully successful. Such
a lack of correlation might occur due to factors unrelated to the
value of the investments being hedged, such as speculative or other
pressures on the markets in which the hedging instrument is traded.
The effectiveness of hedges using hedging instruments on indices
will depend on the degree of correlation between price movements in
the index and price movements in the investments being hedged.
(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. For example, if the Fund entered into a short hedge
because AIM projected a decline in the price of a security in the
Fund's portfolio, and the price of that security increased instead,
the gain from that increase might be wholly or partially offset by a
decline in the price of the hedging instrument. Moreover, if the
price of the hedging instrument declined by more than the increase
in the price of the security, the Fund could suffer a loss. In
either such case, the Fund would have been in a better position had
it not hedged at all.
(4) There is no assurance that a liquid secondary market will exist
for any particular option, futures contract or option thereon at any
particular time.
(5) As described below, the Fund might be required to maintain
assets as "cover," maintain segregated accounts or make margin
payments when it takes positions in instruments involving
obligations to third parties (i.e., instruments other than purchased
options). 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. The Fund's ability to
close out a position in an instrument
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prior to expiration or maturity depends on the existence of a
liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction
("contra party") to enter into a transaction closing out the
position. Therefore, there is no assurance that any position can be
closed out at a time and price that is favorable to the Fund.
WRITING CALL OPTIONS
The Fund may write (sell) call options on securities, indices and
currencies. Call options generally will be written on securities and currencies
that, in the opinion of AIM, are not expected to make any major price moves in
the near future but that, over the long term, deemed to be attractive
investments for the Fund.
A call option gives the holder (buyer) the right to purchase a
security or currency 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 writer of a call option continues, he
or she may be assigned an exercise notice, requiring him or her to deliver the
underlying security 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 writer effects a closing purchase transaction by purchasing
an option identical to that previously sold.
Portfolio securities or currencies on which call options may be
written will be purchased solely on the basis of investment considerations
consistent with the Fund's investment objective. 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 or currency above the exercise price,
and retains the risk of loss should the price of the security or currency
decline. Unlike one who owns securities or currencies not subject to an option,
the Fund has no control over when it may be required to sell the underlying
securities 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 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 or currency,
which will be increased or offset by the premium received. The Fund does not
consider a security or currency covered by a call option to be "pledged" as
that term is used in their policies that limit the pledging or mortgaging of
their assets.
Writing call options can serve as a limited short hedge because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund will
be obligated to sell the security or currency at less than its market value.
The premium that the Fund receives for writing a call option is
deemed to constitute the market value of an option. The premium the Fund will
receive from writing a call option will reflect, among other things, the
current market price of the underlying investment, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying investment, and the length of the option period. In determining
whether a particular call option should be written, AIM will consider the
reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for those options.
Closing transactions will be effected in order to realize a profit
on an outstanding call option, to prevent an underlying security or currency
from being called or to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date, or both.
The Fund will pay transaction costs in connection with the writing
of options and in entering into closing purchase contracts. Transaction costs
relating to options activity are normally higher than those applicable to
purchases and sales of portfolio securities.
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The exercise price of the options may be below, equal to or above
the current market values of the underlying securities, indices or currencies
at the time the options are written. From time to time, the Fund may purchase
an underlying security or currency for delivery in accordance with the exercise
of an option, rather than delivering such security or currency from its
portfolio. In such cases, additional costs will be incurred.
The Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more, respectively, than
the premium received from writing the option. Because increases in the market
price of a call option generally will reflect increases in the market price of
the underlying security or currency, any loss resulting from the repurchase of
a call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Fund.
WRITING PUT OPTIONS
The Fund may write put options on securities, indices and
currencies. A put option gives the purchaser of the option the right to sell,
and the writer (seller) the obligation to buy, the underlying security or
currency at the exercise price at any time until (American style) or on
(European style) the expiration date. The operation of put options in other
respects, including their related risks and rewards, is substantially identical
to that of call options.
The Fund generally would write put options in circumstances where
AIM wishes to purchase the underlying security or currency for the Fund's
holdings at a price lower than the current market price of the security or
currency. In such event, 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. Since the Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premium received.
Writing put options can serve as a limited long hedge because
increases in the value of the hedged investment would be offset to the extent
of the premium received for writing the option. However, if the security or
currency depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security or currency at greater than its
market value.
PURCHASING PUT OPTIONS
The Fund may purchase put options on securities, indices and
currencies. As the holder of a put option, the Fund would have the right to
sell the underlying security 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 or
currency ("protective put") owned by the Fund in order to protect against an
anticipated decline in the value of the security or currency. Such hedge
protection is provided only during the life of the put option when the Fund, as
the holder of the put option, is able to sell the underlying security or
currency at the put exercise price regardless of any decline in the underlying
security's market price or currency's exchange value. The premium paid for the
put option and any transaction costs would reduce any profit otherwise
available for distribution when the security or currency is eventually sold.
The Fund may also purchase put options at a time when it does not
own the underlying security or currency. By purchasing put options on a
security or currency it does not own, that Fund seeks to benefit from a decline
in the market price of the underlying security or currency. If the put option
is not sold when it has remaining value, and if the market price of the
underlying security or currency remains
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equal to or greater than the exercise price during the life of the put option,
the Fund will lose its entire investment in the put option. In order for the
purchase of a put option to be profitable, the market price of the underlying
security or currency must decline sufficiently below the exercise price to
cover the premium and transaction costs, unless the put option is sold in a
closing sale transaction.
PURCHASING CALL OPTIONS
The Fund may purchase call options on securities, indices and
currencies. As the holder of a call option, the Fund would have the right to
purchase the underlying security 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 or currency for its portfolio. Utilized in
this fashion, the purchase of call options would enable the Fund to acquire the
security or currency at the exercise price of the call option plus the premium
paid. At times, the net cost of acquiring the security or currency in this
manner may be less than the cost of acquiring the security or currency
directly. This technique may also be useful to the Fund in purchasing a large
block of securities that would be more difficult to acquire by direct market
purchases. 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 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 or
currencies it owns to avoid realizing losses that would result in a reduction
of its current return. For example, where the Fund has written a call option on
an underlying security or currency having a current market value below the
price at which it purchased the security or currency, an increase in the market
price could result in the exercise of the call option written by the Fund and
the realization of a loss on the underlying security or currency. Accordingly,
the Fund could purchase a call option on the same underlying security or
currency, which could be exercised to fulfill its delivery obligations under
its written call (if it is exercised). This strategy could allow the Fund to
avoid selling the portfolio security or currency at a time when it has an
unrealized loss; however, the Fund would have to pay a premium to purchase the
call option plus transaction costs.
Aggregate premiums paid for put and call options will not exceed 5%
of the Fund's total assets at the time of each purchase.
The Fund may attempt to accomplish objectives similar to those
involved in using Forward Contracts by purchasing put or call options on
currencies. A put option gives the Fund as purchaser the right (but not the
obligation) to sell a specified amount of currency at the exercise price at any
time until (American style) or on (European style) the expiration date of the
option. A call option gives the Fund as purchaser the right (but not the
obligation) to purchase a specified amount of currency at the exercise price at
any time until (American style) or on (European style) the expiration date of
the option. The Fund might purchase a currency put option, for example, to
protect itself against a decline in the dollar value of a currency in which it
holds or anticipates holding securities. If the currency's value should decline
against the dollar, the loss in currency value should be offset, in whole or in
part, by an increase in the value of the put. If the value of the currency
instead should rise against the dollar, any gain to the Fund would be reduced
by the premium it had paid for the put option. A currency call option might be
purchased, for example, in anticipation of, or to protect against, a rise in
the value against the dollar of a currency in which the Fund anticipates
purchasing securities.
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
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dealers directly and not through a clearing corporation (which guarantees
performance). Consequently, there is a risk of non-performance by the dealer.
Since no exchange is involved, OTC options are valued on the basis of an
average of the last bid prices obtained from dealers, unless a quotation from
only one dealer is available, in which case only that dealer's price will be
used. In the case of OTC options, there can be no assurance that a liquid
secondary market will exist for any particular option at any specific time.
The staff of the SEC considers purchased OTC options to be illiquid
securities. The Fund may also sell OTC options and, in connection therewith,
segregate assets or cover its obligations with respect to OTC options written
by it. The assets used as cover for OTC options written by the Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
The Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Fund
intends to purchase or write only those exchange-traded options for which there
appear to be liquid secondary markets. However, there can be no assurance that
such a market will exist at any particular time. Closing transactions can be
made for OTC options only by negotiating directly with the contra party or by a
transaction in the secondary market if any such market exists. Although the
Fund will enter into OTC options only with contra parties 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 contra
party, the Fund might be unable to close out an OTC option position at any time
prior to its expiration.
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.
When the Fund writes a call on an index, it receives a premium and agrees that,
prior to the expiration date, the purchaser of the call, upon exercise of the
call, will receive from the Fund an amount of cash if the closing level of the
index upon which the call is based is greater than the exercise price of the
call. The amount of cash is equal to the difference between the closing price
of the index and the exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of such
difference. When the Fund buys a call on an index, it pays a premium and has
the same rights as to such call as are indicated above. When the Fund buys a
put on an index, it pays a premium and has the right, prior to the expiration
date, to require the seller of the put, upon the Fund's exercise of the put, to
deliver to the Fund an amount of cash if the closing level of the index upon
which the put is based is less than the exercise price of the put, which amount
of cash is determined by the multiplier, as described above for calls. When the
Fund writes a put on an index, it receives a premium and the purchaser has the
right, prior to the expiration date, to require the Fund to deliver to it an
amount of cash equal to the difference between the closing level of the index
and the exercise price times the multiplier, if the closing level is less than
the exercise price.
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 vary
from the value of the index.
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Even if the Fund could assemble a securities portfolio that exactly
reproduced the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in writing
index options. When an index option is exercised, the amount of cash that the
holder is entitled to receive is determined by the difference between the
exercise price and the closing index level on the date when the option is
exercised. As with other kinds of options, the Fund, as the call writer, will
not know that it has been assigned until the next business day at the earliest.
The time lag between exercise and notice of assignment poses no risk for the
writer of a covered call on a specific underlying security, such as common
stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In
contrast, even if the writer of an index call holds securities that exactly
match the composition of the underlying index, it will not be able to satisfy
its assignment obligations by delivering those securities against payment of
the exercise price. Instead, it will be required to pay cash in an amount based
on the closing index value on the exercise date; and by the time it learns that
it has been assigned, the index may have declined, with a corresponding decline
in the value of its securities portfolio. This "timing risk" is an inherent
limitation on the ability of index call writers to cover their risk exposure by
holding securities positions.
If the Fund purchases an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
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.
The Fund only will enter into Futures Contracts that are traded 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 by the Commodity Futures
Trading Commission ("CFTC"). Futures are exchanged in London at the London
International Financial Futures Exchange.
Although techniques other than sales and purchases of Futures
Contracts could be used to reduce the Fund's exposure to interest rate,
currency exchange rate and stock market fluctuations, the Fund may be able to
hedge its exposure more effectively and at a lower cost through using Futures
Contracts.
A Futures Contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (security or currency) for a specified price at a designated date,
time and place. A stock index Futures Contract 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 at which the Futures Contract is
originally struck; 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 Futures Contract is
outstanding.
Although Futures Contracts typically require future delivery of and
payment for financial instruments or currencies, Futures Contracts usually are
closed out before the delivery date. Closing out
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an open Futures Contract sale or purchase is effected by entering into an
offsetting Futures Contract purchase or sale, respectively, for the same
aggregate amount of the identical financial instrument or currency and the same
delivery date. If the offsetting purchase price is less than the original sale
price, the Fund realizes a gain; if it is more, the Fund realizes a loss.
Conversely, if the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations. There can be no
assurance, however, that the Fund will be able to enter into an offsetting
transaction with respect to a particular Futures Contract 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 Futures
Contract.
As an example of an offsetting transaction, the contractual
obligations arising from the sale of one Futures Contract of September
deutschmarks on an exchange may be fulfilled at any time before delivery under
the Futures Contract is required (i.e., on a specified date in September, the
"delivery month") by the purchase of another Futures Contract of September
deutschmarks on the same exchange. In such instance, the difference between the
price at which the Futures Contract was sold and the price paid for the
offsetting purchase, after allowance for transaction costs, represents the
profit or loss to the Fund.
The Fund's Futures transactions will be entered into for hedging
purposes only, that is, Futures Contracts will be sold to protect against a
decline in the price of securities or currencies that the Fund owns, or Futures
Contracts 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 Contracts 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 Contracts. A margin deposit made when
the Futures Contract is entered into ("initial margin") is intended to ensure
the Fund's performance under the Futures Contract. The margin required for a
particular Futures Contract is set by the exchange on which the Futures
Contract 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 Contract more or less valuable,
a process known as marking-to-market.
Risks of Using Futures Contracts. The prices of Futures Contracts
are volatile and are influenced by, among other things, actual and anticipated
changes in interest rates and currency exchange rates, and in stock market
movements, which in turn are affected by fiscal and monetary policies and
national and international political and economic events.
There is a risk of imperfect correlation between changes in prices
of Futures Contracts and prices of the securities or currencies in the Fund's
portfolio being hedged. The degree of imperfection of correlation depends upon
circumstances such as variations in speculative market demand for Futures and
for securities or currencies, including technical influences in Futures
trading; and differences between the financial instruments being hedged and the
instruments underlying the standard Futures Contracts available for trading. A
decision of whether, when and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or interest or currency rate trends.
Because of the low margin deposits required, Futures trading
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a Futures Contract may result in immediate and substantial
loss, as well as gain, to the investor. For example, if at the time of
purchase, 10% of the value of the Futures Contract is deposited as margin, a
subsequent 10% decrease in the value of the Futures Contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, if the Futures Contract were
closed out. Thus, a purchase or sale of a Futures Contract may result in losses
in excess of the amount invested in the Futures Contract.
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Most U.S. Futures exchanges limit the amount of fluctuation
permitted in Futures Contract and options on Futures Contracts prices during a
single trading day. The daily limit establishes the maximum amount that the
price of a Futures Contract or option may vary either up or down from the
previous day's settlement price at the end of a trading session. Once the daily
limit has been reached in a particular type of Futures Contract or option, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures Contracts and option prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and subjecting some
traders to substantial losses.
If the Fund were unable to liquidate a Futures or option on 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.
Certain characteristics of the Futures market might increase the
risk that movements in the prices of Futures Contracts or options on Futures
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the Futures and options on
Futures markets are subject to daily variation margin calls and might be
compelled to liquidate Futures or options on Futures positions whose prices are
moving unfavorably to avoid being subject to further calls. These liquidations
could increase price volatility of the instruments and distort the normal price
relationship between the Futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the Futures market are
less onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the Futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the Futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
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,
which represents the amount by which the market price of the Futures Contract,
at exercise, exceeds (in the case of a call) or is less than (in the case of a
put) the exercise price of the option on the Futures Contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between
the exercise price of the option and the closing level of the securities,
currencies or index upon which the Futures Contract is based on the expiration
date. Purchasers of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
The purchase of call options on Futures can serve as a long hedge,
and the purchase of put options on Futures can serve as a short hedge. Writing
call options on Futures can serve as a limited short hedge, and writing put
options on Futures can serve as a limited long hedge, using a strategy similar
to that used for writing options on securities, foreign currencies or indices.
If the Fund writes an option on a Futures Contract, it will be
required to deposit initial and variation margin pursuant to requirements
similar to those applicable to Futures Contracts. Premiums received from the
writing of an option on a Futures Contract are included in the initial margin
deposit.
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The Fund may seek to close out an option position by selling an
option covering the same Futures Contract and having the same exercise price
and expiration date. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market.
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 liquidation value of the Fund, after
taking into account unrealized profits and unrealized losses on any contracts
it has entered into. In general, a call option on a Futures Contract is
"in-the-money" if the value of the underlying Futures Contract exceeds the
strike, i.e., exercise, price of the call; a put option on a Futures Contract
is "in-the-money" if the value of the underlying Futures Contract is exceeded
by the strike price of the put. This guideline may be modified by the Board,
without a shareholder vote. This limitation does not limit the percentage of
the Fund's assets at risk to 5%.
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.
The Fund engages in forward currency transactions in anticipation
of, or to protect itself against, fluctuations in exchange rates. The Fund
might sell a particular foreign currency forward, for example, when it holds
bonds denominated in a foreign currency but anticipates, and seeks to be
protected against, a decline in the currency against the U.S. dollar.
Similarly, the Fund might sell the U.S. dollar forward when it holds bonds
denominated in U.S. dollars but anticipates, and seeks to be protected against,
a decline in the U.S. dollar relative to other currencies. Further, the Fund
might purchase a currency forward to "lock in" the price of securities
denominated in that currency that it anticipates purchasing.
Forward Contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A Forward Contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. The Fund will enter into such
Forward Contracts with major U.S. or foreign banks and securities or currency
dealers in accordance with guidelines approved by the Board.
The Fund may enter into Forward Contracts either with respect to
specific transactions or with respect to its overall investments. The precise
matching of the Forward Contract amounts and the value of specific securities
generally will not be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the
value of those securities between the date the Forward Contract is entered into
and the date it matures. Accordingly, it may be necessary for that Fund to
purchase additional foreign currency on the spot (i.e., cash) market (and bear
the expense of such purchase) if the market value of the security is less than
the amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency the Fund is obligated to deliver. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain. Forward
Contracts involve the risk that anticipated currency movements will not be
predicted accurately, causing the Fund to sustain losses on these contracts and
transaction costs.
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At or before the maturity of a Forward Contract requiring the Fund
to sell a currency, it either may sell a security and use the sale proceeds to
make delivery of the currency or retain the security and offset its contractual
obligation to deliver the currency by purchasing a second contract pursuant to
which it will obtain, on the same maturity date, the same amount of the
currency that it is obligated to deliver. Similarly, the Fund may close out a
Forward Contract requiring it to purchase a specified currency by entering into
a second contract, if its contra party agrees, entitling it to sell the same
amount of the same currency on the maturity date of the first contract. The
Fund would realize a gain or loss as a result of entering into such an
offsetting Forward Contract under either circumstance to the extent the
exchange rate or rates between the currencies involved moved between the
execution dates of the first contract and the offsetting contract.
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.
FOREIGN CURRENCY STRATEGIES -- SPECIAL CONSIDERATIONS
The Fund may use options on foreign currencies, Futures on foreign
currencies, options on Futures on foreign currencies and Forward Contracts to
hedge against movements in the values of the foreign currencies in which the
Fund's securities are denominated. Such currency hedges can protect against
price movements in a security that the Fund owns or intends to acquire that are
attributable to changes in the value of the currency in which it is
denominated. Such hedges do not, however, protect against price movements in
the securities that are attributable to other causes.
The Fund might seek to hedge against changes in the value of a
particular currency when no Futures Contract, Forward Contract or option
involving that currency is available or one of such contracts is more expensive
than certain other contracts. In such cases, the Fund may hedge against price
movements in that currency by entering into a contract on another currency or
basket of currencies, the values of which the portfolio manager believes will
have a positive correlation to the value of the currency being hedged. The risk
that movements in the price of the contract will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Futures Contracts, options on Futures Contracts,
Forward Contracts and options on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of Futures Contracts, Forward
Contracts or options, the Fund could be disadvantaged by dealing in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirements that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or Futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Futures contracts or options
until they reopen.
Settlement of Futures Contracts, Forward Contracts and options
involving foreign currencies might be required to take place within the country
issuing the underlying currency. Thus, the Fund might be required to accept or
make delivery of the underlying foreign currency in accordance with any U.S. or
foreign regulations regarding the maintenance of foreign banking arrangements
by U.S. residents and
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might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.
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,
receivables and 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.
Assets used as cover or held in a segregated account 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.
ADDITIONAL RISK FACTORS
GENERAL
Equity securities, particularly common stocks, generally represent
the most junior position in an issuer's capital structure, and entitle holders
to an interest in the assets of the issuer, if any, remaining after all more
senior claims have been satisfied. The value of equity securities held by the
Fund will fluctuate in response to general market and economic developments, as
well as developments affecting the particular issuers of such securities. The
value of debt securities held by the Fund generally will fluctuate with changes
in the perceived creditworthiness of the issuers of such securities and
interest rates.
FINANCIAL SERVICES INDUSTRY
Companies in the financial services sector are subject to rapid
business changes, significant competition, value fluctuations due to the
concentration of loans in particular industries significantly affected by
economic conditions (such as real estate or energy), and volatile performance
dependent upon the availability and cost of capital and prevailing interest
rates. In addition, general economic conditions significantly affect these
companies. Credit and other losses resulting from the financial difficulty of
borrowers or other third parties potentially may have an adverse effect on
companies in these industries. Foreign banks, particularly those of Japan, have
reported financial difficulties attributed to increased competition, regulatory
changes, and general economic difficulties.
The financial services area in the United States currently is
changing relatively rapidly as existing distinctions between various financial
service segments become less clear. For instance, recent business combinations
have included insurance, finance, and securities brokerage under single
ownership. Some primarily retail corporations have expanded into securities and
insurance fields. Investment banking, securities brokerage, and investment
advisory companies are subject to government regulation and risk due to
securities trading and underwriting activities.
Many of the investment considerations discussed in connection with
banks, savings institutions and loan associations, and finance companies also
apply to insurance companies. The performance of insurance company investments
will be subject to risk from several factors. The earnings of insurance
companies will be affected by interest rates, pricing (including severe pricing
competition from time to time), claims activity, marketing competition and
general economic conditions. Particular insurance lines also will be influenced
by specific matters. Property and casualty insurance profits may be affected by
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certain weather catastrophes and other disasters. Life and health insurers'
profits may be affected by mortality and morbidity rates. Individual companies
may be exposed to material risks, including reserve inadequacy, problems in
investment portfolios (due to real estate or "junk" bond holdings, for
example), and the inability to collect from reinsurance carriers. Insurance
companies are subject to extensive governmental regulation, including the
imposition of maximum rate levels, which may not be adequate for some lines of
business. Proposed or potential anti-trust or tax law changes also may affect
adversely insurance companies' policy sales, tax obligations, and
profitability.
INFRASTRUCTURE INDUSTRY
The nature of regulation of infrastructure industries continues to
evolve in both the United States and foreign countries, and changes in
governmental policy and the need for regulatory approvals may have a material
effect on the products and services offered by companies in the infrastructure
industries. Electric, gas, water, and most telecommunications companies in the
United States, for example, are subject to both federal and state regulation
affecting permitted rates of return and the kinds of services that may be
offered. Government regulation may also hamper the development of new
technologies. Adverse regulatory developments could therefore potentially
affect the performance of the Fund.
In addition, many infrastructure companies have historically been
subject to the risks attendant to increases in fuel and other operating costs,
high interest costs on borrowed funds, costs associated with compliance with
environmental, and other safety regulations and changes in the regulatory
climate. Changes in prevailing interest rates may also affect the
Infrastructure Fund's share values because prices of equity and debt securities
of infrastructure companies tend to increase when interest rates decline and
decrease when interest rates rise. Further, competition is intense for many
infrastructure companies. As a result, many of these companies may be adversely
affected in the future and such companies may be subject to increased share
price volatility. In addition, many companies have diversified into oil and gas
exploration and development, and therefore returns may be more sensitive to
energy prices.
Some infrastructure companies, such as water supply companies,
operate in highly fragmented market sectors due to local ownership. In
addition, some of these companies are mature and experience little or no
growth. Either of these factors could have a material effect on infrastructure
companies and could therefore affect the performance of the Fund.
NATURAL RESOURCES INDUSTRY
The Fund invests in companies that engage in the exploration,
development, and distribution of coal, oil and gas in the United States. These
companies are subject to significant federal and state regulation, which may
affect rates of return on such investments and the kinds of services that may
be offered. In addition, many natural resource companies historically have been
subject to significant costs associated with compliance with environmental and
other safety regulations. Governmental regulation may also hamper the
development of new technologies.
Further, competition is intense for many natural resource companies.
As a result, many of these companies may be adversely affected in the future
and the value of the securities issued by such companies may be subject to
increased price volatility. Such companies may also be subject to irregular
fluctuations in earnings due to changes in the availability of money, the level
of interest rates, and other factors.
The value of securities of natural resource companies will fluctuate
in response to market conditions for the particular natural resources with
which the issuers are involved. The price of natural resources will fluctuate
due to changes in worldwide levels of inventory, and changes, perceived or
actual, in production and consumption. With respect to precious metals, such
price fluctuations may be substantial over short periods of time. In addition,
the value of natural resources may fluctuate directly with respect to various
stages of the inflationary cycle and perceived inflationary trends and are
subject to numerous factors, including national and international politics.
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CONSUMER PRODUCTS AND SERVICES INDUSTRY
The performance of consumer products and services companies relates
closely to the actual and perceived performance of the overall economy,
interest rates, and consumer confidence. In addition, many consumer products
and services companies have unpredictable earnings, due in part to changes in
consumer tastes and intense competition. As a result of either of these
factors, consumer products and services companies may be subject to increased
share price volatility.
The consumer products and services industry may also be subject to
greater government regulation than many other industries. Changes in
governmental policy and the need for regulatory approvals may have a material
effect on the products and services offered by companies in the consumer
products and services industries. Such governmental regulations may also hamper
the development of new business opportunities.
HEALTH CARE INDUSTRY
Health care industries generally are subject to substantial
governmental regulation. Changes in governmental policy or regulation could
have a material effect on the demand for products and services offered by
companies in the health care industries and therefore could affect the
performance of the Fund. Regulatory approvals are generally required before new
drugs and medical devices or procedures may be introduced and before the
acquisition of additional facilities by health care providers. In addition, the
products and services offered by such companies may be subject to rapid
obsolescence caused by technological and scientific advances.
TELECOMMUNICATIONS AND TECHNOLOGY INDUSTRY
Telecommunications and technology industries may be subject to
greater governmental regulation than many other industries and changes in
governmental policy and the need for regulatory approvals may have a material
effect on the products and services offered by companies in those industries.
Telephone operating companies in the United States, for example, are subject to
both federal and state regulation affecting permitted rates of return and the
kinds of services that may be offered. In addition, certain types of companies
in the telecommunications and technology industries are engaged in fierce
competition for market share that could result in increased share price
volatility.
DEBT SECURITIES
The value of the debt securities held by the Fund generally will
vary conversely with market interest rates. If interest rates in a market fall,
the value of the debt securities held by the Fund ordinarily will rise. If
market interest rates increase, however, the debt securities owned by the Fund
in that market will be likely to decrease in value.
Debt rated Baa by Moody's is considered by Moody's to have
speculative characteristics. Debt rated BB, B, CCC, CC or C by S&P, and debt
rated Ba, B, Caa, Ca or C by Moody's is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. For S&P, BB indicates
the lowest degree of speculation for such lower quality debt and C the highest
degree of speculation. For Moody's, Baa indicates the lowest degree of
speculation for such lower quality debt and C the highest degree of
speculation. While such lower quality debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. Debt rated C by Moody's or S&P is
the lowest rated debt that is not in default as to principal or interest, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Lower quality debt securities also are
generally considered to be subject to greater risk than securities with higher
ratings with regard to a deterioration of general economic conditions. These
lower quality debt securities are the equivalent of high yield, high risk
bonds, commonly known as "junk bonds." See Appendix A for a description of the
various debt ratings.
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Ratings of debt securities represent the rating agency's opinion
regarding their quality and are not a guarantee of quality. Rating agencies
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, rating agencies may
fail to make timely changes in credit ratings in response to subsequent events,
so that an issuer's current financial condition may be better or worse than a
rating indicates.
The market values of lower quality debt securities tend to reflect
individual developments of the issuer to a greater extent than do higher
quality securities, which react primarily to fluctuations in the general level
of interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of lower quality securities because such securities are
generally unsecured and may be subordinated to the claims of other creditors of
the issuer.
Lower quality debt securities of corporate issuers frequently have
call or buy-back features that permit the issuer to call or repurchase the
security from the Fund. If an issuer exercises these provisions in a declining
interest rate market, the Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. In addition,
the Fund may have difficulty disposing of lower quality securities because they
may have a thin trading market. There may be no established retail secondary
market for many of these securities, and the Fund anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. The lack of a liquid secondary market also may have an adverse
impact on market prices of such instruments and may make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing their
portfolio investments. The Fund may also acquire lower quality debt securities
during an initial underwriting or which are sold without registration under
applicable securities laws. Such securities involve special considerations and
risks.
In addition to the foregoing, factors that could have an adverse
effect on the market value of lower quality debt securities in which the Fund
may invest include: (i) potential adverse publicity; (ii) heightened
sensitivity to general economic or political conditions; and (iii) the likely
adverse impact of a major economic recession. The Fund may also incur
additional expenses to the extent it is required to seek recovery upon a
default in the payment of principal or interest on portfolio holdings, and the
Fund may have limited legal recourse in the event of a default.
AIM attempts to minimize the speculative risks associated with
investments in lower quality securities through credit analysis and by
carefully monitoring current trends in interest rates, political developments
and other factors.
INVESTING IN SMALLER COMPANIES
While the Fund's holdings normally will include securities of
established suppliers of traditional products and services, the Fund may invest
in smaller companies which can benefit from the development of new products and
services. These smaller companies may present greater opportunities for capital
appreciation, but may also involve greater risks than large, established
issuers. Such smaller companies may have limited resources, and their
securities may trade less frequently and in more limited volume than the
securities of larger, more established companies. As a result, the prices of
the securities of such smaller companies may fluctuate to a greater degree than
the prices of the securities of other issuers.
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ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid
securities. Securities may be considered illiquid if the Fund cannot reasonably
expect within seven days to sell the securities for approximately the amount at
which it values such securities. See "Investment Limitations." The sale of
illiquid securities, if they can be sold at all, generally will require more
time and result in higher brokerage charges or dealer discounts and other
selling expenses than will the sale of liquid securities such as securities
eligible for trading on U.S. securities exchanges or in OTC markets. Moreover,
restricted securities, which may be illiquid for purposes of this limitation,
often sell, if at all, at a price lower than similar securities that are
liquid.
Illiquid securities include those that are subject to restrictions
contained in the securities laws of other countries. However, securities that
are freely marketable in the country where they are principally traded, but
would not be freely marketable in the United States, will not be considered
illiquid. Where registration is required, the Fund may be obligated to pay all
or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the Securities Act of 1933, as amended (the "1933 Act"),
including private placements, repurchase agreements, commercial paper, foreign
securities and corporate bonds and notes. These instruments are often
restricted securities because the securities are sold in transactions not
requiring registration. Institutional investors generally will not seek to sell
these instruments to the general public, but instead will often depend either
on an efficient institutional market in which such unregistered securities can
be readily resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on resale
to the general public or certain institutions is not dispositive of the
liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
have developed as a result of Rule 144A, providing both readily ascertainable
values for restricted securities and the ability to liquidate an investment to
satisfy share redemption orders. Such markets include automated systems for the
trading, clearance and settlement of unregistered securities of domestic and
foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc. An insufficient number of qualified
institutional buyers interested in purchasing Rule 144A-eligible restricted
securities held by the Fund, however, could affect adversely the marketability
of such portfolio securities, and the Fund might be unable to dispose of such
securities promptly or at favorable prices.
With respect to liquidity determinations generally, the Board has
the ultimate responsibility for determining whether specific securities,
including restricted securities pursuant to Rule 144A under the 1933 Act, are
liquid or illiquid. The Board has delegated the function of making day-to-day
determinations of liquidity to AIM, in accordance with procedures approved by
that Board. AIM takes into account a number of factors in reaching liquidity
decisions, including (i) the frequency of trading in the security, (ii) the
number of dealers that make quotes for the security, (iii) the number of
dealers that have undertaken to make a market in the security, (iv) the number
of other potential purchasers and (v) the nature of the security and how
trading is effected (e.g., the time needed to sell the security, how offers are
solicited and the mechanics of transfer). AIM monitors the liquidity of
securities held by the Fund and periodically reports such determinations to the
Board. If the liquidity percentage restriction of the Fund is satisfied at the
time of investment, a later increase in the percentage of illiquid securities
held by the Fund resulting from a change in market value or assets will not
constitute a violation of that restriction. If as a result of a change in
market value or assets, the percentage of illiquid securities held by the Fund
increases above the applicable limit, AIM will take appropriate steps to bring
the aggregate amount of illiquid assets back within the prescribed limitations
as soon as reasonably practicable, taking into account the effect of any
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disposition on the Fund. AIM believes that carefully selected investments in
joint ventures, cooperatives, partnerships and state enterprises that are
illiquid (collectively, "Special Situations") could enable the Fund to achieve
capital appreciation substantially exceeding the appreciation it would realize
if it did not make such investments. However, in order to attempt to limit
investment risk, the Fund will invest no more than 5% of its total assets in
Special Situations.
FOREIGN SECURITIES
Political, Social and Economic Risks. Individual foreign economies
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, rate of savings and
capital reinvestment, resource self sufficiency and balance of payments
positions. Investing in securities of non-U.S. companies may entail additional
risks due to the potential political, social and economic instability of
certain countries and the risks of expropriation, nationalization, confiscation
or the imposition of restrictions on foreign investment convertibility of
currencies into U.S. dollars and on repatriation of capital invested. In the
event of such expropriation, nationalization, confiscatory taxation or other
confiscation by any country, the Fund could lose its entire investment in any
such country. In addition, governmental regulation in certain foreign countries
may impose interest rate controls, credit controls, and price controls. These
factors could have a material effect on foreign companies and could therefore
affect the performance of the Fund.
Religious, Political and Ethnic Instability. Certain countries in
which the Fund may invest may have groups that advocate radical religious or
revolutionary philosophies or support ethnic independence. Any disturbance on
the part of such individuals could carry the potential for widespread
destruction or confiscation of property owned by individuals and entities
foreign to such country and could cause the loss of the Fund's investment in
those countries. Instability may also result from, among other things, (i)
authoritarian governments or military involvement in political and economic
decision-making, including changes in government through extra-constitutional
means, (ii) popular unrest associated with demands for improved political,
economic and social conditions, and (iii) hostile relations with neighboring or
other countries. Such political, social and economic instability could disrupt
the principal financial markets in which the Fund invests and adversely affect
the value of its assets.
Foreign Investment Restrictions. Certain countries prohibit or
impose substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as the Fund. These
restrictions or controls may at times limit or preclude investments in certain
securities and may increase the cost and expenses of the Fund. For example,
certain countries require prior governmental approval before investments by
foreign persons may be made or may limit the amount of investment by foreign
persons in a particular company or limit the investment by foreign persons to
only a specific class of securities of a company that may have less
advantageous terms than securities of the company available for purchase by
nationals. Moreover, the national policies of certain countries may restrict
investment opportunities in issuers or industries deemed sensitive to national
interests. In addition, some countries require governmental approval for the
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors. In addition, if there is a deterioration in a country's
balance of payments or for other reasons, a country may impose restrictions on
foreign capital remittances abroad. The Fund could be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other restrictions on
investments.
Non-Uniform Corporate Disclosure Standards and Governmental
Regulation. Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and
profits appearing on the financial statements of such a company may not reflect
its financial position or results of operations in the way they would be
reflected had such financial statements been prepared in accordance with U.S.
generally accepted accounting principles. Most of the foreign securities held
by the Fund will not be registered with the SEC or regulators of any foreign
country, nor will the issuers thereof be subject to the SEC's reporting
requirements. Thus, there will be less available information concerning most
foreign issuers of securities held by the Fund than is available concerning
U.S. issuers. In instances where the financial statements of an issuer are not
deemed to reflect accurately the financial situation of
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the issuer, AIM will take appropriate steps to evaluate the proposed
investment, which may include on-site inspection of the issuer, interviews with
its management and consultations with accountants, bankers and other
specialists. There is substantially less publicly available information about
foreign companies than there are reports and ratings published about U.S.
companies. In addition, where public information is available, it may be less
reliable than such information regarding U.S. issuers. Issuers of securities in
foreign jurisdictions are generally not subject to the same degree of
regulation as are U.S. issuers with respect to such matters as restrictions on
market manipulation, insider trading rules, shareholder proxy requirements and
timely disclosure of information.
Currency Fluctuations. Because the Fund, under normal circumstances,
will invest a substantial portion of its total assets in the securities of
foreign issuers that are denominated in foreign currencies, the strength or
weakness of the U.S. dollar against such foreign currencies will account for
part of the Fund's investment performance. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of the Fund's holdings of securities and cash denominated in that
currency and, therefore, will cause an overall decline in its net asset value
and any net investment income and capital gains derived from such securities to
be distributed in U.S. dollars to the shareholders. Moreover, if the value of
the foreign currencies in which the Fund receives its income falls relative to
the U.S. dollar between receipt of the income and the making of distributions,
the Fund may be required to liquidate securities if it has insufficient cash in
U.S. dollars to meet distribution requirements.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors, including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the relative
movement of interest rates and the pace of business activity in the other
countries and the United States, and other economic and financial conditions
affecting the world economy.
Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, and Spain are members of the European
Economic and Monetary Union (the "EMU"). The EMU has established a common
European currency for participating countries which is known as the "euro."
Each participating country supplemented its existing currency with the euro on
January 1, 1999, and will replace its existing 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 expect to participate
in the EMU and may supplement its existing currency with the euro after January
1, 1999.
The introduction of the euro presents unique risks and
uncertainties, including how outstanding financial contracts will be treated
after January 1, 1999; the establishment of exchange rates for existing
currencies and the euro; and the creation of suitable clearing and settlement
systems for the euro. These and other factors could cause market disruptions
and could adversely affect the value of securities held by the Fund.
Although the Fund values its assets daily in terms of U.S. dollars,
the Fund does not intend to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. The Fund will do so, from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference ("spread") between the prices at which they buy and
sell various currencies. Thus, a dealer may offer to sell a foreign currency to
the Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to sell that currency to the dealer.
Adverse Market Characteristics. Securities of many foreign issuers
may be less liquid and their prices more volatile than securities of comparable
U.S. issuers. In addition, foreign securities markets and brokers generally are
subject to less governmental supervision and regulation than in the United
States, and foreign securities transactions usually are subject to fixed
commissions, which generally are higher than negotiated commissions on U.S.
transactions. In addition, foreign securities transactions may be subject to
difficulties associated with the settlement of such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause it to
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miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if that Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. AIM will consider such difficulties when
determining the allocation of the Fund's assets, although AIM does not believe
that such difficulties will have a material adverse effect on the Fund's
portfolio trading activities.
The Fund may use foreign custodians, which may charge higher custody
fees than those attributable to domestic investing and may involve risks in
addition to those related to its use of U.S. custodians. Such risks include
uncertainties relating to (1) determining and monitoring the foreign
custodian's financial strength, reputation and standing, (2) maintaining
appropriate safeguards concerning the Fund's investments, and (3) possible
difficulties in obtaining and enforcing judgments against such custodians.
Withholding Taxes. The Fund's net investment income from securities
of its foreign issuers may be subject to withholding taxes by the foreign
issuer's country, thereby reducing that income or delaying the receipt of
income when those taxes may be recaptured. See "Dividends, Distributions and
Tax Matters."
Concentration. To the extent the Fund invests a significant portion
of its assets in securities of issuers located in a particular country or
region of the world, it may be subject to greater risks and may experience
greater volatility than a fund that is more broadly diversified geographically.
Special Considerations Affecting Western European Countries. The
countries that are members of the European Economic Community ("Common Market")
(Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom)
eliminated certain import tariffs and quotas and other trade barriers with
respect to one another over the past several years. AIM believes that this
deregulation should improve the prospects for economic growth in many Western
European countries. Among other things, the deregulation could enable companies
domiciled in one country to avail themselves of lower labor costs existing in
other countries. In addition, this deregulation could benefit companies
domiciled in one country by opening additional markets for their goods and
services in other countries. Since, however, it is not clear what the exact
form or effect of these Common Market reforms will be on business in Western
Europe, it is impossible to predict the long-term impact of the implementation
of these programs on the securities owned by the Fund.
Special Considerations Affecting Russia and Eastern European
Countries. Investing in Russia and Eastern European countries involves a high
degree of risk and special considerations not typically associated with
investing in the U.S. securities markets and should be considered highly
speculative. Such risks include the following: (1) delays in settling portfolio
transactions and risk of loss arising out of the system of share registration
and custody; (2) the risk that it may be impossible or more difficult than in
other countries to obtain and/or enforce a judgment; (3) pervasiveness of
corruption and crime in the economic system; (4) currency exchange rate
volatility and the lack of available currency hedging instruments; (5) higher
rates of inflation (including the risk of social unrest associated with periods
of hyper-inflation) and high unemployment; (6) controls on foreign investment
and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on a fund's
ability to exchange local currencies for U.S. dollars; (7) political
instability and social unrest and violence; (8) the risk that the governments
of Russia and Eastern European countries may decide not to continue to support
the economic reform programs implemented recently and could follow radically
different political and/or economic policies to the detriment of investors,
including non-market-oriented policies such as the support of certain
industries at the expense of other sectors or investors, or a return to the
centrally planned economy that existed when such countries had a communist form
of government; (9) the financial condition of companies in these countries,
including large amounts of inter-company debt which may create a payments
crisis on a national scale; (10) dependency on exports and the corresponding
importance of international trade; (11) the risk that the tax system in these
countries will
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not be reformed to prevent inconsistent, retroactive and/or exorbitant
taxation; and (12) the underdeveloped nature of the securities markets.
Special Considerations Affecting Japan. Japan's economic growth has
declined significantly since 1990. The general government position has
deteriorated as a result of weakening economic growth and stimulative measures
taken to support economic activity and to restore financial stability. Although
the decline in interest rates and fiscal stimulation packages have helped to
contain recessionary forces, uncertainties remain. Japan is also heavily
dependent upon international trade, so its economy is especially sensitive to
trade barriers and disputes. Japan has had difficult relations with its trading
partners, particularly the United States, where the trade imbalance is the
greatest. It is possible that trade sanctions and other protectionist measures
could impact Japan adversely in both the short and the long term.
The common stocks of many Japanese companies trade at high
price-earnings ratios. Differences in accounting methods make it difficult to
compare the earnings of Japanese companies with those of companies in other
countries, especially in the United States. In general, however, reported net
income in Japan is understated relative to U.S. accounting standards and this
is one reason why price-earnings ratios of the stocks of Japanese companies
have tended historically to be higher than those for U.S. stocks. In addition,
Japanese companies have tended to have higher growth rates than U.S. companies
and Japanese interest rates have generally been lower than in the United
States, both factors which tend to result in lower discount rates and higher
price-earnings ratios in Japan than in the United States.
The Japanese securities markets are less regulated than those in the
United States. Evidence has emerged from time to time of distortion of market
prices to serve political or other purposes. Shareholders' rights are not
always equally enforced. In addition, Japan's banking industry is undergoing
problems related to bad loans and declining values in real estate.
Special Considerations Affecting Pacific Region Countries. Certain
of the risks associated with international investments are heightened for
investments in Pacific region countries. For example, some of the currencies of
Pacific region countries have experienced steady devaluations relative to the
U.S. dollar, and major adjustments have been made periodically in certain of
such currencies. Certain countries, such as India, face serious exchange
constraints. Jurisdictional disputes also exist between South Korea and North
Korea. In addition, the Fund may invest in Hong Kong, which reverted to Chinese
administration on July 1, 1997. Investments in Hong Kong may be subject to
expropriation, nationalization or confiscation, in which case the Fund could
lose its entire investment in Hong Kong. In addition, the reversion of Hong
Kong also presents a risk that the Hong Kong dollar will be devalued and a risk
of possible loss of investor confidence in Hong Kong's currency, stock market
and assets.
Special Considerations Affecting Latin American Countries. Most
Latin American countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative
effects on the economies and securities markets of certain Latin American
countries. Certain Latin American countries are also among the largest debtors
to commercial banks and foreign governments. At times certain Latin American
countries have declared moratoria on the payment of principal and/or interest
on external debt. In addition, certain Latin American securities markets have
experienced high volatility in recent years.
Latin American countries may also close certain sectors of their
economies to equity investments by foreigners. Further due to the absence of
securities markets and publicly owned corporations and due to restrictions on
direct investment by foreign entities, investments may only be made in certain
Latin American countries solely or primarily through governmentally approved
investment vehicles or companies.
Certain Latin American countries may have managed currencies that
are maintained at artificial levels to the U.S. dollar rather than at levels
determined by the market. This type of system can lead to sudden and large
adjustments in the currency which, in turn, can have a disruptive and negative
effect on
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foreign investors. For example, in late 1994, the value of the Mexican peso
lost more than one-third of its value relative to the U.S. dollar.
Special Considerations Affecting Emerging Markets. Many investments
in emerging markets are considered speculative and therefore may offer greater
return potential, but have significantly greater risk. Investing in the
securities of companies in emerging markets may entail special risks relating
to potential political and economic instability and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment, convertibility of currencies into U.S. dollars and on repatriation
of capital invested. In the event of such expropriation, nationalization or
other confiscation by any country, the Fund could lose its entire investment in
any such country.
Emerging securities markets are substantially smaller, less
developed, less liquid and more volatile than the major securities markets. The
limited size of emerging securities markets and limited trading value in
issuers compared to the volume of trading in U.S. securities could cause prices
to be erratic for reasons apart from factors that affect the quality of the
securities. For example, limited market size may cause prices to be unduly
influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on fundamental analysis, may
decrease the value and liquidity of portfolio securities, especially in these
markets. In addition, securities traded in certain emerging markets may be
subject to risks due to the inexperience of financial intermediaries, a lack of
modern technology, the lack of a sufficient capital base to expand business
operations, and the possibility of permanent or temporary termination of
trading.
Settlement mechanisms in emerging securities markets may be less
efficient and reliable than in more developed markets. In such emerging
securities there may be share registration and delivery delays or failures.
Many emerging market countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates and corresponding currency devaluations
have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries.
INVESTMENT LIMITATIONS
INVESTMENT LIMITATIONS OF THE FUND
The following fundamental limitations of the Fund cannot be changed
without the affirmative vote of a majority of the outstanding shares of the
Fund.
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 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 will not make investments that will result in the
concentration (as that term may be defined or interpreted by the
1940 Act Laws, Interpretations and Exemptions of its investments in
the securities of issuers primarily engaged in the same industry.
This restriction does not limit the Fund's investment in (i)
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, (ii) tax-exempt obligations issued by
government or political
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subdivisions of governments, or (iii) bank instruments. In complying
with this restriction, the Fund will not consider a bank-issued
guaranty or financial guaranty insurance as a separate security.
3. The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of
a single open-end management investment company with substantially
the same fundamental investment objectives, policies and limitations
as the Fund.
4. The Fund may not borrow money or issue senior securities, except
as permitted by the 1940 Act Laws, Interpretations and Exemptions.
5. 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.
6. 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.
7. The Fund may not make personal loans or loans to persons who
control or are under the 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 purchasing debt
obligations, entering into repurchase agreements, loaning its assets
to broker-dealers or institutional investors, or investing in loans,
including assignments and participation interests.
8. The Fund may not purchase or sell physical commodities unless
acquired as a result of owning securities or other instruments, but
the Fund may purchase, sell or enter into financial options and
futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments.
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 Fund follows
internal guidelines relating to certain of these restrictions which the adviser
must follow in managing the Fund. Any changes to these guidelines, which are
set forth below, require the approval of the Board.
1. In complying with the diversification restriction set forth in
(1) above, the Fund will not, with respect to 75% of its total
assets, purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities), if, as a result, (i) more than 5% of the
fund's total assets would be invested in the securities of that
issuer, or (ii) the fund would hold more than 10% of the outstanding
voting securities of that issuer. The fund may (i) purchase
securities of other investment companies as permitted by Section
12(d)(1) of the 1940 Act and (ii) invest its assets in securities of
other money market funds and lend money to other investment
companies and their series portfolios that have AIM as an investment
adviser, subject to the terms and conditions of any exemptive orders
issued by the SEC.
2. In complying with the concentration restriction set forth in (2)
above, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the
same industry.
3. Notwithstanding the restriction set forth in (3) above, the Fund
may not invest all of its assets in the securities of a single
open-end management investment company with the same fundamental
investment objectives, policies and limitations as the Fund.
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4. In complying with the borrowing restriction set forth in (4)
above, the Fund may borrow money in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from banks,
broker/dealers or other investment companies or their series
portfolios that have AIM or an affiliate of AIM as an investment
adviser (an "AIM Fund"). The Fund may not borrow for leveraging, but
may borrow for temporary or emergency purposes, in anticipation of
or in response to adverse market conditions, or for cash management
purposes. The Fund may not purchase additional securities when any
borrowing from banks exceed 5% of the Fund's total assets.
5. In complying with the lending restrictions set forth in (7)
above, the Fund may lend up to 33 1/3% of its total assets and may
lend money to another AIM Fund, on such terms and conditions as the
SEC may require in an exemptive order.
6. The Fund will not invest more than 15% of its net assets in
illiquid securities, a term which means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities
and includes, among other things, repurchase agreements maturing in
more than seven days;
7. The Fund will not purchase portfolio securities while borrowings
in excess of 5% of its total assets are outstanding;
8. The Fund will not purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions
and except that the Fund may make margin deposits in connection with
its use of financial options and futures, forward and spot currency
contracts, swap transactions and other financial contract or
derivative instruments;
9. The Fund will not engage in short sales of securities or maintain
a short position, except that the Fund may maintain short positions
in connection with its use of financial options an futures, forward
and spot currency contracts, swap transactions and other financial
contracts or derivative instruments; or
10. The Fund will not purchase securities of other investment
companies, except to the extent permitted by the 1940 Act Laws,
Interpretations and Exemptions and except that this limitation does
not apply to securities received or acquired as dividends, through
offers of exchange, or as a result of reorganization, consolidation,
or merger.
If a percentage restriction on investment or utilization of assets
in an investment policy or restriction is adhered to at the time an investment
is made, a later change in percentage ownership of a security or kind of
securities resulting from changing market values or a similar type of event
will not be considered a violation of the Fund's investment policies or
restrictions. The Fund may exchange securities, exercise conversion or
subscription rights, warrants or other rights to purchase common stock or other
equity securities and may hold, except to the extent limited by the 1940 Act,
any such securities so acquired without regard to the Fund's investment
policies and restrictions. The original cost of the securities so acquired will
be included in any subsequent determination of the Fund's compliance with the
investment percentage limitations referred to above and in the Prospectus.
EXECUTION OF PORTFOLIO TRANSACTIONS
Subject to policies established by the Board, AIM is responsible for
the execution of the Fund's securities transactions and the selection of
broker/dealers who execute such transactions on behalf of the Fund. In
executing transactions, AIM seeks the best net results for the Fund, taking
into account such factors as the price (including the applicable brokerage
commission or dealer spread), size of the order, difficulty of execution and
operational facilities of the firm involved. Although AIM generally seeks
reasonably competitive commission rates and spreads, payment of the lowest
commission or spread is
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<PAGE> 151
not necessarily consistent with the best net results. While the Fund may engage
in soft dollar arrangements for research services, as described below, it has
no obligation to deal with any broker/dealer or group of broker/dealers in the
execution of portfolio transactions.
Consistent with the interests of the Fund, AIM may select
broker/dealers to execute that Fund's portfolio transaction, on the basis of
the research and brokerage services they provide to AIM for its use in managing
the Fund and its other advisory accounts. Such services may include furnishing
analyses, reports and information concerning issuers, industries, securities,
geographic regions, economic factors and trends, portfolio strategy, and
performance of accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). Research and
brokerage services received from such broker are in addition to, and not in
lieu of, the services required to be performed by AIM under investment advisory
contracts. A commission paid to such broker may be higher than that which
another qualified broker would have charged for effecting the same transaction,
provided that AIM determines in good faith that such commission is reasonable
in terms either of that particular transaction or the overall responsibility of
AIM to the Fund and its other clients and that the total commissions paid by
the Fund will be reasonable in relation to the benefits it receives over the
long term. Research services may also be received from dealers who execute
portfolio transactions in OTC markets.
AIM may allocate brokerage transactions to broker/dealers who have
entered into arrangements under which the broker/dealer allocates a portion of
the commissions paid by the Fund toward payment of its expenses, such as
custodian fees.
Investment decisions for the Fund and for other investment accounts
managed by AIM are made independently of each other in light of differing
conditions. However, the same investment decision occasionally may be made for
two or more of such accounts, including the Fund. In such cases, simultaneous
transactions may occur. Purchases or sales are then allocated as to price or
amount in a manner deemed fair and equitable to all accounts involved. While in
some cases this practice could have a detrimental effect upon the price or
value of the security as far as the Fund is concerned, in other cases AIM
believes that coordination and the ability to participate in volume
transactions will be beneficial to the Fund.
Under a policy adopted by the Board, and subject to the policy of
obtaining the best net results, AIM may consider a broker/dealer's sale of the
shares of the Fund and the other portfolios for which AIM serves as investment
manager or administrator in selecting broker/ dealers for the execution of
portfolio transactions. This policy does not imply a commitment to execute
portfolio transactions through all broker/dealers that sell shares of the Fund
and such other portfolios.
The Fund contemplates purchasing most foreign equity securities in
OTC markets or stock exchanges located in the countries in which the respective
principal offices of the issuers of the various securities are located, if that
is the best available market. The fixed commissions paid in connection with
most such foreign stock transactions generally are higher than negotiated
commissions on U.S. transactions. There generally is less government
supervision and regulation of foreign stock exchanges and brokers than in the
United States. Foreign security settlements may in some instances be subject to
delays and related administrative uncertainties.
Foreign equity securities may be held by the Fund in the form of
ADRs, ADSs, EDRs, CDRs or securities convertible into foreign equity
securities. ADRs, ADSs, EDRs and CDRs may be listed on stock exchanges, or
traded in the OTC markets in the United States or Europe, as the case may be.
ADRs, like other securities traded in the United States, will be subject to
negotiated commission rates. The foreign and domestic debt securities and money
market instruments in which the Fund may invest are generally traded in the OTC
markets.
The Fund does not have any obligation to deal with any broker/dealer
or group of broker/dealers in the execution of securities transactions. The
Fund contemplates that, consistent with the policy of obtaining the best net
results, brokerage transactions may be conducted through certain companies that
are affiliated with AIM. The Board has adopted procedures in conformity with
Rule 17e-1 under the 1940
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<PAGE> 152
Act to ensure that all brokerage commissions paid to such affiliates are
reasonable and fair in the context of the market in which they are operating.
Any such transactions will be effected and related compensation paid only in
accordance with applicable SEC regulations.
The Fund may engage in certain principal and agency transactions
with banks and their affiliates that own 5% or more of the outstanding voting
securities of the Fund, provided the conditions of an exemptive order received
by the Fund from the SEC are met. In addition, the Fund may purchase or sell a
security from or to another AIM Fund provided the Fund follows procedures
adopted by the Boards of Directors/ Trustees of the various AIM Funds,
including the Trust. These inter-fund transactions do not generate brokerage
commissions but may result in custodial fees or taxes or other related
expenses.
PORTFOLIO TURNOVER
Although the Fund does not intend generally to trade for short-term
profits, the securities held by the Fund will be sold whenever management
believes it is appropriate to do so, without regard to the length of time a
particular security may have been held. Portfolio turnover rate is calculated
by dividing the lesser of sales or purchases of portfolio securities by the
Fund's average month-end portfolio value, excluding short-term investments. The
portfolio turnover rate will not be a limiting factor when management deems
portfolio changes appropriate. Higher portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs that
the Fund will bear directly, and may result in the realization of net capital
gains that are taxable when distributed to the Fund's shareholders.
Prior to August 27, 1999, the Fund invested substantially all of its
assets in the AIM Theme Funds and periodically rebalanced its investments among
those funds. For the fiscal year ended December 31, 1998 and the period of
September 15, 1997 through December 31, 1997, the portfolio turnover rates were
28% and 1%, respectively.
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The Trust's Trustees and Executive Officers are listed below. Unless
otherwise indicated, the address of each Executive Officer is 11 Greenway
Plaza, Suite 100, Houston, Texas 77046.
<TABLE>
<CAPTION>
- -------------------------------- --------------------------- -----------------------------------------------------
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5 YEARS
NAME, ADDRESS AND AGE REGISTRANT
- -------------------------------- --------------------------- -----------------------------------------------------
<S> <C> <C>
*ROBERT H. GRAHAM (52) Trustee, Chairman of the Director, President and Chief Executive Officer, A I M
Board and President Management Group Inc.; Director and President, A I M
Advisors, Inc.; Director and Senior Vice President, A I M
Capital Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc. and Fund Management Company; and
Director, AMVESCAP PLC
- -------------------------------- --------------------------- -----------------------------------------------------
</TABLE>
- ------------------------------
* A trustee who is an "interested person" of the Trust and AIM as defined
in the 1940 Act.
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<PAGE> 153
<TABLE>
<CAPTION>
- -------------------------------- --------------------------- -----------------------------------------------------
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5 YEARS
NAME, ADDRESS AND AGE REGISTRANT
- -------------------------------- --------------------------- -----------------------------------------------------
<S> <C> <C>
C. DEREK ANDERSON (57) Trustee President, Plantagenet Capital Management, LLC (an
220 Sansome Street investment partnership); Chief Executive Officer,
Suite 400 Plantagenet Holdings, Ltd. (an investment banking firm);
San Francisco, CA 94104 Director, Anderson Capital Management, Inc. since 1988;
Director, Premium Wear, Inc.(formerly Munsingwear, Inc.)
(a casual apparel company); and Director, 'R' Homes, Inc.
and various other companies.
- -------------------------------- --------------------------- -----------------------------------------------------
FRANK S. BAYLEY (59) Trustee Partner, law firm of Baker & McKenzie; and Director and
Two Embarcadero Center Chairman, C. D. Stimson Company (a private investment
Suite 2400 company).
San Francisco, CA 94111
- -------------------------------- --------------------------- -----------------------------------------------------
ARTHUR C. PATTERSON (55) Trustee Managing Partner, Accel Partners (a venture capital
428 University Avenue firm); and Director, Viasoft and PageMart, Inc. (both
Palo Alto, CA 94301 public software companies) and several other privately
held software and communications companies.
- -------------------------------- --------------------------- -----------------------------------------------------
RUTH H. QUIGLEY (64) Trustee Private investor; and President, Quigley Friedlander &
1055 California Street Co., Inc. (a financial advisory services firm) from 1984
San Francisco, CA 94108 to 1986.
- -------------------------------- --------------------------- -----------------------------------------------------
MELVILLE B. COX (55) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc. and Fund
Management Company.
- -------------------------------- --------------------------- -----------------------------------------------------
GARY T. CRUM (51) Vice President Director and President, A I M Capital Management, Inc.;
Director and Senior Vice President, A I M Management
Group Inc. and A I M Advisors, Inc.; and Director, A I M
Distributors, Inc. and AMVESCAP PLC.
- -------------------------------- --------------------------- -----------------------------------------------------
</TABLE>
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<PAGE> 154
<TABLE>
<CAPTION>
- -------------------------------- --------------------------- -----------------------------------------------------
POSITIONS HELD WITH PRINCIPAL OCCUPATION DURING AT LEAST THE PAST 5 YEARS
NAME, ADDRESS AND AGE REGISTRANT
- -------------------------------- --------------------------- -----------------------------------------------------
<S> <C> <C>
CAROL F. RELIHAN (44) Vice President Director, Senior Vice President, General Counsel and
Secretary, A I M Advisors, Inc.; Senior Vice President,
General Counsel and Secretary, A I M Management Group
Inc.; Director, Vice President and General Counsel, Fund
Management Company; Vice President and General Counsel,
A I M Fund Services, Inc.; and Vice President, A I M
Capital Management, Inc. and A I M Distributors, Inc.
- -------------------------------- --------------------------- -----------------------------------------------------
SAMUEL D. SIRKO (39) Vice President and Assistant General Counsel and Assistant Secretary of
Secretary A I M Management Group Inc., A I M Capital Management,
Inc., A I M Distributors, Inc. A I M Fund Services, Inc.,
and Fund Management Company; and Vice President,
Assistant General Counsel and Assistant Secretary of
A I M Advisors, Inc.
- -------------------------------- --------------------------- -----------------------------------------------------
DANA R. SUTTON (40) Vice President and Vice President and Fund Controller, A I M Advisors, Inc.;
Treasurer and Assistant Vice President and Assistant Treasurer,
Fund Management Company.
- -------------------------------- --------------------------- -----------------------------------------------------
</TABLE>
The Board of Trustees has a Nominating and Audit Committee,
comprised of Miss Quigley and Messrs. Anderson, Bayley and Patterson, which is
responsible for nominating persons to serve as Trustees, reviewing audits of
the Trust and its funds and recommending firms to serve as independent auditors
of the Trust. All of the Trust's Trustees also serve as directors or trustees
of some or all of the other investment companies managed, administered or
advised by AIM. All of the Trust's Executive Officers hold similar offices with
some or all of the other investment companies managed, administered or advised
by AIM. Each Trustee who is not a director, officer or employee of AIM or any
other affiliated company is paid an annual retainer component plus a
per-meeting fee component, and reimbursed travel and other expenses incurred in
connection with attendance at such meetings.
For the fiscal year ended December 31, 1998, Mr. Anderson, Mr.
Bayley, Mr. Patterson and Ms. Quigley, who are not directors, officers or
employees of AIM or any affiliated company, received total compensation of
$7,700, $7,100, $7,400 and $7,700, respectively, from the Trust for their
services as Trustees. For the fiscal year ended December 31, 1998, Mr.
Anderson, Mr. Bayley, Mr. Patterson and Miss Quigley, who are not directors,
officers or employees of AIM or any other affiliated company, received total
compensation of $106,850, $90,650, $98,600 and $99,500, respectively, from the
investment companies managed or administered by AIM for which he or she served
as a Trustee. Fees and expenses disbursed to the Trustees contained no accrued
or payable pension or retirement benefits. Other Trustees and officers receive
no compensation or expense reimbursement from the Trust. As of June 21, 1999,
the Trustees and officers of the Trust, as a group, owned less than 1% of the
outstanding shares of the Fund.
36
<PAGE> 155
MANAGEMENT SERVICES RELATING TO THE FUND
AIM was organized in 1976, and along with its subsidiaries, manages
or advises approximately 125 investment portfolios encompassing a broad range
of investment objectives.
AIM is a direct, wholly owned subsidiary of A I M Management Group
Inc. ("AIM Management"), a holding company that has been engaged in the
financial services business since 1976. AIM is the sole shareholder of the
Fund's principal underwriter, AIM Distributors.
AIM Management is an indirect wholly owned subsidiary of AMVESCAP
PLC, 11 Devonshire Square, London, EC2M 4YR, England. AMVESCAP PLC and its
subsidiaries are independent investment management groups that have a
significant presence in the institutional and retail segment of the investment
management industry in North America and Europe, and a growing presence in
Asia.
In addition to the investment resources of their Houston office, AIM
draws upon the expertise, personnel, data and systems of other offices in
Atlanta, Boston, Dallas, Denver, Louisville, Miami, Portland (Oregon),
Frankfurt, Hong Kong, London, Singapore, Sydney, Tokyo and Toronto. In managing
the Fund, the Advisor employs a team approach, taking advantage of its
investment resources around the world.
AIM serves as the Fund's investment manager under an investment
management contract between the Trust and AIM ("Master Investment Advisory
Agreement," the "Agreement"). As investment manager, AIM makes all investment
decisions for the Fund, and, as administrator, administers the Fund's affairs.
Among other things, AIM furnishes the services and pays the compensation and
travel expenses of persons who perform the executive, administrative, clerical
and bookkeeping functions of the Fund and provides suitable office space,
necessary small office equipment and utilities.
The Agreement may be renewed with respect to the Fund for additional
one-year terms, provided that any such renewal has been specifically approved
at least annually by (i) the Fund's Board of Trustees or the vote of a majority
of the Fund's outstanding voting securities (as defined in the 1940 Act) and
(ii) a majority of Trustees who are not parties to the Agreement or "interested
persons" of any such party (as defined in the 1940 Act), cast in person at a
meeting called for the specific purpose of voting on such approval. The
Agreement and the Administration Contract provide that with respect to the
Fund, either the Trust or AIM may terminate either the Agreement or the
Administration Contract without penalty upon sixty days' written notice to the
other party. The Agreement terminates in the event of its assignment (as
defined in the 1940 Act).
For investment advisory services, the Fund pays AIM fees, computed
daily and paid monthly, based on its average daily net assets, at the
annualized rate of 0.975% on the first $500 million, 0.95% on the next $500
million, 0.925% on the next $500 million and 0.90% on the amounts thereafter.
The investment advisory fees paid by the Fund are higher than those paid by
most mutual funds. AIM has undertaken to limit the Fund's expenses (exclusive
of brokerage commissions, taxes, interest and extraordinary expenses) to the
annual rate of 1.50% of the average daily net assets of the Fund's Advisor
Class shares until June 30, 2000.
AIM may from time to time further 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.
AIM also serves as administrator to the Fund under a Master
Administrative Services Agreement between the Trust and AIM ("Administration
Contract").
37
<PAGE> 156
EXPENSES OF THE FUND
The Fund pays all expenses not assumed by AIM, AIM Distributors and
other agents. These expenses include, in addition to the investment advisory
fees discussed above, administration, distribution, transfer agency, pricing
and accounting agency and brokerage fees, legal and audit expenses, custodian
fees, trustees' fees, organizational fees, fidelity bond and other insurance
premiums, taxes, extraordinary expenses and expenses of reports and
prospectuses sent to existing investors. Expenditures, including costs incurred
in connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses. The ratio of the Fund's expenses to its relative net assets can be
expected to be higher than the expense ratios of funds investing solely in
domestic securities, since the cost of maintaining the custody of foreign
securities and the rate of investment management fees paid by the Fund
generally are higher than the comparable expenses of such other funds.
DISTRIBUTION SERVICES RELATING TO THE FUND
The Trust has entered into a Master Distribution Agreement (the
"Distribution Agreement"), with AIM Distributors, a registered broker-dealer
and a wholly owned subsidiary of AIM to act as the distributor of the Advisor
Class shares of the Fund. The Distribution Agreement provides AIM Distributors
with the exclusive right to distribute Advisor Class shares of the Fund
directly and through institutions with whom AIM Distributors has entered into
select dealer agreements.
The Fund's Advisor Class shares are offered continuously through the
Fund's principal underwriter and distributor, AIM Distributors, on a "best
efforts" basis pursuant to a distribution contract between the Trust and AIM
Distributors without a front-end sales charge or contingent deferred sales
charge.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Fund may
be purchased appears in the Fund's Prospectus under the headings "Purchasing
Shares -- How to Purchase Shares."
Complete information concerning the method of exchanging shares of
the Fund for shares of the other mutual funds managed or advised by AIM is set
forth in the Prospectus under the heading "Exchanging Shares."
Information concerning redemption of the Fund's shares is set forth
in the Prospectus under the heading " Redeeming Shares." Shares of the AIM
Funds may be redeemed directly through AIM Distributors or through any
dealer/financial institution who has entered into an agreement with AIM
Distributors. In addition to the Fund's obligation to redeem shares, AIM
Distributors may also repurchase shares as an accommodation to shareholders. No
redemption fee is imposed when Advisor Class shares are redeemed or
repurchased; however, dealers/financial institutions may charge service fees
for handling repurchase transactions. To effect a repurchase, those dealers who
have executed Selected Dealer Agreements with AIM Distributors must phone
orders to the order desk of the Fund at (800) 959-4246 and guarantee delivery
of all required documents in good order. A repurchase is effected at the net
asset value per share of the Fund next determined after such order is received.
Such an arrangement is subject to timely receipt by A I M Fund Services, Inc.
("AFS"), the Fund's transfer agent, of all required documents in good order. If
such documents are not received within a reasonable time after the order is
placed, the order is subject to cancellation. While there is no charge imposed
by a Fund or by AIM Distributors when shares are redeemed or repurchased,
dealers may charge a fair service fee for handling the transaction.
The right of redemption may be suspended or the date of payment
postponed when (a) trading on the NYSE is restricted, as determined by
applicable rules and regulations of the SEC, (b) the NYSE is
38
<PAGE> 157
closed for other than customary weekend and holiday closings, (c) the SEC has
by order permitted such suspension, or (d) an emergency as determined by the
SEC exists making disposition of portfolio securities or the valuation of the
net assets of a Fund not reasonably practicable.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer
identification number or, alternatively, a completed Internal Revenue Service
("IRS") Form W-8 (for non-resident aliens) or Form W-9 (certifying exempt
status) accompanying the registration information will generally be subject to
backup withholding.
Each AIM Fund, and other payers, must, according to IRS regulations,
withhold 31% of redemption payments and reportable dividends (whether paid or
accrued) in the case of any shareholder who fails to provide the Fund with a
taxpayer identification number ("TIN") and a certification that he is not
subject to backup withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an
incorrect TIN, or
(3) the investor is notified by the IRS that the investor is subject
to backup withholding because the investor failed to report all of
the interest and dividends on such investor's tax return (for
reportable interest and dividends only), or
(4) the investor fails to certify to the Fund that the investor is
not subject to backup withholding under (3) above (for reportable
interest and dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to
reportable interest, dividend, broker or barter exchange accounts
opened after 1983, or broker accounts considered inactive during
1983.
Except as explained in (5) above, other reportable payments are
subject to backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and
information reporting. A complete listing of such exempt entities appears in
the Instructions for the Requester of Form W-9 (which can be obtained from the
IRS) and includes, among others, the following:
o a corporation
o an organization exempt from tax under Section 501(a),
an individual retirement plan (IRA), or a custodial
account under Section 403(b)(7)
o the United States or any of its agencies or instrumentalities
o a state, the District of Columbia, a possession of the
United States, or any of their political subdivisions or
instrumentalities
o a foreign government or any of its political subdivisions,
agencies or instrumentalities
o an international organization or any of its agencies or
instrumentalities
o a foreign central bank of issue
39
<PAGE> 158
o a dealer in securities or commodities required to register
in the U.S. or a possession of the U.S.
o a futures commission merchant registered with the
Commodity Futures Trading Commission
o a real estate investment trust
o an entity registered at all times during the tax year
under the 1940 Act
o a common trust fund operated by a bank under Section 584(a)
o a financial institution
o a middleman known in the investment community as a nominee
or listed in the most recent publication of the American
Society of Corporate Secretaries, Inc., Nominee List
o a trust exempt from tax under Section 664 or described in
Section 4947
Investors should contact the IRS if they have any questions
concerning entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a
correct TIN will be subject to a $50 penalty imposed by the IRS unless such
failure is due to reasonable cause and not willful neglect. If an investor
falsifies information on this form or makes any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, such investor may be subject to a $500 penalty imposed by the IRS
and to certain criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign
entities are not subject to the backup withholding previously discussed, but
must certify their foreign status by attaching IRS Form W-8 to their
application. Form W-8 remains in effect for three calendar years beginning with
the calendar year in which it is received by the Fund. Such shareholders may,
however, be subject to federal income tax withholding at a 30% rate on ordinary
income dividends and distributions and return of capital distributions. Under
applicable treaty law, residents of treaty countries may qualify for a reduced
rate of withholding or a withholding exemption.
NET ASSET VALUE DETERMINATION
The net asset value per share of the Fund is normally determined
daily as of the close of trading of the New York Stock Exchange ("NYSE")
(generally 4:00 p.m. Eastern time) on each business day of the Fund. In the
event the NYSE closes early (i.e., before 4:00 p.m. Eastern time) on a
particular day, the net asset value of the Fund is determined as of the close
of the NYSE on such day. Net asset value per share is determined by dividing
the value of the Fund's interests attributable to a class, less all its
liabilities attributable to that class, by the total number of shares
outstanding of that class. Determination of the Fund's net asset value per
share is made in accordance with generally accepted accounting principles.
Each equity security held by the Fund 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 last available bid.
Each security traded in the over-the-counter market (but not including
securities reported on the Nasdaq National Market System) is valued at the mean
between the last bid and asked prices based upon quotes furnished by market
makers for such securities. Each security reported on the
40
<PAGE> 159
Nasdaq National Market System is valued at the last sales price on the
valuation date or absent a last sales price, at the mean between the closing
bid and asked prices on that day. Debt securities are valued on the basis of
prices provided by an independent pricing service. Prices provided by the
pricing service may be determined without exclusive reliance on quoted prices,
and may reflect appropriate factors such as institution-size trading in similar
groups of securities, developments related to special securities, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Securities for which market quotations
are not readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Trust's officers in
a manner specifically authorized by the Board of Trustees. Short-term
obligations having 60 days or less to maturity are valued on the basis of
amortized cost. 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 NYSE.
Generally, trading in foreign securities, 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 at 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 such values are determined and the close of the NYSE which will not be
reflected in 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 of the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares of the same class of the Fund unless the
shareholder has requested in writing to receive such dividends and
distributions in cash or that they be invested in shares of another AIM Fund,
subject to the terms and conditions set forth in "Shareholder Information --
Dividends and Distributions." If a shareholder's account does not have any
shares in it on a dividend or capital gains distribution payment date, the
dividend or distribution will be paid in cash whether or not the shareholder
has elected to have such dividends or distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
TAXATION OF THE FUND
To continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, the Fund must distribute to its shareholders
for each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income and net short-term capital gain)
("Distribution Requirement") and must meet several additional requirements.
These requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from
options, Futures or Forward Contracts) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); (2) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash items, U.S. government securities,
securities of other RICs and other securities, with these other securities
limited, in respect of any one issuer, to an amount that does
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not exceed 5% of the value of the Fund's total assets and that does not
represent more than 10% of the issuer's outstanding voting securities; and (3)
at the close of each quarter of the Fund's taxable year, not more than 25% of
the value of its total assets may be invested in securities (other than U.S.
government securities or the securities of other RICs) of any one issuer.
Dividends and other distributions declared by the Fund in, and
payable to shareholders of record as of a date in, October, November or
December of any year will be deemed to have been paid by the Fund and received
by the shareholders on December 31 of that year if the distributions are paid
by the Fund during the following January. Accordingly, those distributions will
be taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or other distribution, the shareholder will pay
full price for the shares and receive some portion of the price back as a
taxable distribution.
The Fund will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
REINSTATEMENT PRIVILEGE
For federal income tax purposes, exercise of your reinstatement
privilege may increase the amount of gain or reduce the amount of loss
recognized in the original transaction, because the initial sales charge will
not be taken into account in determining such gain or loss to the extent there
has been a reduction in the initial sales charge. The wash sale rules may also
act to defer the loss.
TAXATION OF CERTAIN INVESTMENT ACTIVITIES
Foreign Taxes. Dividends and interest received by the Fund, and
gains realized thereby, may be subject to income, withholding or other taxes
imposed by foreign countries and U.S. possessions ("foreign taxes") that would
reduce the yield and/or total return on its securities. Tax conventions between
certain countries and the United States may reduce or eliminate foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of a
Fund's total assets at the close of its taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the Internal Revenue Service that will enable its shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to any foreign
taxes paid by it. Pursuant to the election, the Fund would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to
(1) include in gross income, and treat as paid by him, his share of those
taxes, (2) treat his share of those taxes and of any dividend paid by the Fund
that represents income from foreign and U.S. possessions sources as his own
income from those sources and (3) either deduct the taxes deemed paid by him in
computing his taxable income or, alternatively, use the foregoing information
in calculating the foreign tax credit against his federal income tax. The Fund
will report to its shareholders shortly after each taxable year their
respective shares of the Fund's foreign taxes and income from sources within,
and taxes paid to, foreign countries and U.S. possessions if it makes this
election. Pursuant to the Taxpayer Relief Act of 1997 ("Tax Act"), individuals
who have no more than $300 ($600 for married persons filing jointly) of
creditable foreign taxes included on Form 1099 and all of whose foreign source
income is "qualified passive income" may elect each year to be exempt from the
extremely complicated foreign tax credit limitation and will be able to claim a
foreign tax credit without having to file the detailed Form 1116 that otherwise
is required.
Passive Foreign Investment Companies. The Fund may invest in the
stock of "passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation -- other than a "controlled foreign corporation" (i.e., a foreign
corporation in which, on any day during its taxable year, more than 50% of the
total voting power of all voting stock therein or the total value of all stock
therein is owned, directly,
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indirectly or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly or constructively, at least 10% of
that voting power) as to which the Fund is a U.S. shareholder (effective with
respect to the Fund for its taxable year beginning November 1, 1998) -- that,
in general, meets either of the following tests: (1) at least 75% of its gross
income is passive or (2) an average of at least 50% of its assets produce, or
are held for the production of, passive income. Under certain circumstances,
the Fund will be subject to federal income tax on a portion of any "excess
distribution" received on, or of any gain from the disposition of, stock of a
PFIC (collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent it
distributes that income to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund would be required to include in income each year
its pro rata share of the QEF's ordinary earnings and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) --
which most likely would have to be distributed by the Fund to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax -- even if
those earnings and gain were not received by the Fund from the QEF. In most
instances it will be very difficult, if not impossible, to make this election
because of certain requirements thereof.
Effective for its taxable year beginning November 1, 1998, the Fund
may elect to "mark to market" its stock in any PFIC. "Marking-to-market," in
this context, means including in ordinary income each taxable year the excess,
if any, of the fair market value of the stock over the Fund's adjusted basis
therein as of the end of that year. Pursuant to the election, the Fund also
will be allowed to deduct (as an ordinary, not capital, loss) the excess, if
any, of its adjusted basis in PFIC stock over the fair market value thereof as
of the taxable year-end, but only to the extent of any net mark-to-market gains
with respect to that stock included in income by the Fund for prior taxable
years. A Fund's adjusted basis in each PFIC's stock subject to the election
will be adjusted to reflect the amounts of income included and deductions taken
thereunder. Regulations proposed in 1992 provided a similar election with
respect to the stock of certain PFICs.
Options, Futures and Foreign Currency Transactions. The Fund's use
of hedging transactions, such as selling (writing) and purchasing options and
Futures and entering into Forward Contracts, involves complex rules that will
determine, for federal income tax purposes, the amount, character and timing of
recognition of the gains and losses the Fund realizes in connection therewith.
Gains from the disposition of foreign currencies (except certain gains that may
be excluded by future regulations), and gains from options, Futures and Forward
Contracts derived by the Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement for the Fund.
Futures and Forward Contracts that are subject to section 1256 of
the Code (other than those that are part of a "mixed straddle") ("Section 1256
Contracts") and that are held by the Fund at the end of its taxable year
generally will be deemed to have been sold at that time at market value for
federal income tax purposes. Sixty percent of any net gain or loss recognized
on these deemed sales, and 60% of any net gain or loss realized from any actual
sales of Section 1256 Contracts, will be treated as long-term capital gain or
loss, and the balance will be treated as short-term capital gain or loss. That
60% portion will qualify for the reduced maximum tax rates on noncorporate
taxpayers' net capital gain -- 20% (10% for non-corporate taxpayers in the 15%
marginal tax bracket) for gain recognized on capital assets held for more than
12 months.
Section 988 of the Code also may apply to gains and losses from
transactions in foreign currencies, foreign-currency-denominated debt
securities and options, Futures and Forward Contracts on foreign currencies
("Section 988" gains and losses). Each section 988 gain or loss generally is
computed separately and treated as ordinary income or loss. In the case of
overlap between sections 1256 and 988, special provisions determine the
character and timing of any income, gain or loss. The Fund attempts to monitor
section 988 transactions to minimize any adverse tax impact.
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If the Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, Futures or Forward Contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time
unless the closed transaction exception applies. A constructive sale generally
consists of a short sale, an offsetting notional principal contract or Futures
or Forward Contract entered into by the Fund or a related person with respect
to the same or substantially similar property. In addition, if the appreciated
financial position is itself a short sale or such a contract, acquisition of
the underlying property or substantially similar property will be deemed a
constructive sale.
TAXATION OF THE FUND'S SHAREHOLDERS
Dividends and other distributions declared by the Fund, and payable
to shareholders of record as of a date, in October, November or December of any
year will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if the distributions are paid by the
Fund during the following January. Accordingly, those distributions will be
taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or other distribution, the shareholder will pay
full price for the shares and receive some portion of the price back as a
taxable distribution.
Dividends paid by the Fund to a shareholder who, as to the United
States, is a nonresident alien individual, nonresident alien fiduciary of a
trust or estate, foreign corporation or foreign partnership ("foreign
shareholder") generally will be subject to U.S. withholding tax (at a rate of
30% or lower treaty rate). Withholding will not apply, however, to a dividend
paid by the Fund to a foreign shareholder that is "effectively connected with
the conduct of a U.S. trade or business," in which case the reporting and
withholding requirements applicable to domestic shareholders will apply. A
distribution of net capital gain by the Fund to a foreign shareholder generally
will be subject to U.S. federal income tax (at the rates applicable to domestic
persons) only if the distribution is "effectively connected" or the foreign
shareholder is treated as a resident alien individual for federal income tax
purposes.
The foregoing is a general and abbreviated summary of certain
federal tax considerations affecting the Fund and its shareholders. Investors
are urged to consult their own tax advisors for more detailed information and
for information regarding any foreign, state and local taxes applicable to
distributions received from the Fund.
SHAREHOLDER INFORMATION
This information supplements the discussion in the Fund's Prospectus
under the title "Shareholder Information."
TIMING OF PURCHASE ORDERS. Orders for the purchase of Advisor Class
shares received prior to the close of regular trading on the NYSE, which is
generally 4:00 p.m. Eastern Time (and which is hereinafter referred to as "NYSE
Close"), on any business day of an AIM Fund will be confirmed at the price next
determined. Orders received after NYSE Close will be confirmed at the price
determined on the next business day of the AIM Fund. Certain financial
institutions (or their designees) may be authorized to accept purchase orders
on behalf of the AIM Funds. Orders received by authorized institutions (or
their designees) before NYSE Close will be deemed to have been received by an
AIM Fund on such day and will be effected that day, provided that such orders
are transmitted to the Transfer Agent prior to the time set for receipt of such
orders. It is the responsibility of the dealer/financial institution to ensure
that all orders are transmitted on a timely basis to the Transfer Agent. Any
loss
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resulting from the dealer/financial institution's failure to submit an order
within the prescribed time frame will be borne by that dealer/financial
institution. A "business day" of an AIM Fund is any day on which the NYSE is
open for business. It is expected that the NYSE will be closed during the next
twelve months on Saturdays and Sundays and on the days on which New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day are observed by
the NYSE.
An investor who uses a check to purchase shares will be credited
with the full number of shares purchased at the time of receipt of the purchase
order, as previously described. However, in the event of a redemption or
exchange of such shares, the investor may be required to wait up to ten
business days before the redemption proceeds are sent. This delay is necessary
in order to ensure that the check has cleared. If the check does not clear, or
if any investment order must be canceled due to nonpayment, the investor will
be responsible for any resulting loss to an AIM Fund or to AIM Distributors.
SHARE CERTIFICATES. Share certificates for all AIM Funds will be
issued upon written request to AFS. Otherwise, such shares will be held on the
shareholder's behalf and recorded on the Fund books. AIM Funds will not issue
certificates for shares held in prototype retirement plans.
TERMS AND CONDITIONS OF EXCHANGES. Advisor Class shareholders of the
Advisor Class Funds may participate in an exchange privilege as described
below. AIM Distributors acts as distributor for the Advisor Class Funds which
represent a range of different investment objectives and policies.
Advisor Class shares of any Advisor Class Fund may be exchanged only
for Advisor Class shares of any other Advisor Class Fund.
Investors in wrap fee programs and advisory accounts interested in
making an exchange should contact their Financial Advisers to request the
prospectus of an Advisor Class Fund being considered. Other investors should
contact AIM Distributors for the appropriate prospectus.
An exchange is permitted only in the following circumstances: (a)
the dollar amount of the exchange must be at least equal to the minimum
investment applicable to the shares of the Advisor Class Fund acquired through
such exchange; (b) the shares of the Advisor Class Fund acquired through
exchange must be qualified for sale in the state in which the shareholder
resides; (c) the exchange must be made between accounts having identical
registrations and addresses; (d) the full amount of the purchase price for the
shares being exchanged must have already been received by the fund; (e) the
account from which shares have been exchanged must be coded as having a
certified taxpayer identification number on file or, in the alternative, an
appropriate IRS Form W-8 (certificate of foreign status) or Form W-9
(certifying exempt status) must have been received by the fund; (f) newly
acquired shares (through either an initial or subsequent investment) are held
in an account for at least ten business days, and all other shares are held in
an account for at least one day, prior to the exchange; and (g) certificates
representing shares must be returned before shares can be exchanged. There is
no fee for exchanges among the Advisor Class Funds.
The current prospectus of each of the Advisor Class Funds and
current information concerning the operation of the exchange privilege are
available through AIM Distributors or through any dealer who has executed an
applicable agreement with AIM Distributors. Before exchanging shares, investors
should review the prospectuses of the funds whose shares will be acquired
through exchange. Exchanges of shares are considered to be sales for federal
and state income tax purposes and may result in a taxable gain or loss to a
shareholder.
The exchange privilege is not an option or right to purchase shares
but is permitted under the respective policies of the participating funds, and
may be modified or discontinued by any of such funds or by AIM Distributors at
any time, and to the extent permitted by applicable law, without notice.
Shares of any Advisor Class Fund to be exchanged are redeemed at
their net asset value as determined at NYSE Close on the day that an exchange
request in proper form (described below) is
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received. Exchange requests received after NYSE Close will result in the
redemption of shares at their net asset value at NYSE Close on the next
business day. Normally, Advisor Class shares of an Advisor Class Fund to be
acquired by exchange are purchased at their net asset value determined on the
date that such request is received, but under unusual market conditions such
purchases may be delayed for up to five business days if it is determined that
an Advisor Class Fund would be materially disadvantaged by an immediate
transfer of the proceeds of the exchange. If a shareholder is exchanging into
an Advisor Class Fund that declares daily dividends ("Dividends, Distributions
and Tax Matters -- Dividends and Distributions," below), and the release of the
exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange. Advisor Class shares purchased by check may not be
exchanged until it is determined that the check has cleared, which may take up
to ten business days from the date that the check is received. See "Timing of
Purchase Orders."
In the event of unusual market conditions, AIM Distributors reserves
the right to reject any exchange request, if, in the judgment of AIM
Distributors, the number of requests or the total value of the shares that are
the subject of the exchange places a material burden on a fund. For example,
the number of exchanges by investment managers making market timing exchanges
may be limited.
EXCHANGES BY MAIL. Investors exchanging their Advisor Class shares
by mail should send a written request to AFS. The request should contain the
account registration and account number, the dollar amount or number of Advisor
Class shares to be exchanged, and the names of the Advisor Class Funds from
which and into which the exchange is to be made. The request should comply with
all of the requirements for redemption by mail. See "How to Redeem Shares."
EXCHANGES BY TELEPHONE. Shareholders or their agents may request an
exchange by telephone. A shareholder may give exchange information to his
Financial Adviser. If a shareholder does not wish to allow telephone exchanges
by any person in his account, he should decline that option on the account
application. AIM Distributors has made arrangements with certain dealers and
investment advisory firms to accept telephone instructions to exchange shares
between any of the Advisor Class Funds. AIM Distributors reserves the right to
impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the Advisor Class Funds, including the condition that
any such dealer or investment advisor enter into an agreement (which contains
additional conditions with respect to exchanges of shares) with AIM
Distributors. To exchange shares by telephone, a Financial Adviser, shareholder
or dealer who has satisfied the foregoing conditions must call AFS at (800)
959-4246. If a Financial Adviser, shareholder or dealer is unable to reach AFS
by telephone, he may also request exchanges by telegraph or use overnight
courier services to expedite exchanges by mail, which will be effective on the
business day received by the Transfer Agent as long as such request is received
prior to NYSE Close. The Transfer Agent and AIM Distributors will not be liable
for any loss, expense or cost arising out of any telephone exchange request
that they reasonably believe to be genuine, but may in certain cases be liable
for losses due to unauthorized or fraudulent transactions if they do not follow
reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security Number and current address, and mailings of confirmations
promptly after the transaction.
REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent
to the Transfer Agent. Upon receipt of a redemption request in proper form,
payment will be made as soon as practicable, but in any event will normally be
made within seven days after receipt. However, in the event of a redemption of
shares purchased by check, the investor may be required to wait up to ten
business days before the redemption proceeds are sent. See "Shareholder
Information -- Timing of Purchase Orders."
Requests for redemption must include: (a) original signatures of
each registered owner exactly as the shares are registered; (b) the fund and
the account number of shares to be redeemed; (c) share certificates, either
properly endorsed or accompanied by a duly executed stock power, for the shares
to be redeemed if such certificates have been issued and the shares are not in
the custody of the Transfer Agent; (d) signature guarantees, as described
below; and (e) any additional documents that may be
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required for redemption by corporations, partnership, trusts or other
entities. The burden is on the shareholder to inquire as to whether any
additional documentation is required. Any request not in proper form may be
rejected and in such case must be renewed in writing.
REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by
telephone. If a shareholder does not wish to allow telephone redemptions by any
person in his account, he should decline that option on the account
application. The telephone redemption feature can be used only if: (a) the
redemption proceeds are to be mailed to the address of record or transferred
electronically or wired to the pre-authorized bank account; (b) there has been
no change of address of record on the account within the preceding 30 days; (c)
the shares to be redeemed are not in certificate form; (d) the person
requesting the redemption can provide proper identification information, and
(e) the proceeds of the redemption do not exceed $50,000. AIM Distributors has
made arrangements with certain dealers and investment advisors to accept
telephone instructions for the redemption of shares. AIM Distributors reserves
the right to impose conditions on these dealers and investment advisors,
including the condition that they enter into agreements (which contain
additional conditions with respect to the redemption of shares) with AIM
Distributors. The Transfer Agent and AIM Distributors will not be liable for
any loss, expense or cost arising out of any telephone redemption request
effected in accordance with the authorization set forth in the appropriate form
if they reasonably believe such request to be genuine, but may in certain cases
be liable for losses due to unauthorized or fraudulent transactions if they do
not follow reasonable procedures for verification of telephone transactions.
Such reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
taxpayer identification number and current address, and mailings of
confirmations promptly after the transaction.
TIMING AND PRICING OF REDEMPTION ORDERS. Advisor Class shares of the
Advisor Class Funds are redeemed at their net asset value next computed after a
request for redemption in proper form (including signature guarantees and other
required documentation for written redemptions) is received by the Transfer
Agent or certain financial institutions (or their designees) who are authorized
to accept redemption orders on behalf of the AIM Funds, provided that such
orders are transmitted to the Transfer Agent prior to the time set for receipt
of such orders. Orders for the redemption of Advisor Class shares received on
any business day of an AIM Fund will be confirmed at the price determined as of
the close of that day. Orders received after NYSE Close will be confirmed at
the price determined on the next business day of an AIM Fund. It is the
responsibility of the dealer/financial institution to ensure that all orders
are transmitted on a timely basis. Any resulting loss from the dealer/financial
institution's failure to submit a request for redemption within the prescribed
time frame will be borne by that dealer/financial institution. Telephone
redemption requests must be made by NYSE Close on any business day of an AIM
Fund and will be confirmed at the price determined as of the close of that day.
No AIM Fund will accept requests which specify a particular date for redemption
or which specify any special conditions.
Payment of the proceeds of redeemed shares is normally made within
seven days following the redemption date. However, in the event of a redemption
of shares purchased by check, the investor may be required to wait up to ten
business days before the redemption proceeds are sent. A charge for special
handling (such as wiring of funds or expedited delivery services) may be made
by the Transfer Agent. The right of redemption may not be suspended or the date
of payment upon redemption postponed except under unusual circumstances such as
when trading on the NYSE is restricted or suspended. Payment of the proceeds of
redemptions relating to shares for which checks sent in payment have not yet
cleared will be delayed until it is determined that the check has cleared,
which may take up to ten business days from the date that the check is
received.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect
the investor, the AIM Funds, AIM Distributors, and their agents by verifying
the signature of each investor seeking to redeem, transfer, or exchange shares
of an AIM Fund. Examples of when signature guarantees are required are: (1)
redemptions by mail in excess of $50,000; (2) redemptions by mail if the
proceeds are to be paid to someone other than the name(s) in which the account
is registered; (3) written redemptions requesting proceeds to be sent to other
than the bank of record for the account; (4) redemptions requesting proceeds to
be sent to a new address or an address that has been changed within the past 30
days; (5)
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requests to transfer the registration of shares to another owner, (6) telephone
exchange and telephone redemption authorization forms; (7) changes in
previously designated wiring or electronic funds transfer instructions, and (8)
written redemptions or exchanges of shares previously reported as lost, whether
or not the redemption amount is under $50,000 or the proceeds are to be sent to
the address of record. AIM Funds may waive or modify any signature guarantee
requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in the Transfer Agent's current Signature Guarantee
Standards and Procedures, such as certain domestic banks, credit unions,
securities dealers, or securities exchanges. The Transfer Agent will also
accept signatures with either: (1) a signature guaranteed with a medallion
stamp of the STAMP Program, or (2) a signature guaranteed with a medallion
stamp of the NYSE Medallion Signature Program, provided that in either event,
the amount of the transaction involved does not exceed the surety coverage
amount indicated on the medallion. For information regarding whether a
particular institution or organization qualifies as an "eligible guarantor
institution," an investor should contact the Client Services Department of AFS.
DIVIDENDS AND DISTRIBUTIONS. In determining the amount of capital
gains, if any, available for distribution, net capital gains are offset against
available net capital losses, if any, carried forward from previous fiscal
periods. Each Advisor Class Fund may make additional distributions, if
necessary, to avoid a non-deductible 4% federal excise tax on certain
undistributed income and capital gain (the "Excise Tax").
All dividends and distributions of an AIM Fund are automatically
reinvested on the payment date in full and fractional shares of such fund,
unless the shareholder has made an alternate election as to the method of
payment. Dividends and distributions attributable to Advisor Class shares of an
Advisor Class Fund are reinvested in additional Advisor Class shares of that
fund, absent an election by a shareholder to receive cash or to have such
dividends and distributions reinvested in Advisor Class shares of another
Advisor Class Fund, to the extent permitted. For funds that do not declare a
dividend daily, such dividends and distributions will be reinvested at the net
asset value per share determined on the ex-dividend date. For funds that
declare a dividend daily, such dividends and distributions will be reinvested
at the net asset value per share determined on the payable date. Shareholders
may elect, by written notice to the Transfer Agent, to receive such
distributions, or only the dividend portion thereof, in cash, or to invest such
dividends and distributions in Advisor Class shares of another Advisor Class
Fund. Investors who have not previously selected such a reinvestment option on
the account application form may contact the Transfer Agent at any time to
obtain a form to authorize such reinvestments in another Advisor Class Fund.
Dividends on Advisor Class shares of an Advisor Class Fund are
expected to be higher than dividends on shares of other classes of that fund
because of the service and distribution fees paid by those other classes of
shares. Dividends on all shares may also be affected by other class-specific
expenses.
Changes in the form of dividend and distribution payments may be
made by the shareholder at any time by notice to the Transfer Agent and are
effective as to any subsequent payment if such notice is received by the
Transfer Agent prior to the record date of such payment. Any dividend and
distribution election remains in effect until the Transfer Agent receives a
revised written election by the shareholder.
Any dividend or distribution paid by a fund which does not declare
dividends daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes, as
discussed below.
48
<PAGE> 167
MINIMUM ACCOUNT BALANCE. If (1) an account opened in a fund has been
in effect for at least one year and the shareholder has not made an additional
purchase in that account within the preceding six calendar months and (2) the
value of such account drops below $500 for three consecutive months as a result
of redemptions or exchanges, the fund has the right to redeem the account,
after giving the shareholder 60 days' prior written notice, unless the
shareholder makes additional investments within the notice period to bring the
account value up to $500. If a fund determines that a shareholder has provided
incorrect information in opening an account with a fund or in the course of
conducting subsequent transactions with the fund related to such account, the
fund may, in its discretion, redeem the account and distribute the proceeds of
such redemption to the shareholder.
AIM Distributors and its agents reserve the right at any time (1) to
withdraw all or any part of the offering made by the Fund's Prospectus; (2) to
reject any purchase or exchange order or to cancel any purchase due to
nonpayment of the purchase price; (3) to increase, waive or lower the minimum
investment requirements; or (4) to modify any of the terms or conditions of
purchase of shares of such fund. For any fund named on the cover page, AIM
Distributors and its agents will use their best efforts to provide notice of
any such actions through correspondence with broker-dealers and existing
shareholders, supplements to the AIM Fund's prospectuses, or other appropriate
means, and will provide sixty (60) days' notice in the case of termination or
material modification to the exchange privilege discussed under the caption
"Terms and Conditions of Exchanges."
MISCELLANEOUS INFORMATION
CHARGES FOR CERTAIN ACCOUNT INFORMATION
The Transfer Agent may impose certain copying charges for requests
for copies of shareholder account statements and other historical account
information older than the current year and the immediately preceding year.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, acts as custodian of the Fund's assets.
State Street is authorized to establish and has established separate accounts
in foreign currencies and to cause securities of the Trust to be held in
separate accounts outside the United States in the custody of non-U.S. banks.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
The Transfer Agency and Service Agreement between the Trust and AFS,
a registered transfer agent and wholly owned subsidiary of AIM, provides that
AFS will perform certain shareholder services for the Fund for a fee per
account serviced. The Transfer Agency and Service Agreement provides that AFS
will receive a per account fee plus out-of-pocket expenses to process orders
for purchases, redemptions and exchanges of shares; prepare and transmit
payments for dividends and distributions declared by the Fund; maintain
shareholder accounts and provide shareholders with information regarding the
Fund and their accounts. The Transfer Agency and Service Agreement became
effective on September 8, 1998.
Pursuant to the Master Administrative Services Agreement, AIM serves
as the Fund's pricing and accounting agent. Under the Fund's previous
administration contract, the Fund paid no fund accounting fees for the fiscal
years ended December 31, 1997 and 1998.
INDEPENDENT ACCOUNTANTS
The Trust's independent accountants are PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP conducts annual audits of the Fund's financial
statements, assists in the preparation of the Fund's federal and state income
tax returns and consults with the Trust as to matters of accounting, regulatory
filings, and federal and state income taxation.
49
<PAGE> 168
The audited financial statements of the Trust included in this
Statement of Additional Information have been examined by
PricewaterhouseCoopers LLP as stated in their opinion appearing herein, and are
included in reliance upon such opinion given upon the authority of that firm as
experts in accounting and auditing.
LEGAL MATTERS
The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts
Avenue,N.W., Washington, DC 20036-1800, acts as counsel to the Trust and the
Fund.
SHAREHOLDER LIABILITY
Under Delaware law, the shareholders of the Trust enjoy the same
limitations of liability extended to shareholders of private, for-profit
corporations. There is a remote possibility, however, that under certain
circumstances shareholders of the Trust may be held personally liable for the
Trust's obligations. However, the Trust Agreement disclaims shareholder
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Trust or a trustee. If a shareholder is held personally liable
for the obligations of the Trust, the Trust Agreement provides that the
shareholder shall be entitled out of the assets belonging to the Fund (or
allocable to the applicable Class), to be held harmless from and indemnified
against all loss and expense arising from such liability in accordance with the
Trust's Bylaws and applicable law. Thus, the risk of a shareholder incurring
financial loss on account of such liability is limited to circumstances in
which the Trust itself would be unable to meet its obligations and where the
other party was held not to be bound by the disclaimer.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the
holders of 5% or more of the outstanding shares of any class of the Trust's
equity securities as of June 21, 1999, and the percentage of the outstanding
shares held by such holders are set forth below:
PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD*
--------------- --------
CLASS C
-------
ITC Cust IRA FBO 5.34%
Edward Clark
2198 Lake Marie Drive
Santa Maria, CA 93455
- ----------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
50
<PAGE> 169
` PERCENT
NAME AND ADDRESS OWNED OF
OF RECORD OWNER RECORD*
--------------- --------
ITC Cust FBO 5.22%
Brian E. Crist Roth IRA CONV
P.O. Box 1380
Arroyo Grande, CA 93421-1360
ADVISOR CLASS
-------------
LGT Asset Management 401(k) Plan 81.54%
Judy Creel, Arthur Sprague, or
Robert Alley TTEES
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
LGT Asset Management 401(k) Plan 13.68%
Judy Creel, Arthur Sprague, or
Robert Alley TTEES
Attn: Debbie Nettles A/C 5000201000
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
- ----------------
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
INVESTMENT RESULTS
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return is as follows:
n
P(1+T) =ERV
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the
applicable maximum sales load is deducted at the
beginning of the 1, 5 or 10 year periods).
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the 1, 5, or 10 year
periods (or fractional portion of such period).
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:
- --------------------
51
<PAGE> 170
n
P(1+U) =ERV
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming payment
of only a stated portion of, or none of, the
applicable maximum sales load at the beginning
of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
Cumulative total return across a stated period may be calculated as
follows:
n
P(1+V) =ERV
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of
all of a stated portion of, or none of, the
applicable maximum sales load at the beginning
of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
The cumulative total return for Advisor Class shares of the Fund for
the periods shown were:
PERIODS ENDED
DECEMBER 31, 1998
------------------------
One year..........................................9.80%
Since inception...................................7.04%
The inception date for Advisor Class shares of the Fund is September
15, 1997.
PERFORMANCE INFORMATION
All advertisements of the Fund will disclose the maximum sales
charge (including deferred sales charges) imposed on purchases of the Fund's
shares. If any advertised performance data does not reflect the maximum sales
charge (if any), such advertisement will disclose that the sales charge has not
been deducted in computing the performance data, and that, if reflected, the
maximum sales charge would reduce the performance quoted. 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, 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 a 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. A Fund's performance
is a function of its portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses of the Fund and
market conditions. A shareholder's investment in the Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in the Fund.
The Fund's total return is calculated in accordance with a
standardized formula for computation of annualized total return.
52
<PAGE> 171
The Fund's total return shows its overall change in value, including
changes in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. 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 AND 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.
Total return and yield figures for the Fund are neither fixed nor
guaranteed, and the Fund's principal is not insured. Performance quotations
reflect historical information and should not be considered representative of
the Fund's performance for any period in the future. Performance is a function
of a number of factors which can be expected to fluctuate. The Fund may provide
performance information in reports, sales literature and advertisements. The
Fund may also, from time to time, quote information about the Fund published or
aired by publications or other media entities which contain articles or
segments relating to investment results or other data about the Fund. Such
publications or media entities may include the following, among others:
Advertising Age Financial Product News Mutual Fund Forecaster
Barron's Financial Services Week Mutual Fund Magazine
Best's Review Financial World Nation's Business
Broker World Forbes New York Times
Business Week Fortune PBS
Changing Times Global Finance Pension World
Christian Science Monitor Hartford Courant Inc. Pensions & Investments
CNBC Insurance Forum Personal Investor
CNN Institutional Investor Philadelphia Inquirer
Consumer Reports Insurance Week Smart Money
Economist Investor's Daily USA Today
EuroMoney Journal of the American U.S. News & World Report
FACS of the Week Society of CLU & ChFC Wall Street Journal
Financial Planning Kiplinger Letter Washington Post
Money
The Fund and AIM Distributors may from time to time, in
advertisements, sales literature and reports furnished to present or
prospective shareholders, compare the Fund with the following, or compare the
Fund's performance to performance data of similar mutual funds as published in
the following, among others:
<TABLE>
<S> <C>
Bank Rate National Monitor Index EAFE Index
Bear Stearns Foreign Bond Index First Boston High Yield Index
Bond Buyer Index Fitch (publications)
CDA/Wiesenberger Investment Company Ibbotson Associates International Bond Index
Services (data and mutual fund rankings and International Bank for Reconstruction and
comparisons) Development (publications)
CNBC/Financial News Composite Index International Finance Corporation Emerging
COFI Markets Database
Consumer Price Index International Financial Statistics
Datastream Lehman Bond Indices
Donoghue's Lipper Analytical Data Services, Inc. (data and
Dow Jones Industrial Average mutual fund rankings and comparisons)
Micropal, Inc. (data and mutual fund rankings
</TABLE>
53
<PAGE> 172
<TABLE>
<S> <C>
and comparisons) Salomon Brothers World Government Bond
Moody's Investors Service (publications) Index-Non-U.S.
Morgan Stanley Capital International All Salomon Brothers World Government Bond
Country (AC) World Index Index
Morgan Stanley Capital International World Standard & Poor's (publications)
Indices Standard & Poor's 500 Composite Stock Price
Morningstar, Inc. (data and mutual fund Index
rankings and comparisons) Stangar
Nasdaq Wilshire Associates
Organization for Economic Cooperation and World Bank (publications and reports)
Development (publications) The World Bank Publication of Trends in
Salomon Brothers Global Telecommunications Developing Countries
Index Worldscope
</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 Treasuries
30-year Treasuries
30-day Treasury Bills
Information relating to foreign market performance, capitalization
and diversification is based on sources believed to be reliable but may be
subject to revision and has not been independently verified by the Fund or AIM
Distributors. Advertising for the Fund may from time to time include
discussions of general economic conditions and interest rates. Advertising for
the Fund may also include reference 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 for the Fund 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, and inflation.
Although performance data may be useful to prospective investors
when comparing a 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 a Fund.
54
<PAGE> 173
APPENDIX A
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc. ("Moody's") employs the designations
"Prime-1" and "Prime-2" to indicate commercial paper having the highest
capacity for timely repayment. Issuers rated Prime-1 (or supporting
institutions) have a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by many of the
following characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and well-established access to a range of financial markets and
assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting
institutions) have a strong ability for repayment of senior short-term debt
obligations. This normally will be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound may be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's, a division of the McGraw-Hill Companies, Inc.
("S&P") rates commercial paper in four categories ranging from "A-1" for the
highest quality obligations to "D" for the lowest. A-1 -- This highest category
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics will be
denoted with a plus sign (+) designation. A-2 -- Capacity for timely payment on
issues with this designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated "A-1." A-3 -- Issues carrying
this designation have adequate capacity for timely payment. They are, however,
more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations. B -- Issues rated "B" are
regarded as having only speculative capacity for timely payment. C -- This
rating is assigned to short-term debt obligations with a doubtful capacity for
payment. D -- Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
S&P rates the securities debt of various entities in categories
ranging from "AAA" to "D" according to quality. Investment grade ratings are
the first four categories: AAA -- Highest rating. Capacity to pay interest and
repay principal is extremely strong. AA -- Very strong capacity to pay interest
and repay principal and differs from the higher rated issues only in a small
degree. A -- Has a strong capacity to pay interest and repay principal although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories. BBB
- -- Regarded as having adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories. BB, B, CCC, CC, C -- Debt rated "BB," "B," "CCC,"
"CC," and "C" is regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. "BB" indicates the lowest degree of speculation and
"C" the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. BB -- Has less
near-term vulnerability to default than other speculative issues. However, it
faces major ongoing uncertainties or exposure to adverse business, financial,
or economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BBB--"
rating. B -- Has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or
"BB--" rating. CCC -- Has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and
55
<PAGE> 174
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "B" or "B--" rating. CC -- Typically applied to
debt subordinated to senior debt that is assigned an actual or implied "CCC"
rating. C -- Typically applied to debt subordinated to senior debt that is
assigned an actual or implied "CCC-" debt rating. The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued. C1 -- Reserved for income bonds on which no interest is
being paid. D -- In payment default. The "D" category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. This rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (--): The ratings from "AA" to "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
NR: Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
DESCRIPTION OF BOND RATINGS
Moody's rates the long-term debt securities issued by various
entities from "Aaa" to "C." Investment Grade Ratings are the first four
categories: Aaa -- Best quality. These securities carry the smallest degree of
investment risk and are generally referred to as "gilt edged." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Aa -- High quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities. A -- Upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future. Baa --
Medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Ba -- Have speculative elements and their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class. B -- Generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small. Caa -- Poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest. Ca --
Speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C -- Lowest rated class of bonds. Issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
ABSENCE OF RATING
Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the
following:
1. An application for rating was not received or accepted.
56
<PAGE> 175
2. The issue or issuer belongs to a group of securities or companies
that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa to B in its corporate bond rating system. The
modifier 1 indicates that the company ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
57
<PAGE> 176
FINANCIAL STATEMENTS
FS
<PAGE> 177
REPORT OF
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders of AIM Global Trends Fund (formerly AIM New Dimension Fund
and prior to that GT Global New Dimension Fund) and Board of Trustees of AIM
Series Trust (formerly GT Global Series Trust):
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Trends Fund at
December 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
BOSTON, MASSACHUSETTS
FEBRUARY 19, 1999
FS-1
<PAGE> 178
PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADVISOR
CLASS VALUE % OF NET
AIM GLOBAL THEME FUNDS SHARES (NOTE 1) ASSETS
- ---------------------------------------------------------------------- ----------- ------------ -------------
<S> <C> <C> <C>
AIM Global Consumer Products and Services Fund ..................... 560,525 $ 14,680,148 33.0
AIM Global Financial Services Fund ................................. 476,746 9,453,864 21.3
AIM Global Infrastructure Fund ..................................... 474,400 7,040,101 15.8
AIM Global Health Care Fund ........................................ 212,889 5,126,361 11.5
AIM Global Resources Fund .......................................... 384,299 4,265,717 9.6
AIM Global Telecommunications Fund ................................. 216,883 4,157,651 9.4
------------ -----
TOTAL THEME FUND INVESTMENTS (cost $43,425,392) ...................... 44,723,842 100.6
------------ -----
TOTAL INVESTMENTS (cost $43,425,392) * .............................. 44,723,842 100.6
Other Assets and Liabilities ......................................... (276,719) (0.6)
------------ -----
NET ASSETS ........................................................... $ 44,447,123 100.0
------------ -----
------------ -----
</TABLE>
- --------------
* For Federal income tax purposes, cost is $44,126,685 and
appreciation (depreciation) is as follows:
<TABLE>
<S> <C>
Unrealized appreciation: $ 2,594,572
Unrealized depreciation: (1,997,415)
-------------
Net unrealized appreciation: $ 597,157
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-2
<PAGE> 179
STATEMENT OF ASSETS
AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
Investments at value (cost $43,425,392) (Note 1).................................................. $44,723,842
Receivable for Fund shares sold................................................................... 64,727
----------
Total assets.................................................................................... 44,788,569
----------
Liabilities:
Payable for Fund shares repurchased............................................................... 251,784
Payable for service and distribution expenses (Note 2)............................................ 89,662
----------
Total liabilities............................................................................... 341,446
----------
Net assets.......................................................................................... $44,447,123
----------
----------
Class A:
Net asset value and redemption price per share ($17,821,706 DIVIDED BY 1,555,460 shares
outstanding)....................................................................................... $ 11.46
----------
----------
Maximum offering price per share (100/95.25 of $11.46) *............................................ $ 12.03
----------
----------
Class B:+
Net asset value and offering price per share ($25,555,015 DIVIDED BY 2,240,410 shares
outstanding)....................................................................................... $ 11.41
----------
----------
Class C:+
Net asset value and offering price per share ($249,327 DIVIDED BY 21,865 shares outstanding)........ $ 11.40
----------
----------
Advisor Class:
Net asset value, offering price per share, and redemption price per share ($821,075 DIVIDED BY
71,690 shares outstanding)......................................................................... $ 11.45
----------
----------
Net assets consist of:
Paid in capital (Note 4).......................................................................... $44,578,806
Undistributed net investment income............................................................... 2,313
Accumulated net realized loss on investments...................................................... (1,432,446)
Net unrealized appreciation of investments........................................................ 1,298,450
----------
Total -- representing net assets applicable to capital shares outstanding........................... $44,447,123
----------
----------
<FN>
- --------------
* On sales of $50,000 or more, the offering price is reduced.
+ Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-3
<PAGE> 180
STATEMENT OF OPERATIONS
Year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment income: (Note 1)
Dividend income............................................................................ $ 131,152
Interest income............................................................................ 3,454
----------
Total investment income.................................................................. 134,606
----------
Expenses:
Service and distribution expenses: (Note 2)
Class A...................................................................... $ 98,572
Class B...................................................................... 258,946
Class C...................................................................... 2,080 359,598
----------
Other expenses............................................................................. 1,921
----------
Total expenses............................................................................. 361,519
----------
Net investment loss.......................................................................... (226,913)
----------
Net realized and unrealized gain (loss) on investments: (Note 1)
Net realized loss on investments............................................... (1,998,812)
Capital gain distributions received............................................ 836,396
----------
Net realized loss during the year........................................................ (1,162,416)
Net unrealized appreciation during the year.............................................. 4,092,846
----------
Net realized and unrealized gain on investments.............................................. 2,930,430
----------
Net increase in net assets resulting from operations......................................... $2,703,517
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-4
<PAGE> 181
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 15,
1997
(COMMENCEMENT
OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------- --------------
<S> <C> <C>
Increase in net assets
Operations:
Net investment loss...................................................... $ (226,913) $ (31,440)
Net realized gain (loss) on investments.................................. (1,162,416) 1,983,653
Net change in unrealized appreciation (depreciation) of investments...... 4,092,846 (2,794,396)
------------- --------------
Net increase (decrease) in net assets resulting from operations........ 2,703,517 (842,183)
------------- --------------
Class A:
Distributions to shareholders: (Note 1)
From net investment income............................................... (26,011) --
From net realized gain on investments.................................... (219,151) --
In excess of net investment income....................................... -- (583,714)
Class B:
Distributions to shareholders: (Note 1)
From net investment income............................................... -- --
From net realized gain on investments.................................... (311,471) --
In excess of net investment income....................................... -- (781,183)
Class C:+
Distributions to shareholders: (Note 1)
From net investment income............................................... -- N/A
From net realized gain on investments.................................... (2,998) N/A
In excess of net investment income....................................... -- N/A
Advisor Class:
Distributions to shareholders: (Note 1)
From net investment income............................................... (5,762) --
From net realized gain on investments.................................... (9,683) --
In excess of net investment income....................................... -- (53,046)
------------- --------------
Total distributions.................................................... (575,076) (1,417,943)
------------- --------------
Capital share transactions: (Note 4)
Increase from capital shares sold and reinvested......................... 26,507,554 41,029,628
Decrease from capital shares repurchased................................. (19,757,886) (3,300,488)
------------- --------------
Net increase from capital share transactions........................... 6,749,668 37,729,140
------------- --------------
Total increase in net assets............................................... 8,878,109 35,469,014
Net assets:
Beginning of year........................................................ 35,569,014 100,000
------------- --------------
End of year *............................................................ $44,447,123 $ 35,569,014
------------- --------------
------------- --------------
*Includes undistributed/accumulated net investment income (loss).......... $ 2,313 $ 28,710
------------- --------------
------------- --------------
<FN>
- --------------
+ Commencing January 1, 1998, the Fund began offering Class C shares.
</TABLE>
The accompanying notes are an integral part of the financial statements.
FS-5
<PAGE> 182
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding,
total investment return, ratios and supplemental data. This information has been
derived from information provided in the financial statements and market price
data for the shares.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------ ------------------------------------
SEPTEMBER 15, 1997 SEPTEMBER 15, 1997
(COMMENCEMENT (COMMENCEMENT
YEAR ENDED OF OPERATIONS) YEAR ENDED OF OPERATIONS)
DECEMBER 31, TO DECEMBER 31, 1997 DECEMBER 31, TO DECEMBER 31, 1997
1998 (d) (d) 1998 (d) (d)
------------- --------------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 10.63 $ 11.43 $ 10.62 $ 11.43
------------- ---------- ------------- ----------
Income from investment operations:
Net investment income (loss).......... (0.02) (0.01) (0.07) (0.02)
Net realized and unrealized gain
(loss) on investments................ 1.01 (0.31) 1.00 (0.32)
------------- ---------- ------------- ----------
Net increase (decrease) from
investment operations.............. 0.99 (0.32) 0.93 (0.34)
------------- ---------- ------------- ----------
Distributions to shareholders:
From net investment income............ (0.02) -- -- --
From net realized gain on
investments.......................... (0.14) -- (0.14) --
In excess of net investment income.... -- (0.48) -- (0.47)
------------- ---------- ------------- ----------
Total distributions................. (0.16) (0.48) (0.14) (0.47)
------------- ---------- ------------- ----------
Net asset value, end of period.......... $ 11.46 $ 10.63 $ 11.41 $ 10.62
------------- ---------- ------------- ----------
------------- ---------- ------------- ----------
Total investment return (c)............. 9.37% (2.68)% (b) 8.83% (2.83)% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 17,822 $ 15,145 $ 25,555 $ 19,184
Ratio of net investment income (loss) to
average net assets..................... (0.21)% (0.35)% (a) (0.71)% (0.85)% (a)
Ratio of operating expenses to average
net assets (Note 2).................... 0.50% 0.50% (a) 1.00% 1.00% (a)
Portfolio turnover rate++............... 28% 1% (a) 28% 1% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing January 1, 1998, the Fund began offering Class C shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
FS-6
<PAGE> 183
FINANCIAL HIGHLIGHTS (cont'd)
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share outstanding,
total investment return, ratios and supplemental data. This information has been
derived from information provided in the financial statements and market price
data for the shares.
<TABLE>
<CAPTION>
ADVISOR CLASS
------------------------------------
CLASS C+ SEPTEMBER 15, 1997
------------- (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31, 1997
1998 (d) 1998 (d) (d)
------------- ------------- ---------------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.... $ 10.62 $ 10.64 $ 11.43
------------- ------------- ----------
Income from investment operations:
Net investment income (loss).......... (0.08) 0.03 0.01
Net realized and unrealized gain
(loss) on investments................ 1.00 1.00 (0.31)
------------- ------------- ----------
Net increase (decrease) from
investment operations.............. 0.92 1.03 (0.30)
------------- ------------- ----------
Distributions to shareholders:
From net investment income............ -- (0.08) --
From net realized gain on
investments.......................... (0.14) (0.14) --
In excess of net investment income.... -- -- (0.49)
------------- ------------- ----------
Total distributions................. (0.14) (0.22) (0.49)
------------- ------------- ----------
Net asset value, end of period.......... $ 11.40 $ 11.45 $ 10.64
------------- ------------- ----------
------------- ------------- ----------
Total investment return (c)............. 8.94% 9.80% (2.51)% (b)
Ratios and supplemental data:
Net assets, end of period (in 000's).... $ 249 $ 821 $ 1,241
Ratio of net investment income (loss) to
average net assets..................... (0.71)% 0.28% 0.15% (a)
Ratio of operating expenses to average
net assets (Note 2).................... 1.00% 0.00% 0.00% (a)
Portfolio turnover rate++............... 28% 28% 1% (a)
</TABLE>
- ----------------
(a) Annualized
(b) Not annualized
(c) Total investment return does not include sales charges.
(d) These selected per share data were calculated based upon average
shares outstanding during the period.
+ Commencing January 1, 1998, the Fund began offering Class C shares.
++ Portfolio turnover rates are calculated on the basis of the Fund as a
whole without distinguishing between the classes of shares issued.
FS-7
<PAGE> 184
NOTES TO
FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
AIM Global Trends Fund (the "Fund"), formerly AIM New Dimension Fund and prior
to that GT Global New Dimension Fund is a diversified series of AIM Series Trust
(the "Trust"), formerly GT Global Series Trust. The Trust is organized as a
Delaware business trust and is registered under the Investment Company Act of
1940, as amended ("1940 Act"), as an open-end management investment company. The
Fund invests substantially all of its assets in Advisor Class shares of the AIM
theme mutual funds: AIM Global Consumer Products and Services Fund; AIM Global
Financial Services Fund; AIM Global Health Care Fund; AIM Global Infrastructure
Fund; AIM Global Resources Fund; and AIM Global Telecommunications Fund
(collectively, the "Underlying Theme Funds").
The Fund offers Class A, Class B, Class C, and Advisor Class shares, each of
which has equal rights as to assets and voting privileges. Class A, Class B, and
Class C, each have exclusive voting rights with respect to its distribution
plan. Investment income, realized and unrealized capital gains and losses of the
Fund are allocated on a pro rata basis to each Class based on the relative net
assets of each class to the total net assets of the Fund. Each class of shares
differs in its respective service and distribution expenses.
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting year. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies in conformity with generally accepted accounting
principles consistently followed by the Fund in the preparation of the financial
statements.
(A) PORTFOLIO VALUATION
The Fund calculates the net asset value of, and completes orders, to purchase
exchange or repurchase Fund shares on each business day, with the exception of
those days on which the New York Stock Exchange is closed.
Investments of the Fund are valued based on the closing net asset value of
Advisor Class shares of each Underlying Theme Funds on the day of valuation, and
Short-term investments with a maturity of 60 days or less are valued at
amortized cost.
(B) REPURCHASE AGREEMENTS
With respect to repurchase agreements entered into by the Fund, it is the Fund's
policy to always receive, as collateral, United States government securities or
other high quality debt securities of which the value, including accrued
interest, is at least equal to the amount to be repaid to the Fund under each
agreement at its maturity.
(C) TAXES
It is the policy of the Fund to meet the requirements for qualification as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code"). It is also the intention of the Fund to make distributions
sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
Therefore, no provision has been made for Federal taxes on income, capital
gains, or unrealized appreciation of securities held, and excise tax on income
and capital gains. The Fund currently has a capital loss carryforward of
$731,153 which expires in 2006.
(D) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded by the Fund on the ex-date. Income
and capital gain distributions are determined in accordance with Federal income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Fund and timing differences.
2. RELATED PARTIES
A I M Advisors, Inc. (the "Manager"), an indirectly wholly owned subsidiary of
AMVESCAP PLC, is the Fund's investment manager and administrator. As of the
close of business on May 29, 1998, Liechtenstein Global Trust AG ("LGT"), the
former indirect parent organization of Chancellor LGT Asset Management, Inc.
("Chancellor LGT"), consummated a purchase agreement with AMVESCAP PLC pursuant
to which AMVESCAP PLC acquired LGT's Asset Management Division, which included
Chancellor LGT and certain other affiliates. Also, as of the close of business
May 29, 1998, A I M Distributors, Inc. ("AIM Distributors"), a wholly-owned
subsidiary of the Manager, became the Fund's distributor, and the Trust was
reorganized from a Massachusetts business trust into a Delaware business trust.
Finally, as of the close of business on September 4, 1998, A I M Fund Services,
Inc. ("AFS"), an affiliate of the Manager and AIM Distributors, replaced GT
Global Investor Services, Inc. ("GT Services") as the transfer agent of the
Fund.
AIM Distributors serves as the Fund's distributor. For the period ended May 29,
1998, GT Global, Inc. ("GT Global"), an affiliate of the investment sub-advisor,
served as the Fund's distributor.
Class A shares are subject to initial sales charges imposed at the time of
purchase, in accordance with the schedule included in the Fund's current
prospectus. AIM Distributors collects the sales charges imposed on sales of
Class A shares, and reallows a portion of such charges to dealers through which
the sales are made. For the year ended December 31, 1998, AIM Distributors
retained $5,203 of such sales charges. Purchases of Class A shares exceeding
$1,000,000 may be subject to a contingent deferred sales charge ("CDSC") upon
redemption, in accordance with the Fund's current prospectus. There were no
CDSC's collected for Class A for the year ended December 31,1998. In addition,
AIM Distributors also makes ongoing shareholder servicing and trail commission
payments to dealers whose clients hold Class A shares.
Class B shares are not subject to initial sales charges. When Class B shares are
sold, AIM Distributors from its own resources pays
FS-8
<PAGE> 185
commissions to dealers through which the sales are made. Certain redemptions of
Class B shares made within six years of purchase are subject to CDSCs, in
accordance with the Fund's current prospectus. During the year ended December
31, 1998, AIM Distributors collected such CDSCs in the amount of $77,258. In
addition, AIM Distributors makes ongoing shareholder servicing and trail
commission payments to dealers whose clients hold Class B shares.
Class C shares are not subject to initial sales charges. When Class C shares are
sold, AIM Distributors from its own resources pays commissions to dealers
through which the sales are made. Certain redemptions of Class C shares made
within one year of purchase are subject to CDSCs, in accordance with the Fund's
current prospectus. During the year ended December 31, 1998, AIM Distributors
collected such CDSCs in the amount of $208. In addition, AIM Distributors makes
ongoing shareholder servicing and trail commission payments to dealers whose
clients hold Class B shares.
For the period ended May 29, 1998, pursuant to the then effective separate
distribution plans adopted under the 1940 Act Rule 12b-1 by the Trust's Board of
Trustees with respect to the Fund's Class A shares ("Class A Plan"), Class B
shares ("Class B Plan") and Class C shares ("Class C"), the Fund reimbursed GT
Global for a portion of its shareholder servicing and distribution expenses.
Under the Class A Plan, the Fund was permitted to pay GT Global a service fee at
the annualized rate of up to 0.25% of the average daily net assets of the Fund's
Class A shares for GT Global's expenditures incurred in servicing and
maintaining shareholder accounts, and was permitted to pay GT Global a
distribution fee at the annualized rate of up to 0.50% of the average daily net
assets of the Fund's Class A shares, less any amounts paid by the Fund as the
aforementioned service fee, for GT Global's expenditures incurred in providing
services as distributor. All expenses for which GT Global was reimbursed under
the Class A Plan would have been incurred within one year of such reimbursement.
For the period ended May 29, 1998, pursuant to that Class B Plan and Class C
Plan, the Fund was permitted to pay GT Global a service fee at the annualized
rate of up to 0.25% of the average daily net assets of the Fund's Class B and
Class C shares for GT Global's expenditures incurred in servicing and
maintaining shareholder accounts, and was permitted to pay GT Global a
distribution fee at the annualized rate of up to 0.75% of the average daily net
assets of the Fund's Class B and Class C shares for GT Global's expenditures
incurred in providing services as distributor. Expenses incurred under the Class
B Plan and Class C Plan in excess of 1.00% annually were permitted to be carried
forward for reimbursement in subsequent years as long as that Plan continues in
effect.
Effective as of the close of business May 29, 1998, pursuant to Rule 12b-1 under
the 1940 Act, the Trust's Board of Trustees has adopted a Master Distribution
Plan applicable to the Fund's Class A and Class C shares (the "Class A and Class
C Plan") and Class B shares ("Class B Plan"), pursuant to which a Fund
compensates AIM Distributors for the purpose of financing any activity that is
intended to result in the sale of Class A, Class B, and Class C shares of the
Funds. Under the Class A and Class C Plan, a Fund compensates AIM Distributors
at the annualized rate of 0.50% of the average daily net assets of the Fund's
Class A shares and an aggregated amount of 1.00% of the average daily net assets
of Class C shares of the Fund. The Fund, pursuant to the Fund's Class B Plan,
compensates AIM Distributors at an annualized rate of 1.00% of the average daily
net assets of the Fund's Class B shares. Of these amounts, the Fund may pay a
service fee of 0.25% of the average daily net assets of the Class A or Class B
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own the
appropriate class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge.
The Manager is the pricing and accounting agent for the Fund. The Manager will
initially assume all costs of the Fund's operation, except for service and
distribution fees as described below and non-recurring and extraordinary
expenses. The Fund, as a shareholder in the Underlying Theme Funds, indirectly
will bear its proportionate share of any investment management fees and other
expenses paid by the Underlying Theme Funds. Subject to receipt of a pending
exemptive order from the Securities and Exchange Commission, the Trust, on
behalf of the Fund, will enter into a Special Servicing Agreement ("Agreement")
with the Underlying Theme Funds, the Manager and AFS, the transfer agent. If the
Board of Trustees of the Underlying Theme Funds makes certain findings, each
Underlying Theme Fund will pay certain nondistribution-related expenses of the
Fund to the extent such expenses are less than the estimated savings to the
Underlying Theme Funds from the operation of the Fund. The Manager and AIM
Distributors also voluntarily have undertaken to limit the Underlying Theme
Fund's expenses (exclusive of brokerage commissions, taxes, interest, and
extraordinary expenses) to the maximum annual rate of 1.50% of the average daily
net assets of the Underlying Theme Fund's Advisor Class shares.
Effective as of the close of business September 4, 1998, the Fund, pursuant to a
transfer agency and service agreement, has agreed to pay AFS an annualized fee
of $24.85 per shareholder accounts that are open during any monthly year (this
fee includes all out-of-pocket expenses), and an annualized fee of $0.70 per
shareholder account that is closed during any monthly year. Both fees shall be
billed by AFS monthly in arrears on a prorated basis of 1/12 of the annualized
fee for all such accounts.
For the period January 1, 1998 to September 4, 1998, GT Services, an affiliate
of the Manager and AIM Distributors, was the transfer agent of the Fund. For
performing shareholder servicing, reporting, and general transfer agent
services, GT Services received an annual maintenance fee of $17.50 per account,
a new account fee of $4.00 per account, a per transaction fee of $1.75 for all
transactions other than exchanges and a per exchange fee of $2.25. GT Services
was also reimbursed by the Fund for its out-of-pocket expenses for such items as
postage, forms, telephone charges, stationery and office supplies.
Subject to the receipt of a pending exemptive order from the Securities and
Exchange Commission, the Trust will pay each of its Trustees who is not an
employee, officer or director of the Manager or AIM Distributors $5,000 per year
plus $300 for each meeting of the board or any committee thereof attended by the
Trustee. Until such order is received, the Manager pays the trustees such fees.
FS-9
<PAGE> 186
3. PURCHASES AND SALES
For the year ended December 31, 1998, purchases and sales, other than short-term
investments, of the Underlying Theme Funds by the Fund, are as follows:
<TABLE>
<CAPTION>
AIM GLOBAL PURCHASES SALES
- ------------------------------------------------ -------------- --------------
<S> <C> <C>
Consumer Products and Services Fund............. $ 5,701,863 $ 4,562,266
Telecommunications Fund......................... $ 1,828,214 1,193,655
Financial Services Fund......................... $ 3,832,422 2,779,932
Resources Fund.................................. $ 3,479,472 1,184,858
Health Care Fund................................ $ 2,374,943 1,310,095
Infrastructure Fund............................. $ 3,414,597 1,984,449
</TABLE>
4. CAPITAL SHARES
At December 31, 1998, there were an unlimited number of shares of beneficial
interest authorized, at no par value. Transactions in capital shares of the Fund
were as follows:
CAPITAL SHARE TRANSACTIONS
<TABLE>
<CAPTION>
SEPTEMBER 15, 1997
(COMMENCEMENT OF
YEAR ENDED OPERATIONS)
DECEMBER 31, 1998 TO DECEMBER 31, 1997
-------------------------- --------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold................................................. 952,323 $ 10,681,667 1,560,835 $ 17,768,084
Shares issued in connection with reinvestment of
distributions ............................................ 22,552 245,281 54,891 563,181
----------- ------------ ----------- ------------
974,875 10,926,948 1,615,726 18,331,265
Shares repurchased ......................................... (843,563) (9,206,317) (194,494) (2,190,806)
----------- ------------ ----------- ------------
Net increase ............................................... 131,312 $ 1,720,631 1,421,232 $ 16,140,459
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS B
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 1,302,574 $ 14,551,138 1,832,668 $ 20,681,472
Shares issued in connection with reinvestment of
distributions ............................................ 26,664 289,152 67,039 687,825
<CAPTION>
CLASS B
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
----------- ------------ ----------- ------------
1,329,238 14,840,290 1,899,707 21,369,297
Shares repurchased ......................................... (894,609) (9,623,737) (96,841) (1,061,266)
----------- ------------ ----------- ------------
Net increase ............................................... 434,629 $ 5,216,553 1,802,866 $ 20,308,031
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
CLASS C
*
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 35,723 $ 397,022 -- $ --
Shares issued in connection with reinvestment of
distributions ............................................ 265 2,876 -- --
----------- ------------ ----------- ------------
35,988 399,898 -- --
Shares repurchased ......................................... (14,123) (146,933) -- --
----------- ------------ ----------- ------------
Net increase ............................................... 21,865 $ 252,965 -- $ --
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
<CAPTION>
ADVISOR
CLASS
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 29,946 $ 324,974 113,102 $ 1,276,664
Shares issued in connection with reinvestment of
distributions ............................................ 1,418 15,444 5,102 52,402
---------- ------------ ---------- ------------
31,364 340,418 118,204 1,329,066
Shares repurchased ......................................... (76,261) (780,899) (4,533) (48,416)
---------- ------------ ---------- ------------
Net increase (decrease) .................................... (44,897) $ (440,481) 113,671 $ 1,280,650
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
- ----------------
* The Fund began offering Class C shares on January 1, 1998.
- ----------------
FEDERAL TAX INFORMATION (UNAUDITED):
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$543,303 as a capital gain dividend for the fiscal year ended December 31, 1998.
FS-10
