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[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark--
AIM FLOATING RATE FUND
PROSPECTUS
APRIL 3, 2000
This Prospectus contains information about AIM FLOATING RATE FUND (the "Fund"),
a continuously offered, non-diversified, closed-end management investment
company. The investment objective of the Fund is to provide as high a level of
current income and preservation of capital as is consistent with investment in
senior secured corporate loans ("Corporate Loans") and senior secured debt
securities ("Corporate Debt Securities") that meet credit standards established
by its investment manager, A I M Advisors, Inc. and its sub-advisor, INVESCO
Senior Secured Management, Inc. The Fund invests primarily in assignments of, or
participations in, Corporate Loans made by banks and other financial
institutions and Corporate Debt Securities. The Corporate Loans and Corporate
Debt Securities are expected to pay interest at rates that float or reset at a
margin above a generally recognized base lending rate such as the London
InterBank Offered Rate or the prime rate of a designated U.S. bank. The
investment objective of the Fund may not be achieved.
Shares of beneficial interest ("Shares") of the Fund are continuously offered at
a price equal to the next determined net asset value per share without a
front-end sales charge. The minimum initial purchase is $500, and the minimum
subsequent purchase is $50.
No market presently exists for the Fund's Shares and it is not currently
expected that a secondary market will develop. To provide the Fund's
shareholders ("Shareholders") with liquidity, the Fund makes offers on a
quarterly basis to repurchase between 5% and 25% of its outstanding Shares from
Shareholders at the net asset value per Share. The Fund may determine the net
asset value applicable to repurchases no later than the 14th calendar day (or,
if not a business day, the next business day) after the repurchase request
deadline, and will distribute payment to shareholders on or before the
repurchase payment deadline, which will be no later than seven calendar days
after the pricing date. See "Repurchase Offers."
The Fund offers Class B and Class C Shares. Both Classes of Shares are sold at
net asset value with no front-end sales charge. Class B Shares held for less
than four years, and Class C Shares held for less than one year, are subject to
an Early Withdrawal Charge upon their repurchase by the Fund. See "Early
Withdrawal Charge."
Investing in the Shares of the Fund involves risks, including fluctuations in
value, and there is a risk that you could lose a portion or all of your money.
The Fund may invest all or substantially all of its assets in Corporate Loans,
Corporate Debt Securities or other securities that are rated below investment
grade by a nationally recognized statistical rating organization, or in
comparable unrated securities. The Fund is authorized to borrow money to finance
repurchase offers or for temporary, extraordinary or emergency purposes. While
it has no current intention of doing so, the Fund may also borrow money to
finance additional investments. The leverage created by borrowing money to
finance additional investments results in certain risks for Shareholders,
including the risk of higher volatility of the net asset value of the Shares.
See "Special Considerations and Risk Factors -- Effects of Borrowing."
This Prospectus sets forth concisely the information about the Fund that
prospective investors should know before investing. Please read it before
investing and keep it for future reference. Additional information concerning
the Fund may be obtained by writing to A I M Fund Services, Inc., P.O. Box 4739,
Houston, TX 77210-4739 or by calling 1-800-347-4246. Additional information
about the Fund may also be obtained from http://www.aimfunds.com.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF A BANK AND IS NOT FEDERALLY
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO SALES PROCEEDS
PUBLIC(1) LOAD(2) TO FUND
------------ ------- ------------
<S> <C> <C> <C>
Per Class B Share........................................ $ 9.63 None $ 9.63
Per Class C Share........................................ $ 9.63 None $ 9.63
Total.................................................... $607,818,126(3) None $607,818,126(3)
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</TABLE>
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(1) The Shares are offered at a price equal to net asset value, which at the
date of this Prospectus is $9.63 per Share.
(2) A I M Distributors, Inc., the Fund's distributor, will pay all sales
commissions to selected dealers from its own resources.
(3) Including the sale of 33,117,147 previously registered but unsold Class B
Shares and 30,000,000 newly registered Class C Shares.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................ 2
THE FUND............................... 4
Table of Fees and Expenses........... 4
Financial Highlights................. 5
Use of Proceeds...................... 5
Investment Objective and Policies.... 5
Investment Restrictions.............. 12
Special Considerations and Risk
Factors........................... 13
Purchase of Shares -- Multiple
Pricing System.................... 15
Early Withdrawal Charge.............. 16
Waivers of Early Withdrawal Charge... 17
Distribution Plans................... 17
Repurchase Offers.................... 18
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management........................... 18
Trustees and Executive Officers...... 20
Fund Transactions.................... 21
Dividends and Other Distributions.... 21
Taxes................................ 22
Dividend Reinvestment Plan........... 24
Automatic Investment Plan............ 24
Exchange Privilege................... 24
Determination of Net Asset Value..... 25
Description of Shares................ 25
Performance Information.............. 26
OTHER INFORMATION...................... 27
APPENDIX A............................. A-1
</TABLE>
SUMMARY
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THE FUND. AIM Floating Rate Fund (the "Fund") is a continuously offered,
non-diversified, closed-end management investment company. See "The Fund."
THE OFFERING. The Fund offers its Class B and Class C Shares at a price equal
to the next determined net asset value per share. Shares of the Fund are not
subject to a front-end sales charge. Class B Shares are subject to a 3.0% early
withdrawal charge ("EWC") that declines over a four-year period and a 0.25%
distribution and service fee. Class C Shares are subject to an EWC of 1% during
the first year a Shareholder owns Class C Shares, plus a 0.75% distribution and
service fee. (The Distributor has agreed to waive 0.25% of the Class C
distribution and service fee.) The minimum initial purchase is $500, and the
minimum subsequent purchase is $50, except that the minimum initial purchase is
$250 for certain retirement accounts. The Fund reserves the right to waive or
modify the initial and subsequent minimum investment requirements at any time.
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the Fund is to
provide as high a level of current income and preservation of capital as is
consistent with investment in senior secured corporate loans ("Corporate Loans")
and senior secured debt securities ("Corporate Debt Securities") that meet
credit standards established by the Fund's investment manager, A I M Advisors,
Inc. ("AIM") and its sub-advisor, INVESCO Senior Secured Management, Inc. (the
"Sub-advisor").
Under normal market conditions, the Fund invests primarily in Corporate Loans
and Corporate Debt Securities made to or issued by U.S. or non-U.S. companies
("Borrowers"). These Corporate Loans and Corporate Debt Securities (i) have
variable rates which adjust to a base rate, such as the London InterBank Offered
Rate ("LIBOR") on set dates, typically every 30 days but not to exceed one year;
and/or (ii) have interest rates that float at a margin above a generally
recognized base lending rate such as the prime rate ("Prime Rate") of a
designated U.S. bank.
In general, the net asset value of an investment company that invests
primarily in fixed-income securities changes in response to fluctuations in the
general level of interest rates. Funds that invest in floating rate and variable
rate securities are generally less affected by interest rate changes. Because
the Fund consists primarily of floating rate and variable rate Corporate Loans
and Corporate Debt Securities, AIM and the Sub-advisor expect the value of the
Fund to fluctuate less in response to interest rate changes than would a
portfolio of fixed-rate obligations. However, because interest rates are
constantly changing, and the interest rates on the floating and variable rate
securities in which the Fund invests are only reset periodically, the Fund's net
asset value may fluctuate.
SPECIAL CONSIDERATION AND RISK FACTORS. The Corporate Loans and Corporate Debt
Securities in which the Fund may invest are subject to the risk of nonpayment of
scheduled interest or principal payments. If a nonpayment or default occurs, the
Fund may experience a decline in the value of such obligations, resulting in a
decline in the net asset value of the Fund's Shares.
The Corporate Loans and Corporate Debt Securities in which the Fund invests
consist primarily of obligations of a Borrower undertaken to finance the growth
of the Borrower's business internally or externally or to finance a capital
restructuring. A significant portion of such Corporate Loans and Corporate Debt
Securities may be issued in highly leveraged transactions that are subject to
greater credit risks, including a greater possibility of default or bankruptcy
of the Borrower.
The Fund may borrow money to finance repurchase offers, for temporary or
emergency purposes, or to finance additional investments. Money raised through
borrowing will be subject to interest costs which may or may not exceed the
interest on any assets purchased.
INVESTMENT MANAGERS. The Fund is managed by AIM and the Sub-Advisor. AIM and
the Sub-advisor and their worldwide asset management affiliates provide
investment management and/or administrative services to institutional, corporate
and individual clients around the world. AIM and the Sub-advisor are both
indirect wholly-owned subsidiaries of AMVESCAP PLC. AMVESCAP PLC and its
subsidiaries are an inde-
2
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pendent investment management group that has 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. AIM was organized in 1976
and, together with its subsidiaries, currently advises or manages over 120
investment portfolios.
The Sub-advisor determines the investment composition of the Fund, places all
orders for the purchase and sale of securities and for other transactions, and
oversees the settlement of the Fund's securities and other transactions. The
Sub-advisor has appointed INVESCO, Inc. as the investment sub-sub-advisor with
respect to certain of the assets of the Fund. See "Management."
ADMINISTRATOR. AIM provides administrative services to the Fund. These
include, among other things, furnishing officers and office space, preparing or
assisting in preparing materials for stockholders and regulatory bodies and the
provision of accounting services.
DISTRIBUTIONS. The Fund distributes substantially all of its net investment
income to Shareholders by declaring dividends daily and paying them monthly.
Substantially all net capital gains, if any, are distributed at least annually
to Shareholders. See "Dividends and Other Distributions." Under the Fund's
Dividend Reinvestment Plan (the "Dividend Plan"), each Shareholder is assumed to
have elected, unless the Shareholder instructs otherwise in writing, to have all
dividends and other distributions, net of any applicable withholding taxes,
automatically reinvested in additional Shares. See "Dividend Reinvestment Plan."
REPURCHASE OFFERS. The Fund's Shares are not listed on any exchange and it is
not anticipated that a secondary market will develop. In view of this, the Fund
makes offers (each, a "Repurchase Offer") each quarter to repurchase between 5%
and 25% of the Fund's outstanding Shares from its Shareholders. The Shares will
be purchased in these Repurchase Offers at the net asset value per Share
determined at the close of business on the day a Repurchase Offer terminates.
Class B Shares that have been held for less than four years and which are
repurchased by the Fund pursuant to Repurchase Offers will be subject to an EWC
up to 3% of the lesser of the then current net asset value or the original
purchase price of the Shares being tendered. Class C Shares that have been held
for less than one year and which are repurchased by the Fund will be subject to
an EWC of 1%. See "Repurchase Offers" and "Early Withdrawal Charge."
No secondary market currently exists for the Fund's Shares, and the Fund does
not expect a secondary market to develop. Moreover, A I M Distributors, Inc.
("AIM Distributors" or the "Distributor") and other selected dealers are
prohibited under applicable law from making a market in the Fund's Shares while
the Fund is making either a public offering of or an offer to repurchase its
Shares. Because of the lack of a secondary market and the EWC, the Fund is
designed primarily for long-term investors and should not be considered a
vehicle for trading purposes. See "Special Considerations and Risk Factors."
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, INVEST WITH
DISCIPLINE, AND INVIERTA CON DISCIPLINA ARE REGISTERED SERVICE MARKS AND AIM
BANK CONNECTION, AIM FUNDS, AIM FUNDS AND DESIGN, AIM INTERNET CONNECT AND AIM
INVESTOR ARE SERVICE MARKS OF A I M MANAGEMENT GROUP INC.
3
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THE FUND
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TABLE OF FEES AND EXPENSES
The following table is intended to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, directly or
indirectly.
<TABLE>
<CAPTION>
CLASS B CLASS C
------- -------
<S> <C> <C>
Shareholder Transaction Expenses(1)
Sales Load (as a percentage of offering price)............ None None
Dividend Reinvestment Plan Fees........................... None None
Maximum Early Withdrawal Charge(2)........................ 3.00% 1.00%
Annual Fund Operating Expenses (as a percentage of net
assets)(3)
Investment Management and Administrative Fee.............. 0.95% 0.95%
Distribution and/or Service Fee (after waiver)............ 0.25% 0.50%(4)
Other Expenses (after waiver)(5).......................... 0.27% 0.27%
---- ----
Total Annual Operating Expenses (after waiver).... 1.47% 1.72%
==== ====
</TABLE>
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(1)Under applicable rules governing the Repurchase Offers, the Fund may deduct
from a Shareholder's repurchase proceeds a fee of up to 2.00% of such
proceeds to offset expenses associated with the Repurchase Offer. The Fund
has determined not to impose a repurchase fee on any Repurchase Offers
conducted prior to March 31, 2001. Although it has no current intention to do
so, the Fund could impose such a repurchase fee thereafter.
(2)Calculated based on the lesser of the then current net asset value or the
original price of the Shares being tendered. For Class B Shares, the maximum
EWC applies to Shares sold during the first year after purchase; the EWC
declines annually thereafter, reaching zero after four years. For Class C
Shares, the EWC applies to Shares sold during the first year after purchase;
the EWC disappears thereafter. See "Early Withdrawal Charge."
(3)See "Management" for additional information.
(4)The Distributor has agreed to waive 0.25% of the annual Distribution and
Service Fee for Class C Shares. Had the Distributor not agreed to such waiver
the annual Distribution and Service Fee would have been 0.75%. See
"Distribution Plans" for additional information.
(5)AIM has agreed to limit Total Annual Operating Expenses (exclusive of
brokerage commissions, taxes, interest, dividend on short sales and
extraordinary expenses) to 1.50% for Class B Shares and 1.75% for Class C
Shares. Had AIM not agreed to limit expenses the Total Annual Operating
Expenses would have been 1.52% for Class B Shares. Other expenses for Class C
shares are estimated based on those of Class B Shares.
EXAMPLE. The following Example demonstrates the projected dollar amount of
total cumulative expense that would be incurred over various periods with
respect to a hypothetical investment in the Fund. These amounts are based upon
payment by the Fund of operating expenses at the levels set forth in the above
table.
An investor would directly or indirectly pay the following expenses of a
$1,000 investment in the Fund, assuming (i) a 5% annual return and (ii)
reinvestment of all dividends and other distributions at net asset value:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Assuming no repurchase of Shares............ Class B $ 15 $ 46 $ 80 $ 176
Class C 17 54 93 203
Assuming repurchase of Shares on last day of
period and imposition of maximum
applicable Early Withdrawal Charge........ Class B 45 66 80 176
Class C 27 54 93 203
</TABLE>
This Example assumes that the percentage amounts listed under Total Annual
Operating Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return and reinvestment at net asset
value are required by regulation of the Securities and Exchange Commission
applicable to all closed-end investment companies; the assumed 5% annual return
is not a prediction of, and does not represent, the projected or actual
performance of the Shares. Actual expenses and annual rates of return may be
more or less than those assumed for purposes of the Example. In addition,
although the Example assumes reinvestment of all dividends and other
distributions at net asset value, participants in the Plan may receive shares of
the Shares obtained at or based on the market price in effect at the time, which
may be at, above or below net asset value.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES, AND
THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
4
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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 is with respect to Class B shares of the Fund. The financial
statements and notes for the fiscal years or periods noted, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report thereon also
is included in the financial statements attached to this prospectus.
<TABLE>
<CAPTION>
MAY 1, 1997
(COMMENCEMENT
DECEMBER 31, DECEMBER 31, OF OPERATIONS) TO
1999(a) 1998 DECEMBER 31, 1997
------------ ------------ -----------------
<S> <C> <C> <C>
Net asset value, beginning of period.............. $ 9.84 $ 10.02 $ 10.00
-------- -------- --------
Income from investment operations:
Net investment income............................. 0.69 0.68 0.46
Net realized and unrealized gain (loss) on
investments.................................... (0.16) (0.18) 0.02
-------- -------- --------
Net increase from investment operations........ 0.53 0.50 0.48
-------- -------- --------
Distributions to shareholders:
From net investment income........................ (0.69) (0.67) (0.46)
From net realized gain on investments............. -- (0.01) --
-------- -------- --------
Total distributions............................ (0.69) (0.68) (0.46)
-------- -------- --------
Net asset value, end of period...................... $ 9.68 $ 9.84 $ 10.02
======== ======== ========
Total return(b)..................................... 5.49% 5.25% 5.04%
Ratios and supplemental data:
Net assets, end of period (in 000's)................ $439,523 $288,074 $161,697
Ratio of net investment income to average net
assets:
With expense reductions........................... 7.02%(c) 6.88% 7.26%(d)
Without expense reductions........................ 6.97%(c) 6.75% 6.24%(d)
Ratio of expenses to average net assets:
With expense reimbursement........................ 1.47%(c) 1.50% 1.50%(d)
Without expense reimbursement..................... 1.52%(c) 1.63% 2.52%(d)
Ratio of interest expense to average net assets..... NA 0.01% 0.15%(d)
Portfolio turnover rate............................. 81% 75% 118%(d)
</TABLE>
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(a) Calculated using average shares outstanding.
(b) Does not include early withdrawal charges and is not annualized for
periods less than one year.
(c) Ratios are based on average net assets of $364,173,935.
(d) Annualized.
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USE OF PROCEEDS
The net proceeds from the sale of the Shares offered hereby will be invested
in accordance with the Fund's investment objective and policies on an ongoing
basis, depending on the availability of Corporate Loans and Corporate Debt
Securities and other relevant conditions. Pending such investment, it is
anticipated that the proceeds will be invested in short-term debt obligations or
instruments. See "Investment Objective and Policies."
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide as high a level of current
income and preservation of capital as is consistent with investment in senior
secured Corporate Loans and Corporate Debt Securities that meet credit standards
established by AIM and the Sub-advisor. This is a fundamental policy of the Fund
and may not be changed without a vote of a majority of the outstanding Shares of
the Fund. There can be no assurance that the investment objective of the Fund
will be achieved.
5
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Under normal market conditions, the Fund will invest at least 80% of its total
assets in interests in Corporate Loans and Corporate Debt Securities made to or
issued by Borrowers (which may include U.S. and non-U.S. companies), including
those that: (i) have variable rates which adjust to a base rate, such as LIBOR,
on set dates, typically every 30 days but not to exceed one year; and/or (ii)
have interest rates that float at a margin above a generally recognized base
lending rate such as the Prime Rate of a designated U.S. bank.
Corporate Loans in which the Fund invests typically are negotiated and
structured by a syndicate of lenders ("Lenders") consisting of commercial banks,
thrift institutions, insurance companies, finance companies or other financial
institutions, one or more of which administers the Corporate Loan on behalf of
all the Lenders (the "Agent Bank"). The Fund's investments in Corporate Loans
are either participation interests in Corporate Loans ("Participation
Interests") or assignments of Corporate Loans ("Assignments"). Participation
Interests may be acquired from a Lender or other holders of Participation
Interests ("Participants"). If the Fund purchases an Assignment from a Lender,
it will generally become a "Lender" for purposes of the relevant loan agreement,
with direct contractual rights under the loan agreement and under any related
collateral security documents in favor of the Lenders. On the other hand, if the
Fund purchases a Participation Interest either from a Lender or a Participant,
the Fund will not have established any direct contractual relationship with the
Borrower and must rely on the Lender or the Participant that sold the
Participation Interest not only for the enforcement of the Fund's rights against
the Borrower but also for the receipt and processing of payments due to the Fund
under the Corporate Loans. Thus, when investing in Participation Interests, the
Fund is subject to the credit risk of both the Borrower and the Lender or
Participant who sold the Participation Interest. The Fund will invest in
Participation Interests only if, at the time of investment, the outstanding debt
obligations of the Agent Bank and any Lenders and Participants interposed
between the Fund and a Borrower are investment grade; i.e., rated BBB, A-3 or
higher by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("Standard & Poor's"), or Baa, P-3 or higher by Moody's Investors Service, Inc.
("Moody's"), or, if unrated, deemed by the Sub-advisor to be of equivalent
quality. See "Investment Objective and Policies." A description of Moody's and
Standard & Poor's ratings is included in the Appendix to this Prospectus.
Corporate Debt Securities typically are in the form of notes or bonds issued
in public or private placements in the securities markets. Corporate Debt
Securities will typically have substantially similar terms to Corporate Loans,
but will not be in the form of Participations or Assignments.
The Fund may invest up to 20% of its total assets in any of the following: (a)
senior floating rate loans made and notes issued on an unsecured basis to
Borrowers that meet the credit standards established by AIM and the Sub-advisor
("Unsecured Corporate Loans" and "Unsecured Corporate Debt Securities"); (b)
secured or unsecured short-term debt obligations including, but not limited to,
U.S. Government and Government agency securities (some of which may not be
backed by the full faith and credit of the United States), money market
instruments (such as certificates of deposit and bankers' acceptances),
corporate and commercial obligations (such as commercial paper and medium-term
notes) and repurchase agreements, none of which are required to be secured but
all of which will be (or the securities of counterparties associated therewith
will be) investment grade (i.e., rated Baa, P-3 or higher by Moody's or BBB, A-3
or higher by Standard & Poor's or, if unrated, determined to be of comparable
quality in the judgment of the Sub-advisor); (c) fixed rate obligations of U.S.
or non-U.S. companies that meet the credit standards established by AIM and the
Sub-advisor and that the Fund expects to swap for a floating rate structure; or
(d) cash or cash equivalents, except that the Fund, pursuant to an exemptive
order granted by the SEC, may invest up to 25% of its total assets in shares of
money market investment companies advised by AIM or its affiliates ("Affiliated
Money Market Funds"). In general, a purchase of investment company securities
may result in the duplication of fees and expenses. With respect to the Fund's
purchase of shares of Affiliated Money Market Funds, the Fund will indirectly
pay the advisory fees and other operating expenses of the Affiliated Money
Market Funds.
Securities rated Baa, BBB, P-3 or A-3 are considered to have adequate capacity
for payment of principal and interest, but are more susceptible to adverse
economic conditions and, in the case of securities rated BBB or Baa (or
comparable unrated securities), have speculative characteristics. Such
securities or cash will not exceed 20% of the Fund's total assets except (i)
during interim periods pending investment of the net proceeds of public
offerings of the Fund's securities, (ii) pending reinvestment of proceeds of the
sale of a security, and (iii) during temporary defensive periods when, in the
opinion of the Sub-advisor, suitable Corporate Loans and Corporate Debt
Securities are not available for investment by the Fund or prevailing market or
economic conditions warrant. During such periods, the Fund may also invest up to
25% of its total assets in Affiliated Money Market Funds. Investments in
Unsecured Corporate Loans and Unsecured Corporate Debt Securities will be made
on the same basis as investments in Corporate Loans and Corporate Debt
Securities as described herein, except with respect to collateral requirements.
To a limited extent, incidental to and in connection with its lending
activities, the Fund also may acquire warrants and other equity securities.
The Fund has no restrictions on portfolio maturity, but it is anticipated that
a majority of the Corporate Loans and Corporate Debt Securities in which it
invests will have stated maturities ranging from three to ten years. However,
Corporate Loans usually will require, in addition to scheduled payments of
interest and principal, the prepayment of the Corporate Loan from excess cash
flow, and may permit the Borrower to prepay at its election. The degree to which
Borrowers prepay Corporate Loans, whether as a contractual requirement or at
their election, cannot be predicted with accuracy, and may be affected by
general business conditions, the financial condition of the Borrower and
competitive conditions among lenders, among other factors. However, it is
anticipated that the Fund's Corporate Loans and Corporate Debt Securities will
have an expected average life of three to five years. See "Description of
Corporate Loans and Corporate Debt Securities."
Investment in Shares of the Fund offers several benefits. The Fund offers
investors the opportunity to receive a high level of current income by investing
in a professionally managed portfolio comprised primarily of Corporate Loans, a
type of investment typically not available directly to individual investors. In
managing the Fund, the Sub-advisor provides the Fund and its Shareholders with
professional credit analysis and portfolio diversification. The Fund also
relieves the investor of the burdensome administrative details involved in
managing a portfolio of such invest-
6
<PAGE> 7
ments, if available to individual investors. The benefits are at least partially
offset by the expenses involved in operating an investment company. Such
expenses primarily consist of the management and administrative fees and
operations costs.
Generally, the net asset value of the shares of an investment company which
invests primarily in fixed-income securities changes as the general levels of
interest rates fluctuate. When interest rates increase, the value of a
fixed-income portfolio can be expected to decline. The Sub-advisor expects the
Fund's net asset value to be relatively stable during normal market conditions,
because the portfolio securities in which the Fund's assets are invested will
consist primarily of floating and variable rate Corporate Loans and Corporate
Debt Securities, of fixed rate Corporate Loans and Corporate Debt Securities
hedged by interest rate swap transactions and of short-term instruments. For
these reasons, the Sub-advisor expects the value of the Fund to fluctuate
significantly less as a result of interest rate changes than would a portfolio
of fixed-rate obligations. However, because variable interest rates only reset
periodically, the Fund's net asset value may fluctuate from time to time in the
event of an imperfect correlation between either the interest rates on variable
rate loans in the Fund or the variable interest rates on nominal amounts in the
Fund's interest rate swap transactions, and prevailing interest rates. Also, a
default on a Corporate Loan or Corporate Debt Security in which the Fund has
invested or a sudden and extreme increase in prevailing interest rates may cause
a decline in the Fund's net asset value. Conversely, a sudden and extreme
decline in interest rates could result in an increase in the Fund's net asset
value.
The Fund is classified as non-diversified within the meaning of the 1940 Act,
which means that the Fund is not limited by such Act in the proportion of its
assets that it may invest in securities of a single issuer. However, the Fund's
investments will be limited so as to enable the Fund to qualify as a "regulated
investment company" ("RIC") for purposes of the Internal Revenue Code of 1986,
as amended (the "Code"). Accordingly, the Fund will limit its investments so
that, at the close of each quarter of its taxable year, (i) not more than 25% of
the value of its total assets will be invested in the securities (including
Corporate Loans but excluding U.S. Government securities) of a single issuer and
(ii) with respect to 50% of the value of its total assets, its investments will
consist of cash, U.S. Government securities and securities of other issuers
limited, in respect of any one issuer, to not more than 5% of the value of its
total assets and not more than 10% of the issuer's outstanding voting
securities. To the extent the Fund assumes large positions in the securities of
a small number of issuers, the Fund's yield may fluctuate to a greater extent
than that of a diversified company as a result of changes in the financial
condition or in the market's assessment of the issuers. However, the Fund has no
current intention of investing more than 15% of its assets in the obligations of
any single Borrower.
DESCRIPTION OF CORPORATE LOANS AND CORPORATE DEBT SECURITIES
The Corporate Loans and Corporate Debt Securities in which the Fund invests
primarily consist of obligations of a Borrower undertaken to finance the growth
of the Borrower's business internally or externally, or to finance a capital
restructuring. Corporate Loans and Corporate Debt Securities may also include
senior obligations of a Borrower issued in connection with a restructuring
pursuant to Chapter 11 of the United States Bankruptcy Code provided that such
senior obligations meet the credit standards established by AIM and the
Sub-advisor. It is anticipated that a significant portion of such Corporate
Loans and Corporate Debt Securities may be issued in highly leveraged
transactions such as leveraged buy-out loans, leveraged recapitalization loans
and other types of acquisition financing. Such Corporate Loans and Corporate
Debt Securities present special risks. See "Special Considerations and Risk
Factors." Such Corporate Loans may be structured to include both term loans,
which are generally fully funded at the time of the Fund's investment, and
revolving credit facilities, which would require the Fund to make additional
investments in the Corporate Loans as required under the terms of the credit
facility. Such Corporate Loans may also include receivables purchase facilities,
which are similar to revolving credit facilities secured by a Borrower's
receivables.
The Fund may invest in Corporate Loans and Corporate Debt Securities which are
made to non-U.S. Borrowers, provided that the loans are U.S. dollar-denominated
or otherwise provide for payment in U.S. dollars, and any such Borrower meets
the credit standards established by AIM and the Sub-advisor for U.S. Borrowers.
The Fund similarly may invest in Corporate Loans and Corporate Debt Securities
made to U.S. Borrowers with significant non-U.S. dollar-denominated revenues,
provided that the loans are U.S. dollar-denominated or otherwise provide for
payment to the Fund in U.S. dollars. In all cases where the Corporate Loans or
Corporate Debt Securities are not denominated in U.S. dollars, provision will be
made for payments to the Lenders, including the Fund, in U.S. dollars pursuant
to foreign currency swap arrangements. Loans to such non-U.S. Borrowers or U.S.
Borrowers may involve risks not typically involved in domestic investment,
including fluctuation in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign or U.S. governmental laws or restrictions applicable to such loans. With
respect to certain foreign countries, there is the possibility of expropriation
or confiscatory taxation, political or social instability, or diplomatic
developments which could affect the Fund's investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross domestic product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payment position. In addition, information with respect to non-U.S. Borrowers
may differ from that available with respect to U.S. Borrowers, since foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. Borrowers.
The Corporate Loans and Corporate Debt Securities in which the Fund invests
will, in most instances, hold the most senior position in the capitalization
structure of the Borrower, and in any case will, in the judgment of the
Sub-advisor, be in the category of senior debt of the Borrower. Each Corporate
Loan and Corporate Debt Security will generally be secured by collateral the
value of which generally will be determined by reference to financial statements
of the Borrower, by an independent appraisal, by obtaining the market value of
such collateral (e.g., cash or securities) if it is readily ascertainable and/or
by other customary valuation techniques considered appropriate in the judgment
of the Sub-advisor. The Sub-advisor generally expects the value of the
collateral securing a Corporate Loan or Corporate Debt Security to be greater
than the value of such Corporate Loan or Corporate Debt Security. However, the
value of such collateral may be equal to or less than the value of the Corporate
Loan or Corporate Debt Security that it secures. Accordingly, in the event of a
default, the Fund may incur a loss. The ability of the
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<PAGE> 8
Lender to have access to the collateral may be limited by bankruptcy and other
insolvency laws. Under certain circumstances, the collateral may be released
with the consent of the Agent Bank and Lenders or pursuant to the terms of the
underlying credit agreement with the Borrower or bond indenture. There is no
assurance that the liquidation of the collateral would satisfy the Borrower's
obligation in the event of nonpayment of scheduled interest or principal, or
that the collateral could be readily liquidated. As a result, the Fund might not
receive payments to which it is entitled and thereby may experience a decline in
the value of the investment and, possibly, its net asset value.
In the case of highly leveraged loans, a Borrower generally is required to
pledge collateral which may include (i) working capital assets, such as accounts
receivable or inventory, (ii) tangible fixed assets, such as real property,
buildings and equipment, (iii) intangible assets, such as trademarks, copyrights
and patent rights and (iv) security interests in securities of subsidiaries or
affiliates. In the case of Corporate Loans to or Corporate Debt Securities of
privately held companies, the companies' owners may pledge additional security
in the form of guarantees and/or other securities that they own. There may be
temporary periods in the course of providing financing to a Borrower where the
collateral for the loan consists of common stock having a value not less than
200% of the value of the loan on the date the loan is made. Under such
circumstances, the Borrower generally proceeds with a subsequent transaction
which will permit it to pledge sufficient assets as collateral for the loan,
although there can be no assurance that the Borrower will be able to effect such
transaction.
The rate of interest payable on floating or variable rate Corporate Loans or
Corporate Debt Securities is established as the sum of a base lending rate plus
a specified margin. These base lending rates generally are LIBOR, the Prime Rate
of a designated U.S. bank, or another base lending rate used by commercial
lenders. The interest rate on Prime Rate-based Corporate Loans and Corporate
Debt Securities floats daily as the Prime Rate changes, while the interest rate
on LIBOR-based Corporate Loans and Corporate Debt Securities is reset
periodically, typically every 30 days to one year. Certain of the floating or
variable rate Corporate Loans and Corporate Debt Securities in which the Fund
will invest may permit the Borrower to select an interest rate reset period of
up to one year. A portion of the Fund's investments may consist of Corporate
Loans with interest rates that are fixed for the term of the loan. Investment in
Corporate Loans and Corporate Debt Securities with longer interest rate reset
periods or fixed interest rates may increase fluctuations in the Fund's net
asset value as a result of changes in interest rates. However the Fund will
attempt to hedge all of its fixed-rate Corporate Loans and Corporate Debt
Securities against fluctuations in interest rates by entering into interest rate
swap transactions. The Fund also will attempt to maintain a portfolio of
Corporate Loans and Corporate Debt Securities that will have a dollar weighted
average period to the next interest rate adjustment of no more than 90 days.
Corporate Loans and Corporate Debt Securities traditionally have been
structured so that Borrowers pay higher margins when they elect LIBOR, in order
to permit lenders to obtain generally consistent yields on Corporate Loans and
Corporate Debt Securities, regardless of whether Borrowers select the LIBOR
option, or the Prime-based option. In recent years, however, the differential
between the lower LIBOR base rates and the higher Prime Rate base rates
prevailing in the commercial bank markets has widened to the point where the
higher margins paid by Borrowers for LIBOR pricing options do not currently
compensate for the differential between the Prime Rate and the LIBOR rates.
Consequently, Borrowers have increasingly selected the LIBOR-based pricing
option, resulting in a yield on Corporate Loans and Corporate Debt Securities
that is consistently lower than the yield would be if Borrowers selected the
Prime Rate-based pricing option. This trend will significantly limit the ability
of the Fund to achieve a net return to stockholders that consistently
approximates the average published prime rate of leading U.S. banks. At the date
of this Prospectus, the Sub-advisor cannot predict any significant change in
this market trend.
The Fund may receive and/or pay certain fees in connection with its lending
activities. These fees are in addition to interest payments received and may
include facility fees, commitment fees, commissions and prepayment penalty fees.
When the Fund buys a Corporate Loan or Corporate Debt Security it may receive a
facility fee and when it sells a Corporate Loan or Corporate Debt Security may
pay a facility fee. In certain circumstances, the Fund may receive a prepayment
penalty fee on the prepayment of a Corporate Loan or Corporate Debt Security by
a Borrower. In connection with the acquisition of Corporate Loans or Corporate
Debt Securities, the Fund may also acquire warrants and other equity securities
of the Borrower or its affiliates. The acquisition of such equity securities
will only be incidental to the Fund's purchase of a Corporate Debt Security or
an interest in a Corporate Loan.
The Fund invests in a Corporate Loan or Corporate Debt Security only if, in
the Sub-advisor's judgment, the Borrower can meet debt service on such loan or
security. In addition, the Sub-advisor considers other factors deemed by it to
be appropriate to the analysis of the Borrower and the Corporate Loan or
Corporate Debt Security. Such factors include financial ratios of the Borrower
such as interest coverage, fixed charge coverage and leverage ratios. In its
analysis of these factors, the Sub-advisor also will be influenced by the nature
of the industry in which the Borrower is engaged, the nature of the Borrower's
assets and the Sub-advisor's assessment of the general quality of the Borrower.
The factors utilized have been reviewed by the Fund's Board of Trustees.
The primary consideration in selecting such Corporate Loans and Corporate Debt
Securities for investment by the Fund is the creditworthiness of the Borrower.
In evaluating Corporate Loans and Corporate Debt Securities, the quality ratings
assigned to other debt obligations of a Borrower may not be a determining
factor, since they will often be subordinated to the Corporate Loans or
Corporate Debt Securities. Instead, the Sub-advisor performs its own independent
credit analysis of the Borrower, and of the collateral structure for the loan or
security. In making this analysis, the Sub-advisor utilizes any offering
materials and in the case of Corporate Loans, information prepared and supplied
by the Agent Bank, Lender or Participant from whom the Fund purchases its
Participation Interest in a Corporate Loan. The Sub-advisor's analysis will
continue on an ongoing basis for any Corporate Loans and Corporate Debt
Securities in which the Fund has invested. Although the Sub-advisor will use due
care in making such analysis, there can be no assurance that such analysis will
disclose factors which may impair the value of the Corporate Loan or Corporate
Debt Security.
Corporate Loans and Corporate Debt Securities made in connection with highly
leveraged transactions are subject to greater credit risks than other Corporate
Loans and Corporate Debt Securities in which the Fund may invest. These credit
risks include a greater possibility of de-
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<PAGE> 9
fault or bankruptcy of the Borrower and the assertion that the pledging of
collateral to secure the loan constituted a fraudulent conveyance or
preferential transfer which can be nullified or subordinated to the rights of
other creditors of the Borrower under applicable law. Highly leveraged Corporate
Loans and Corporate Debt Securities also may be less liquid than other Corporate
Loans and Corporate Debt Securities.
A Borrower also must comply with various restrictive covenants contained in
any Corporate Loan agreement between the Borrower and the lending syndicate
("Corporate Loan Agreement") or in any trust indenture or comparable document in
connection with a Corporate Debt Security ("Corporate Debt Security Document").
Such covenants, in addition to requiring the scheduled payment of interest and
principal, may include restrictions on dividend payments and other distributions
to stockholders, provisions requiring the Borrower to maintain specific
financial ratios or relationships and limits on total debt. In addition, the
Corporate Loan Agreement or Corporate Debt Security Document may contain a
covenant requiring the Borrower to prepay the Corporate Loan or Corporate Debt
Security with any excess cash flow. Excess cash flow generally includes net cash
flow after scheduled debt service payments and permitted capital expenditures,
among other things, as well as the proceeds from asset dispositions or sales of
securities. A breach of a covenant (after giving effect to any cure period) in a
Corporate Loan Agreement which is not waived by the Agent Bank and the lending
syndicate normally is an event of acceleration; i.e., the Agent Bank has the
right to demand immediate repayment in full of the outstanding Corporate Loan.
Acceleration may also occur in the case of the breach of a covenant in a
Corporate Debt Security Document.
It is expected that a majority of the Corporate Loans and Corporate Debt
Securities held by the Fund will have stated maturities ranging from three to
ten years. However, such Corporate Loans and Corporate Debt Securities usually
will require, in addition to scheduled payments of interest and principal, the
prepayment of the Corporate Loan or Corporate Debt Security from excess cash
flow, as discussed above, and may permit the Borrower to prepay at its election.
The degree to which Borrowers prepay Corporate Loans and Corporate Debt
Securities, whether as a contractual requirement or at their election, may be
affected by general business conditions, the financial condition of the Borrower
and competitive conditions among lenders, among other factors. Accordingly,
prepayments cannot be predicted with accuracy. Upon a prepayment, the Fund may
receive both a prepayment penalty fee from the prepaying Borrower and a facility
fee on the purchase of a new Corporate Loan or Corporate Debt Security with the
proceeds from the prepayment of the former. Such fees may help mitigate any
adverse impact on the yield on the Fund's investments which may arise as a
result of prepayments and the reinvestment of such proceeds in Corporate Loans
or Corporate Debt Securities bearing lower interest rates.
Loans to non-U.S. Borrowers and to U.S. Borrowers with significant non-U.S.
dollar-denominated revenues may provide for conversion of all or part of the
loan from a U.S. dollar-denominated obligation into a foreign currency
obligation at the option of the Borrower. The Fund may invest in Corporate Loans
and Corporate Debt Securities which have been converted into non-U.S.
dollar-denominated obligations only when provision is made for payments to the
lenders in U.S. dollars pursuant to foreign currency swap arrangements. Foreign
currency swaps involve the exchange by the lenders, including the Fund, with
another party (the "counterparty") of the right to receive the currency in which
the loans are denominated for the right to receive U.S. dollars. The Fund will
enter into a transaction subject to a foreign currency swap only if, at the time
of entering into such swap, the outstanding debt obligations of the counterparty
are investment grade, i.e., rated BBB or A-3 or higher by Standard & Poor's or
Baa or P-3 or higher by Moody's or determined to be of comparable quality in the
judgment of the Sub-advisor. The amounts of U.S. dollar payments to be received
by the lenders and the foreign currency payments to be received by the
counterparty are fixed at the time the swap arrangement is entered into.
Accordingly, the swap protects the Fund from the fluctuations in exchange rates
and locks in the right to receive payments under the loan in a predetermined
amount of U.S. dollars. If there is a default by the counterparty, the Fund will
have contractual remedies pursuant to the swap arrangements; however, the U.S.
dollar value of the Fund's right to foreign currency payments under the loan
will be subject to fluctuations in the applicable exchange rate to the extent
that a replacement swap arrangement is unavailable or the Fund is unable to
recover damages from the defaulting counterparty. If the Borrower defaults on or
prepays the underlying Corporate Loan or Corporate Debt Security, the Fund may
be required pursuant to the swap arrangements to compensate the counterparty to
the extent of fluctuations in exchange rates adverse to the counterparty. In the
event of such a default or prepayment, an amount of cash or high grade liquid
debt securities having an aggregate net asset value at least equal to the amount
of compensation that must be paid to the counterparty pursuant to the swap
arrangements will be maintained in a segregated account by the Fund's custodian.
DESCRIPTION OF PARTICIPATION INTERESTS AND ASSIGNMENTS
A Corporate Loan in which the Fund may invest typically is originated,
negotiated and structured by a syndicate of Lenders consisting of commercial
banks, thrift institutions, insurance companies, finance companies or other
financial institutions, which is administered on behalf of the syndicate by an
Agent Bank. The investment of the Fund in a Corporate Loan may take the form of
Participation Interests or Assignments. Participation Interests may be acquired
from a Lender or other Participants. If the Fund purchases a Participation
Interest either from a Lender or a Participant, the Fund will not have
established any direct contractual relationship with the Borrower. The Fund
would be required to rely on the Lender or the Participant that sold the
Participation Interest not only for the enforcement of the Fund's rights against
the Borrower but also for the receipt and processing of payments due to the Fund
under the Corporate Loans. The Fund is thus subject to the credit risk of both
the Borrower and a Participant. Lenders and Participants interposed between the
Fund and a Borrower, together with Agent Banks, are referred to herein as
"Intermediate Participants."
On the other hand, if the Fund purchases an Assignment from a Lender, the Fund
will generally become a "Lender" for purposes of the relevant loan agreement,
with direct contractual rights thereunder and under any related collateral
security documents in favor of the Lenders. An Assignment from a Lender gives
the Fund the right to receive payments of principal and interest and other
amounts directly from the Borrower and to enforce its rights as a Lender
directly against the Borrower. The Fund will not act as an Agent Bank guarantor,
sole negotiator or sole structuror with respect to a Corporate Loan.
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<PAGE> 10
Because it may be necessary to assert through an Intermediate Participant such
rights as may exist against the Borrower, in the event the Borrower fails to pay
principal and interest when due, the Fund may be subject to delays, expenses and
risks that are greater than those that would be involved if the Fund could
enforce its rights directly against the Borrower. Moreover, under the terms of a
Participation, the Fund may be regarded as a creditor of the Intermediate
Participant (rather than of the Borrower), so that the Fund may also be subject
to the risk that the Intermediate Participant may become insolvent. Similar
risks may arise with respect to the Agent Bank, as described below. Further, in
the event of the bankruptcy or insolvency of the Borrower, the obligation of the
Borrower to repay the Corporate Loan may be subject to certain defenses that can
be asserted by such Borrower as a result of improper conduct by the Agent Bank
or Intermediate Participant. The Fund will invest in Corporate Loans only if, at
the time of investment, all outstanding debt obligations of the Agent Bank and
Intermediate Participants are investment grade, i.e., rated BBB or A-3 or higher
by Standard & Poor's or Baa or P-3 or higher by Moody's or determined to be of
comparable quality in the judgment of the Sub-advisor.
The Fund has no current intention of investing more than 20% of its assets in
the obligations of Borrowers in any single industry. However, because the Fund
will regard the issuer of a Corporate Loan as including the Agent Bank and any
Intermediate Participant as well as the Borrower, the Fund may be deemed to be
concentrated in securities of issuers in the industry group consisting of
financial institutions and their holding companies, including commercial banks,
thrift institutions, insurance companies and finance companies. As a result, the
Fund is subject to certain risks associated with such institutions. Banking and
thrift institutions are subject to extensive governmental regulations which may
limit both the amounts and types of loans and other financial commitments which
such institutions may make and the interest rates and fees which such
institutions may charge. The profitability of these institutions is largely
dependent on the availability and cost of capital funds, and has shown
significant recent fluctuation as a result of volatile interest rate levels. In
addition, general economic conditions are important to the operations of these
institutions, with exposure to credit losses resulting from possible financial
difficulties of borrowers potentially having an adverse effect. Insurance
companies are also affected by economic and financial conditions and are subject
to extensive government regulation, including rate regulation. The property and
casualty companies may be exposed to material risks, including reserve
inadequacy, latent health exposure and inability to collect from their
reinsurance carriers. The financial services area is currently undergoing
relatively rapid change as existing distinctions between financial service
segments become less clear. In this regard, recent business combinations have
included insurance, finance and securities brokerage under single ownership.
Moreover, under recently enacted federal laws, banks, securities firms,
insurance companies, and other firms engaged in financial activities may be
affiliated in financial holding company structures.
In a typical Corporate Loan, the Agent Bank administers the terms of the
Corporate Loan Agreement and is responsible for the collection of principal and
interest and fee payments from the Borrower and the apportionment of these
payments to the credit of all lenders which are parties to the Corporate Loan
Agreement. The Fund generally will rely on the Agent Bank or an Intermediate
Participant to collect its portion of the payments on the Corporate Loan.
Furthermore, the Fund will rely on the Agent Bank to use appropriate creditor
remedies against the Borrower. Typically, under Corporate Loan Agreements, the
Agent Bank is given broad discretion in enforcing the Corporate Loan Agreement,
and is obligated to use only the same care it would use in the management of its
own property. The Borrower compensates the Agent Bank for these services. Such
compensation may include special fees paid on structuring and funding the
Corporate Loan and other fees paid on a continuing basis.
In the event that an Agent Bank becomes insolvent, or has a receiver,
conservator, or similar official appointed for it by the appropriate bank
regulatory authority or becomes a debtor in a bankruptcy proceeding, assets held
by the Agent Bank under the Corporate Loan Agreement should remain available to
holders of Corporate Loans. If, however, assets held by the Agent Bank for the
benefit of the Fund were determined by an appropriate regulatory authority or
court to be subject to the claims of the Agent Bank's general or secured
creditors, the Fund might incur certain costs and delays in realizing payment on
a Corporate Loan or suffer a loss of principal and/or interest. In situations
involving Intermediate Participants, similar risks may arise as described above.
Intermediate Participants may have certain obligations pursuant to a Corporate
Loan Agreement, which may include the obligation to make future advances to the
Borrower in connection with revolving credit facilities in certain
circumstances. The Fund currently intends to reserve against such contingent
obligations by segregating sufficient investments in high quality, short-term,
liquid instruments. The Fund will not invest in Corporate Loans that would
require the Fund to make any additional investments in connection with such
future advances if such commitments would exceed 20% of the Fund's total assets
or would cause the Fund to fail to meet the diversification requirements
described under "Investment Objective and Policies."
ILLIQUID SECURITIES
Some Corporate Loans and Corporate Debt Securities are, at present, not
readily marketable and may be subject to restrictions on resale. Although
Corporate Loans and Corporate Debt Securities are transferred among certain
financial institutions, as described above, certain of the Corporate Loans and
Corporate Debt Securities in which the Fund invests do not have the liquidity of
conventional investment grade debt securities traded in the secondary market and
may be considered illiquid. As the market for Corporate Loans and Corporate Debt
Securities matures, the Sub-advisor expects that liquidity will continue to
improve. The Fund has no limitation on the amount of its investments which are
not readily marketable or are subject to restrictions on resale. Such
investments, which may be considered illiquid, may affect the Fund's ability to
realize the net asset value in the event of a voluntary or involuntary
liquidation of its assets. See "Net Asset Value" for information with respect to
the valuation of illiquid Corporate Loans and Corporate Debt Securities.
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<PAGE> 11
OTHER INVESTMENT POLICIES
The Fund has adopted certain other policies as set forth below:
BORROWING. The Fund is authorized to borrow money in amounts of up to 33-1/3%
of the value of its total assets at the time of such borrowings. Borrowings by
the Fund create an opportunity for greater total return but, at the same time,
increase exposure to capital risk. In addition, borrowed funds are subject to
interest costs that may offset or exceed the return earned on the borrowed
funds. The Fund has no current intention of borrowing to finance additional
investments. See "Special Considerations and Risk Factors -- Effects of
Borrowing."
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
respect to its permitted investments but currently intends to do so only with
member banks of the Federal Reserve System or with primary dealers in U.S.
Government securities. Under a repurchase agreement, the Fund buys a security at
one price and simultaneously promises to sell that same security back to the
seller at a higher price. The Fund's repurchase agreements will provide that the
value of the collateral underlying the repurchase agreement will always be at
least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement, and will be marked to market daily. The repurchase
date usually is within seven days of the original purchase date. Repurchase
agreements are deemed to be loans under the 1940 Act. In all cases, the
Sub-advisor must be satisfied with the creditworthiness of the other party to
the agreement before entering into a repurchase agreement. In the event of the
bankruptcy (or other insolvency proceeding) of the other party to a repurchase
agreement, the Fund might experience delays in recovering its cash. To the
extent that, in the meantime, the value of the securities the Fund purchases may
have declined, the Fund could experience a loss.
LENDING OF PORTFOLIO SECURITIES. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets to banks, brokers and other financial institutions and receive collateral
in cash or securities issued or guaranteed by the U.S. Government. Such
collateral will be maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined in
the 1940 Act. The purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold short. If cash
collateral is received by the Fund, it is invested in short-term money market
securities, and a portion of the yield received in respect of such investment is
retained by the Fund. Alternatively, if securities are delivered to the Fund as
collateral, the Fund and the borrower negotiate a rate for the loaned premium to
be received by the Fund for lending its portfolio securities. In either event,
the total yield on the Fund is increased by loans of its securities. The Fund
will have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights, subscription rights and rights to
dividends, interest or other distributions. Such loans are terminable at any
time. The Fund may pay reasonable finder's, administrative and custodial fees in
connection with such loans. In the event that the borrower defaults on its
obligation to return borrowed securities, because of insolvency or otherwise,
the Fund could experience delays and costs in gaining access to the collateral
and could suffer a loss to the extent that the value of the collateral falls
below the market value of the borrowed securities.
"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell interests in Corporate Loans and Corporate Debt Securities and other
portfolio securities on a "when issued" and "delayed delivery" basis. No income
accrues to the Fund on such interests or securities in connection with such
transactions prior to the date the Fund actually takes delivery of such
interests or securities. These transactions are subject to market fluctuation;
the value of the interests in Corporate Loans and Corporate Debt Securities and
other portfolio debt securities at delivery may be more or less than their
purchase price, and yield generally available on such interests or securities
when delivery occurs may be higher than yields on the interests or securities
obtained pursuant to such transactions. Because the Fund relies on the buyer or
seller, as the case may be, to consummate the transaction, failure by the other
party to complete the transaction may result in the Fund missing the opportunity
of obtaining a price or yield considered to be advantageous. When the Fund is
the buyer in such a transaction, however, it will segregate with its custodian,
cash or other liquid assets having an aggregate value equal to the amount of
such purchase commitments until payment is made. The Fund will make commitments
to purchase such interests or securities on such basis only with the intention
of actually acquiring these interests or securities, but the Fund may sell such
interests or securities prior to the settlement date if such sale is considered
to be advisable. To the extent the Fund engaged in "when issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring interests or
securities for the Fund consistent with the Fund's investment objective and
policies and not for the purpose of investment leverage. No specific limitation
exists as to the percentage of the Fund's assets which may be used to acquire
securities on a "when issued" or "delayed delivery" basis.
INTEREST RATE HEDGING TRANSACTIONS. Certain federal income tax requirements
may limit the Fund's ability to engage in interest rate hedging transactions.
Gains from transactions in interest rate hedges distributed to stockholders will
be taxable as ordinary income or, in certain circumstances, as long-term capital
gains. See "Taxes."
The Fund will enter into interest rate swaps in order to hedge all of its
fixed rate Corporate Loans and Corporate Debt Securities against fluctuations in
interest rates. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, such
as an exchange of fixed rate payments for floating rate payments. For example,
if the Fund holds a Corporate Loan or Corporate Debt Security with an interest
rate that is reset only once each year, it may swap the right to receive
interest at this fixed rate for the right to receive interest at a rate that is
reset every week. This would enable the Fund to offset a decline in the value of
the Corporate Loan or Corporate Debt Security due to rising interest rates, but
would also limit its ability to benefit from falling interest rates.
Inasmuch as these interest rate hedging transactions are entered into for good
faith hedging purposes, the Sub-advisor believes that such obligations do not
constitute senior securities and, accordingly, will not treat them as being
subject to its borrowing restrictions. The Fund
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<PAGE> 12
usually will enter into interest rate swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. The net amount of the excess,
if any, of the Fund's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis, and an amount of cash or
other liquid assets having an aggregate net asset value at least equal to the
accrued excess will be segregated by the Fund's custodian. If the interest rate
swap transaction is entered into on other than a net basis, the full amount of
the Fund's obligations will be accrued on a daily basis, and the full amount of
the Fund's obligations will be segregated by the Fund's custodian. The Fund will
not enter into any interest rate hedging transaction unless the Sub-advisor
considers the credit quality of the unsecured senior debt or the claims-paying
ability of the other party thereto to be investment grade. If there is a default
by the other party to such a transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transaction but such remedies
may be subject to bankruptcy and insolvency laws which could affect the Fund's
rights as a creditor. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
many portions of the swap market have become relatively liquid in comparison
with other similar instruments traded in the interbank market. In addition,
although the terms of interest rate swaps may provide for termination, there can
be no assurance the Fund will be able to terminate an interest rate swap or to
sell or offset interest rate caps or floors that it has purchased.
The use of interest rate hedges is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio transactions. If the Sub-advisor is incorrect in its
forecasts of market values, interest rates and other applicable factors, the
investment performance of the Fund would diminish compared with what it would
have been if these investment techniques were not used.
Except as noted above, there is no limit on the amount of interest rate
hedging transactions that may be entered into by the Fund. These transactions do
not involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate hedges is limited to
the net amount of interest payments that the Fund is contractually obligated to
make. If the Corporate Loan underlying an interest rate swap is prepaid and the
Fund continues to be obligated to make payments to the other party to the swap,
the Fund would have to make such payments from another source. If the other
party to an interest rate swap defaults, the Fund's risk of loss consists of the
net amount of interest payments that the Fund contractually is entitled to
receive. Since interest rate transactions are individually negotiated, the
Sub-advisor expects to achieve an acceptable degree of correlation between the
Fund's rights to receive interest on Participation Interests and its rights and
obligations to receive and pay interest pursuant to interest rate swaps.
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund and may not
be changed without the approval of the holders of a majority of the Fund's
outstanding Shares (which for this purpose and under the 1940 Act means the
lesser of (i) 67% of the Shares represented at a meeting at which more than 50%
of the outstanding Shares are represented or (ii) more than 50% of the
outstanding Shares). The Fund may not:
1. Borrow money or issue senior securities, except as permitted by
Section 18 of the 1940 Act.
2. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
3. Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
4. Make loans to other persons, except that the Fund may invest in
loans (including Assignments and Participations, and including secured or
unsecured Corporate Loans), purchase debt securities, enter into repurchase
agreements, and lend its portfolio securities.
5. Invest more than 25% of its total assets in the securities of
issuers in any one industry; provided that this limitation shall not apply
with respect to obligations issued or guaranteed by the U.S. Government or
by its agencies or instrumentalities; and provided further that the Fund
may invest more than 25% of its assets in securities of issuers in the
industry group consisting of financial institutions and their holding
companies, including commercial banks, thrift institutions, insurance
companies and finance companies. For purposes of this restriction, the term
"issuer" includes the Borrower, the Agent Bank and any Intermediate
Participant (as defined under "Investment Objective and
Policies -- Description of Participation Interests and Assignments").
6. Purchase or sell physical commodities, 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.
An additional investment restriction adopted by the Fund, which may be changed
by the Fund's Board of Trustees, provides that the Fund may not mortgage,
pledge, hypothecate or in any manner transfer, as security for indebtedness, any
securities owned or held by the Fund except as may be necessary in connection
with hedging techniques involving interest rate transactions, foreign currency
swap transactions relating to non-U.S. dollar-denominated loans and permitted
borrowings by the Fund.
If a percentage restriction on investment policies or the investment or use of
assets set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.
12
<PAGE> 13
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SPECIAL CONSIDERATIONS AND RISK FACTORS
EFFECTS OF BORROWING. The Fund may borrow money in amounts up to 33-1/3% of
the value of its total assets to finance Repurchase Offers, for temporary,
extraordinary or emergency purposes, or for the purpose of financing additional
investments. See "Repurchase Offers." The Fund may borrow to finance additional
investments only when it believes that the return that may be earned on
investments purchased with the proceeds of such borrowings or offerings will
exceed the costs, including debt service and dividend obligations, associated
with such borrowings. However, to the extent such costs exceed the return on the
additional investments, the return realized by the Fund's Shareholders will be
adversely affected.
Capital raised through borrowing is subject to interest costs or dividend
payments which may or may not exceed the interest paid on the assets purchased.
In addition, the Fund also may be required to maintain minimum average balances
in connection with borrowings or to pay a commitment or other fee to maintain a
line of credit. Either of these requirements will increase the cost of borrowing
over the stated interest rate. Borrowing can create an opportunity for greater
income per Share, but such borrowing is also a speculative technique that will
increase the Fund's exposure to capital risk. Such risks may be reduced through
the use of borrowings that have floating rates of interest. Unless the income
and appreciation, if any, on assets acquired with borrowed funds exceeds the
costs of borrowing, the use of borrowing will diminish the investment
performance of the Fund, as compared to what it would have been without
leverage.
The Fund, along with certain other investment companies advised by AIM, have
entered into a committed, unsecured line of credit with a syndicate of banks in
the maximum aggregate principal amount of $1 billion. The interest paid under
the line of credit is based on one of several rates, to be selected at the
option of the Fund, including an adjusted Eurodollar rate based on the LIBOR, a
rate based on the Federal Funds rate, and a daily rate based on the prime rate.
The Fund expects to repay any amount borrowed under the line of credit with the
proceeds of sales of additional Fund Shares or sales of portfolio securities
held by the Fund.
Under the 1940 Act, once the Fund incurs indebtedness, it must immediately
have asset coverage of 300% of the aggregate outstanding principal balance of
indebtedness in place. Additionally, the 1940 Act requires that, before the Fund
declares any dividend or other distribution upon any class of Shares, or
purchases any such Shares, it have in place asset coverage of at least 300% of
the aggregate indebtedness of the Fund, after deducting the amount of such
dividend, distribution, or purchase price.
The Fund's willingness to borrow money for investment purposes, and the amount
it borrows depends upon many factors, the most important of which are investment
outlook, market conditions and interest rates. Successful use of a leveraging
strategy depends on the Sub-advisor's ability to predict correctly interest
rates and market movements, and a leveraging strategy may not be successful
during any period in which it is employed.
CREDIT RISK. Corporate Loans and Corporate Debt Securities may constitute
substantially all of the Fund's investments. Corporate Loans and Corporate Debt
Securities are primarily dependent upon the creditworthiness of the Borrower for
payment of interest and principal. If the Fund doesn't receive scheduled
interest or principal payments on a Corporate Loan or Corporate Debt Security it
may adversely affect the income of the Fund or the value of its investments,
which may in turn reduce the amount of dividends or the net asset value of the
shares of the Fund. The Fund's ability to receive payment of principal of and
interest on a Corporate Loan or a Corporate Debt Security also depends upon the
creditworthiness of any institution interposed between the Fund and the
Borrower. To reduce credit risk, the Sub-advisor actively manages the Fund as
described above.
Corporate Loans and Corporate Debt Securities made in connection with
leveraged buy-outs, recapitalizations and other highly leveraged transactions
are subject to greater credit risks than many of the other Corporate Loans and
Corporate Debt Securities in which the Fund may invest. These credit risks
include the possibility of default on the Corporate Loan or Corporate Debt
Security or bankruptcy of the Borrower. The value of such Corporate Loans and
Corporate Debt Securities are also subject to a greater degree of volatility in
response to interest rate fluctuations and may be less liquid than other
Corporate Loans and Corporate Debt Securities.
Although Corporate Loans and Corporate Debt Securities in which the Fund
invests generally hold the most senior position in the capitalization structure
of the Borrowers, the capitalization of many Borrowers also includes
non-investment grade subordinated debt. During periods of deteriorating economic
conditions, a Borrower may experience difficulty in meeting its payment
obligations under such bonds and other subordinated debt obligations. Such
difficulties may detract from the Borrower's perceived creditworthiness or its
ability to obtain financing to cover short-term cash flow needs and may force
the Borrower into bankruptcy or other forms of credit restructuring.
COLLATERAL IMPAIRMENT. Corporate Loans and Corporate Debt Securities
(excluding Unsecured Corporate Loans and Unsecured Corporate Debt Securities)
will be secured unless (i) the Fund's security interest in the collateral is
invalidated for any reason by a court or (ii) the collateral is fully released
under the terms of a loan agreement as the creditworthiness of the Borrower
improves. The liquidation of collateral may not satisfy the Borrower's
obligation in the event of nonpayment of scheduled interest or principal and
that collateral may not be readily liquidated. The value of collateral is
generally determined by reference to: (i) financial statements of the Borrower,
(ii) an independent appraisal performed at the request of the Agent Bank at the
time the Corporate Loan was initially made, (iii) the market value of such
collateral (e.g., cash or securities) if it is readily ascertainable, and/or
(iv) other customary valuation techniques considered appropriate in the judgment
of the Sub-advisor. Collateral is generally valued on the basis of the
Borrower's status as a going concern and such valuation may exceed the immediate
liquidation value of the collateral.
13
<PAGE> 14
Collateral may include: (i) working capital assets, such as accounts
receivable and inventory; (ii) tangible fixed assets, such as real property,
buildings, and equipment; (iii) intangible assets, such as trademarks and patent
rights (but excluding goodwill); and (iv) security interests in shares of stock
of subsidiaries or affiliates. Corporate Loans and Corporate Debt Securities
collateralized by the stock of the Borrower's subsidiaries and other affiliates
are subject to the risk that the stock will decline in value. Such declines in
value, whether a result of bankruptcy proceedings or otherwise, could cause the
Corporate Loans or Corporate Debt Securities to become undercollateralized or
unsecured. Most credit agreements do not formally require Borrowers to pledge
additional collateral.
There may be temporary periods in which the principal asset held by a Borrower
is the stock of a related company, which may not legally be pledged to secure a
Corporate Loan or Corporate Debt Security. During such periods, the Corporate
Loan or Corporate Debt Security will temporarily be unsecured, until the legal
restriction on pledging the stock has been lifted or the stock is exchanged for
other assets that may be pledged as collateral for the Corporate Loan or
Corporate Debt Security. The Borrower's ability to dispose of such securities,
other than in connection with such pledge or exchange, is strictly limited for
the protection of the holders of Corporate Loans.
The shareholders or owners of non-public companies may provide as collateral
for Corporate Loans secured guarantees and/or security interests in assets that
they own as individuals. These Corporate Loans may be fully secured by the
assets of such shareholders or owners, even if they are not otherwise
collateralized by any assets of the Borrower.
If a Borrower becomes involved in bankruptcy proceedings, a court may
invalidate the Fund's security interest in the Corporate Loan or Corporate Debt
Security collateral or subordinate the Fund's rights under the Corporate Loan or
Corporate Debt Security to the interests of the Borrower's unsecured creditors.
Such an action could be based, for example, on a "fraudulent conveyance" claim
to the effect that the Borrower did not receive fair consideration for granting
the security interest in the Corporate Loan or Corporate Debt Security
collateral to the Fund. For Corporate Loans or Corporate Debt Securities made in
connection with a highly leveraged transaction, consideration for granting a
security interest may be deemed inadequate if the proceeds of the Corporate Loan
or Corporate Debt Security were not received or retained by the Borrower, but
were instead paid to other persons (such as shareholders of the Borrower) in an
amount which left the Borrower insolvent or without sufficient working capital.
There are also other events, such as the failure to perfect a security interest
due to faulty documentation or faulty official filings, which could lead to the
invalidation of the Fund's security interest in Corporate Loan or Corporate Debt
Security collateral. If the Fund's security interest in Corporate Loan or
Corporate Debt Security collateral is invalidated or the Corporate Loan or
Corporate Debt Security is subordinated to other debt of a Borrower in
bankruptcy or other proceedings, it is unlikely that the Fund would be able to
recover the full amount of the principal and interest due on the Corporate Loan
or Corporate Debt Security.
INVESTMENTS IN LOWER RATED SECURITIES. The Fund may invest all or
substantially all of its assets in Corporate Loans, Corporate Debt Securities or
other securities that are rated below investment grade by Moody's, comparably
rated by another NRSRO, or, if unrated, determined by the Sub-advisor to be of
equivalent quality. Debt rated Baa by Moody's is considered by Moody's to have
speculative characteristics. Debt rated Ba or B 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.
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. Securities rated Ba and lower are the
equivalent of high yield, high risk bonds, commonly known as "junk bonds," and
involve a high degree of risk. The Sub-advisor does not expect to invest in any
securities rated lower than B at the time of investment. If Corporate Loans or
Corporate Debt Securities are downgraded, the Sub-advisor will consider whether
it will dispose of such Corporate Loans or Corporate Debt Securities.
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 quality in response to subsequent events, so that an
issuer's current financial condition may be better or worse than a rating
indicates. See "Appendix A -- Description of Debt Securities Ratings" for a full
discussion of Moody's ratings.
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. During an economic downturn or a sustained period of
rising interest rates, issuers of lower quality debt securities may not have
sufficient revenues to meet their interest payment obligations. Specific
developments affecting the issuer, such as the issuer's inability to meet
specific projected business forecasts or the unavailability of additional
financing may adversely affect the issuer's ability to service its debt
obligations.
EFFECT OF INTEREST RATE CHANGES. Generally, changes in interest rates may
affect the market value of debt investments, resulting in changes in the net
asset value of the shares of funds investing in such investments. Portfolios
consisting primarily of floating and variable rate Corporate Loans, Corporate
Debt Securities, Unsecured Corporate Loans, Unsecured Corporate Debt Securities,
and short-term instruments are expected to experience less significant
fluctuations in value as a result of interest rate changes than portfolios of
fixed rate obligations. However, prepayments of principal by Borrowers (whether
as a result of a decline in interest rates or excess cash flow) may require that
the Fund replace its Corporate Loans, Corporate Debt Securities or other
investments with lower yielding securities, which may adversely affect the net
asset value of the Fund.
ILLIQUID INVESTMENTS AND REPURCHASE OFFERS. Certain of the Corporate Loans and
Corporate Debt Securities in which the Fund may invest are considered illiquid
and the Fund may have difficulty disposing of such portfolio securities. The
Fund's Board of Trustees may consider the liquidity of the Fund's securities in
determining for what percentage of the Fund's outstanding Shares each quarterly
Repurchase Offer should be made. See "Determination of Net Asset Value" for
information with respect to the valuation of illiquid Corporate Loans.
14
<PAGE> 15
ANTI-TAKEOVER PROVISIONS. The Fund's Agreement and Declaration of Trust
include provisions that could have the effect of limiting the ability of other
entities or persons to acquire control of the Fund or to change the composition
of its Board of Trustees. These provisions could have the effect of depriving
Shareholders of opportunities to sell their shares at a premium over prevailing
market prices by discouraging third parties from seeking to obtain control of
the Fund. See "Description of Shares -- Certain Anti-Takeover Provisions of the
Agreement and Declaration of Trust."
PORTFOLIO MANAGEMENT AND OTHER CONSIDERATIONS. If short-term interest rates or
other market conditions change to the point where the Fund's leverage could
adversely affect Shareholders, or in anticipation of such changes, the Fund may
attempt to shorten the average maturity of its investment portfolio. Shortening
the portfolio's average maturity would tend to offset the negative impact of
leverage on Shareholders.
CONCENTRATION. Although the Fund may, consistent with its fundamental
limitations, invest up to 25% of its total assets in the obligations of
Borrowers in any single industry, the Sub-advisor has no current intention of
investing more than 20% of the Fund's assets in the obligations of Borrowers in
any single industry. However, because the Fund regards the issuer of a Corporate
Loan as including the Agent Bank and any Intermediate Participant as well as the
Borrower, the Fund may be considered to be concentrated in securities of issuers
in the industry group consisting of financial institutions and their holding
companies, including commercial banks, thrift institutions, insurance companies
and finance companies. As a result, the Fund is subject to certain risks
associated with such institutions, including, among other things, changes in
governmental regulation, interest rate levels and general economic conditions.
- --------------------------------------------------------------------------------
PURCHASE OF SHARES -- MULTIPLE PRICING SYSTEM
The Fund continuously offers its Shares through securities dealers that have
entered into selected dealer agreements with the Distributor. During any
continuous offering, Shares of the Fund may be purchased through such selected
dealers.
The Fund offers its Shares at a price equal to the next determined net asset
value per share without a front-end sales charge. As to purchase orders received
by securities dealers prior to the close of business on the New York Stock
Exchange, Inc. (the "NYSE") (generally, 4:00 p.m., New York time), which
includes orders received after the close of business on the previous day, the
applicable offering price will be based on the net asset value determined as of
the close of business on the NYSE on that day. If the purchase orders are not
received by the Distributor prior to the close of business on the NYSE, such
orders shall be deemed received on the next business day. Any order may be
rejected by the Distributor or the Fund. The Fund or the Distributor may suspend
the continuous offering of the Fund's Shares at any time in response to
conditions in the securities markets or otherwise and may thereafter resume such
offering from time to time. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
The Distributor is required to advise the Fund promptly of all purchase orders
and cause payments for Shares to be delivered promptly to the Fund.
Due to the administrative complexities associated with a continuous offering,
administrative errors may result in the Distributor or an affiliate
inadvertently acquiring nominal numbers (in no event in excess of 5%) of Shares
which it may wish to resell. Such Shares will not be subject to any investment
restriction and may be resold pursuant to this Prospectus.
The Fund offers two classes of Shares -- Class B and Class C. Each Share class
has its own sales charge and expense structure. Determining which Share class is
best for you depends in large part on the length of time you intend to hold your
investment. Based on your personal situation, your financial advisor can help
you decide which class of Shares makes the most sense for you.
CLASS B SHARES. Purchases of Class B Shares are at the Fund's net asset value.
Class B Shares have no front-end sales charge, but carry an EWC that is imposed
only on Shares sold prior to four years from their date of purchase. The EWC
declines each year and eventually disappears after four years. See "Early
Withdrawal Charges." Class B Shares also carry a 0.25% annual distribution and
service fee.
The Distributor compensates selected dealers at a rate of 3.0% of amounts of
Class B Shares sold. If the Shares remain outstanding after twelve months from
the date of their original purchase, the Distributor will additionally
compensate such dealers quarterly at an annual rate based on a percentage of the
value of such Shares sold by such dealers and remaining outstanding, and based
on the number of years the Shares have been outstanding: First year -- 0.00%;
Second year -- 0.10%; Third year -- 0.15%; Fourth year -- 0.20%; Fifth and
following years -- 0.25%.
CLASS C SHARES. Purchases of Class C Shares are also at the Fund's net asset
value. Although Class C Shares have no front-end sales charge, they have an EWC
of 1.0% that is applied to Shares that are sold within the first year after they
are purchased. The EWC on Class C shares disappears after one year. Class C
Shares also carry a 0.75% annual distribution and service fee (0.25% of which
the Distributor has agreed to waive).
The Distributor compensates selected dealers at a rate of 1.00% of amounts of
Class C Shares sold. If the Shares remain outstanding after twelve months from
the date of their original purchase, the Distributor will additionally
compensate such dealers quarterly at an annual rate of 0.50% of the value of
such Shares sold by such dealers and remaining outstanding.
15
<PAGE> 16
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EARLY WITHDRAWAL CHARGE
As discussed above, an EWC to recover distribution expenses incurred by the
Distributor will be charged against the Shareholder's investment account and
paid to the Distributor in connection with most Class B Shares held for less
than four years, and most Class C Shares held for less than one year, that are
accepted by the Fund for repurchase pursuant to a Repurchase Offer. The EWC will
be imposed on those Shares accepted for repurchase based on an amount equal to
the lesser of the then current net asset value of the Shares or the original
purchase price of the Shares being repurchased. Accordingly, the EWC is not
imposed on increases in the net asset value above the initial purchase price. In
addition, the EWC is not imposed on Shares derived from reinvestment of
dividends or capital gains distributions. In determining whether an EWC is
payable, it is assumed that the acceptance of an offer to repurchase pursuant to
a Repurchase Offer would be made from the Shareholder's earliest purchase of
Shares. Thus, in determining whether an EWC is applicable to a repurchase of
Shares, the calculation will be determined in the manner that results in the
lowest possible amount being charged.
The chart below indicates the respective EWCs for Class B and Class C Shares.
CLASS B SHARES
<TABLE>
<CAPTION>
EARLY
HOLDING PERIOD WITHDRAWAL
AFTER PURCHASE CHARGE
- -------------- ----------
<S> <C>
Through First Year.......................................... 3.0%
Through Second Year......................................... 2.5%
Through Third Year.......................................... 2.0%
Through Fourth Year......................................... 1.0%
Longer than Four Years...................................... 0.0%
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
EARLY
HOLDING PERIOD WITHDRAWAL
AFTER PURCHASE CHARGE
- -------------- ----------
<S> <C>
Through First Year.......................................... 1.0%
Longer than One Year........................................ 0.0%
</TABLE>
- --------------------------------------------------------------------------------
WAIVERS OF EARLY WITHDRAWAL CHARGE
EWCs will be waived with respect to the following purchasers because there is
a reduced sales effort involved in sales to these purchasers:
- AIM Management and its affiliates, or their clients;
- Any retired officer, director or employee (and members of their immediate
family) of AIM Management, its affiliates or The AIM Family of Funds, 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 PFPC Inc.
(formerly First Data Investor Services Group); and any deferred compensation
plan for directors of investment companies sponsored by CIGNA Investments,
Inc. or its affiliates;
- Purchases through approved fee-based programs; and
- Employee benefit plans designated as purchasers as defined above, and
non-qualified plans offered in conjunction therewith, provided the initial
investment in the plan(s) is at least $1 million; the employer-sponsored
plan(s) has at least 100 eligible employees; or all plan transactions are
executed through a single omnibus account and the financial institution or
service organization has entered into the appropriate agreements with the
Distributor.
As used above, immediate family includes an individual and his or her spouse,
children, parents and parents of spouse.
EWCs will also not apply to the following:
- Repurchases 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;
- Liquidation by the Fund when the account value falls below the minimum
required size of $500; and
- Investment accounts of AIM.
16
<PAGE> 17
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DISTRIBUTION PLANS
Each Class of Shares is authorized under a distribution plan (collectively,
the "Plans") to use the assets attributable to a Class to finance certain
activities relating to the distribution of Shares to investors. These include
marketing and other activities to support the distribution of the Class B and
Class C Shares and Shareholder services provided by selected dealers. The Plans
were approved and reviewed in a manner consistent with Rule 12b-1 under the 1940
Act, which regulates the manner in which an open-end investment company may
directly or indirectly bear the expenses of distributing its shares.
Under the Plans, the Fund pays the Distributor monthly distribution and
service fees at an annual rate of 0.25% of average daily net assets attributable
to Class B Shares and 0.75% of average daily net assets attributable to Class C
Shares, respectively. (The Distributor has agreed to waive 0.25% of the Class C
distribution and service fee.) The service fee component will not exceed 0.25%,
and any amounts not paid as service fees constitute asset-based sales charges.
Activities that may be financed under the Class B Plan and the Class C Plan
include, but are not limited to: printing of prospectuses and reports for other
than existing Shareholders, overhead, preparation and distribution of
advertising material and sales literature, expense 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 the cost of administering the Plans. These amounts
payable by the Fund under the Plans need not be directly related to the expenses
actually incurred by AIM Distributors on behalf of the Fund. 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, and if AIM Distributors' expenses are less than the fee it receives,
AIM Distributors will retain the full amount of the fee. Payments pursuant to
the Plans are subject to any applicable limitations imposed by rules of the
National Association of Securities Dealers, Inc.
Each of the Plans may be terminated at any time by a vote of the majority of
those Trustees who are not "interested persons" of the Fund or by a vote of the
Shareholders of the majority of the outstanding Shares of applicable Class.
Under the Plans, certain financial institutions that have entered into service
agreements and that sell Shares of the Fund on an agency basis may receive
payments from the Fund pursuant to the respective Plans. AIM Distributors does
not act as principal, but rather as agent, for the Fund in making such payments.
Financial intermediaries and any other person entitled to receive compensation
for selling Fund Shares may receive different compensation for selling Shares of
one Class over another.
- --------------------------------------------------------------------------------
REPURCHASE OFFERS
As a matter of fundamental policy which cannot be changed without Shareholder
approval, the Fund is required in the months of February, May, August, and
November to conduct Repurchase Offers in which the Fund will offer to repurchase
at least 5% and up to 25% of its Shares. (The Fund may also make a discretionary
repurchase offer once every two years but has no current intention to do so.) In
each Repurchase Offer, the repurchase price will be the net asset value
determined not more than 14 days following the repurchase request deadline and
payment for all shares repurchased pursuant to these offers will be made not
later than 7 days after the repurchase pricing date. Under normal circumstances,
it is expected that net asset value will be determined on the repurchase request
deadline and payment for shares tendered will be made within 3 business days
after such deadline. During the period the Repurchase Offer is open,
Shareholders may obtain the current net asset value by calling 1-800-959-4246.
At least 21 days prior to the repurchase request deadline the Fund will mail
written notice to each Shareholder setting forth the number of Shares the Fund
will repurchase, the repurchase request deadline and other terms of the offer to
repurchase, and the procedures for Shareholders to follow to request a
repurchase. The repurchase request deadline will be strictly observed.
Shareholders and financial intermediaries failing to submit repurchase requests
in good order by such deadline will be unable to liquidate shares until a
subsequent Repurchase Offer.
If more Shares are tendered for repurchase than the Fund has offered to
repurchase, the Board may, but is not obligated to, increase the number of
Shares to be repurchased by 2% of the Fund Shares outstanding; if there are
still more Shares tendered than are offered for repurchase, Shares will be
repurchased on a pro-rata basis. Thus, in any given Repurchase Offer,
Shareholders may be unable to liquidate all or a given percentage of their
Shares. Shareholders may withdraw Shares tendered for repurchase at any time
prior to the repurchase request deadline.
Repurchase Offers and the need to fund repurchase obligations may affect the
ability of the Fund to be fully invested, which may reduce returns. Moreover,
diminution in the size of the Fund through repurchases without offsetting new
sales may result in untimely sales of portfolio securities and a higher expense
ratio, and may limit the ability of the Fund to participate in new investment
opportunities. Repurchases resulting in portfolio turnover will result in
additional expenses being borne by the Fund. The Fund may borrow to meet
repurchase obligations, which entails certain risks and costs. See "Special
Considerations and Risk Factors -- Effects of Borrowing". The Fund may also sell
portfolio securities to meet repurchase obligations which, in certain
circumstances, may adversely affect the market for Corporate Loans and Corporate
Debt Securities and reduce the Fund's value.
The Fund may suspend or postpone a Repurchase Offer only: (a) if making or
effecting the Repurchase Offer would cause the Fund to lose its status as a RIC
under the code; (b) for any period during which the exchange or any market in
which the securities owned by the Fund are
17
<PAGE> 18
principally traded is closed, other than customary weekend and holiday closings,
or during which trading in such market is restricted; (c) for any period during
which an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable, or during which it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (d) for such other periods as the SEC may by order permit for the
protection of Shareholders of the Fund.
Under the applicable rules governing the Repurchase Offers, the Fund may
deduct from a Shareholder's repurchase proceeds a fee of up to 2.00% of such
proceeds to offset expenses associated with the Repurchase Offer. The Fund has
determined not to impose a repurchase fee on any Repurchase Offer conducted
prior to March 31, 2001. Although it has no current intention to do so, the Fund
could impose such a repurchase fee thereafter. Shareholders will be given notice
of any determination by the Fund to impose a repurchase fee in subsequent
repurchase offers.
In the absence of a secondary market for the Fund's Shares the Repurchase
Offers will be the only source of liquidity for Fund Shareholders. If a
secondary market develops for the Shares of the Fund, the market price of the
Shares may vary from net asset value from time to time. Such variance may be
affected by, among other factors, relative demand and supply of Shares and the
performance of the Fund, especially as it affects the yield on and net asset
value of Fund Shares.
- --------------------------------------------------------------------------------
MANAGEMENT
The Fund's Board of Trustees has overall responsibility for the operation of
the Fund. Pursuant to such responsibility, the Board has approved contracts with
various financial organizations to provide, among other things, day-to-day
management services required by the Fund.
INVESTMENT MANAGEMENT
The Investment Management and Administration Contract provides that, subject
to the direction of the Board of Trustees, AIM is responsible for the management
and administration of the Fund. Pursuant to the Sub-Advisory Contract, AIM has
delegated its responsibility for the management of the Fund to the Sub-advisor.
The responsibility for making decisions to buy, sell or hold a particular
security rests with the Sub-advisor, subject to review by the Board of Trustees
and AIM.
In providing investment management for the Fund, the Sub-advisor will consider
analyses from various sources, make the necessary investment decisions, and
place orders for transactions accordingly. The Fund pays AIM a monthly fee at an
annual rate of 0.95% of the Fund's average daily net assets (i.e., the average
daily value of the total assets of the Fund, minus the sum of accrued
liabilities of the Fund). AIM pays the Sub-advisor a monthly fee at an annual
rate of 0.48% of the Fund's average daily net assets. For purposes of these
calculations, average daily net assets is determined at the end of each month on
the basis of the average net assets of the Fund for each day during the month.
The investment professionals primarily responsible for the day-to-day
management of the Fund are as follows:
<TABLE>
<CAPTION>
NAME TITLE BUSINESS EXPERIENCE
---- ----- -------------------
<S> <C> <C>
Anthony R. Clemente...... Managing Director Portfolio Manager since February, 1998. Mr.
Clemente is head of the Bank Loan Group and a
senior portfolio manager responsible for bank
loan portfolios at the Sub-advisor. For the
preceding five years, Mr. Clemente was a Vice
President in the Fixed Income Department of
Merrill Lynch Asset Management L.P. and
assisted in the portfolio management of
Merrill Lynch Senior Floating Rate Fund, Inc.
and Merrill Lynch Prime Rate Portfolio.
Kathleen Lenarcic........ Managing Director Portfolio Manager since March, 1998. Ms. Lenarcic
is a senior portfolio manager responsible for
bank loan portfolios at the Sub-advisor. From
1995 to 1998, Ms. Lenarcic was a portfolio
manager at ING Capital Advisors, specializing in
the designs of investment products. From 1989 to
1995, Ms. Lenarcic was a portfolio manager and
credit analyst at the Pilgrim Group.
</TABLE>
Pursuant to the Sub-Sub-Advisory Agreement between the Sub-advisor and
INVESCO, Inc., the latter acts as the investment sub-sub-advisor of the Fund.
INVESCO, Inc., located at 1166 Avenue of the Americas, New York, NY 10036, is
the investment sub-sub-advisor with respect to certain of the Fund's assets, as
determined by the Sub-advisor (the "Sub-Sub-Advised Assets"). The
Sub-Sub-Advised Assets consist of certain of the Fund's cash and cash
equivalents and short-term investment grade debt obligations, but may also
include other asset classes. With respect to the Sub-Sub-Advised Assets,
INVESCO, Inc. has responsibility for making decisions to buy, sell or hold a
particular security, subject to review by the Board of Trustees and AIM. In
providing investment sub-sub-advisory services for the Fund, INVESCO, Inc. will
consider analyses from various sources, make the necessary investment decisions,
and place orders for transactions accordingly. The Sub-advisor (and not the
Fund) pays INVESCO, Inc. a monthly fee for investment sub-sub-advisory services
at the annual rate of 0.48% of the Fund's average daily net assets delegated to
it.
18
<PAGE> 19
Cheng-Hock Lau will provide day-to-day management of the Sub-Sub-Advised
Assets of the Fund. Mr. Hock Lau is the Portfolio Manager and has been
responsible for the Sub-Sub-Advised Assets of the Fund since 1999. He has been
associated with INVESCO, Inc. and/or its affiliates since 1995. He has been a
Portfolio Manager for INVESCO, Inc. since October 1996. From July 1995 to
October 1996, he was Senior Portfolio Manager for Global/International Fixed
Income for Chancellor Capital Management Inc., a predecessor of INVESCO,
Inc. From 1993 to 1995, he was Senior Vice President and Senior Portfolio
Manager for Fiduciary Trust Company International.
The Sub-advisor is a subsidiary of AMVESCAP plc. As of December 31, 1999, the
Sub-advisor had assets under management totaling approximately $3.6 billion.
INVESCO, Inc. is also a subsidiary of AMVESCAP plc. The U.S. offices of the
Sub-advisor and INVESCO, Inc. are located at 1166 Avenue of the Americas, New
York, New York 10036.
AIM, the Sub-advisor and INVESCO, Inc. and their worldwide asset management
affiliates provide investment management and/or administrative services to
institutional, corporate and individual clients around the world. AIM, the
Sub-advisor and INVESCO, Inc. are each indirect wholly owned subsidiaries of
AMVESCAP plc. AMVESCAP plc and its subsidiaries are an independent investment
management group that has 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, San Francisco and
New York offices, AIM, the Sub-advisor and INVESCO, Inc. draw upon the
expertise, personnel, data and systems of other offices, including investment
offices in Atlanta, Boston, Dallas, Denver, Louisville, Miami, Portland
(Oregon), Frankfurt, Hong Kong, London, Singapore, Sydney, Tokyo and Toronto. In
managing the Fund, the Sub-advisor employs a team approach, taking advantage of
its investment resources around the world.
Unless earlier terminated as described below, the Fund's Investment Management
and Administration Contract, the Fund's Sub-Advisory Agreement, and the Fund's
Sub-Sub-Advisory Agreement remain in effect from year to year if approved
annually (a) by the Board of Trustees of the Fund or by a majority of the
outstanding Shares of the Fund, and (b) by a majority of the Trustees who are
not parties to such contract or interested persons (as defined in the 1940 Act)
of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the Fund.
AIM also serves as the Fund's pricing and accounting agent. The Fund pays a
monthly fee to AIM for these services at the annualized rate of 0.02% of its
average daily net assets.
- --------------------------------------------------------------------------------
TRUSTEES AND EXECUTIVE OFFICERS
The Trustees and executive officers of the Fund, their ages and their
principal occupations during the last five years are set forth below. Unless
otherwise indicated, the address of each Executive Officer is 11 Greenway Plaza,
Suite 100, Houston, Texas 77046.
<TABLE>
<CAPTION>
NAMES, POSITION(S) WITH PRINCIPAL OCCUPATIONS AND BUSINESS
THE FUND AND ADDRESS EXPERIENCE FOR PAST 5 YEARS
----------------------- ----------------------------------
<S> <C>
Robert H. Graham*, 53 Director, President and Chief Executive Officer, A I M
Trustee, Chairman and President Management Group Inc.; Director and President, AIM; Director
and Senior Vice President, A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services, Inc. and Fund
Management Company; Director and Chief Executive Officer,
Managed Products, AMVESCAP PLC; and Trustee of several other
investment companies registered under the 1940 Act that are
managed or administered by AIM.
C. Derek Anderson, 58 Senior Managing Partner, Plantagenet Capital Management, LLC
Trustee (an investment partnership); Chief Executive Officer,
220 Sansome Street Plantagenet Holdings, Ltd. (an investment banking firm) and
Suite 400 Director, PremiumWear, Inc. (formerly Munsingwear, Inc.)(a
San Francisco, CA 94104 casual apparel company), "R" Homes, Inc., Big Online, Inc.,
Champagne Albert Le Brun and various other privately owned
companies; and Trustee of several other investment companies
registered under the 1940 Act that are managed or
administered by AIM.
Frank S. Bayley, 60 Partner, law firm of Baker & McKenzie; Director and Chairman
Trustee of C.D. Stimson Company (a private investment company); and
Two Embarcadero Center Trustee of several other investment companies registered
Suite 2400 under the 1940 Act that are managed or administered by AIM.
San Francisco, CA 94111
Ruth H. Quigley, 65 Private investor; President, Quigley Friedlander & Co., Inc.
Trustee (a financial advisory services firm) from 1984 to 1986; and
1055 California Street Trustee of several other investment companies registered
San Francisco, CA 94108 under the 1940 Act that are managed or administered by AIM.
</TABLE>
- ---------------
* A trustee who is an "interested person" of the Fund and AIM as defined in the
1940 Act.
19
<PAGE> 20
<TABLE>
<CAPTION>
NAMES, POSITION(S) WITH PRINCIPAL OCCUPATIONS AND BUSINESS
THE FUND AND ADDRESS EXPERIENCE FOR PAST 5 YEARS
----------------------- ----------------------------------
<S> <C>
Melville B. Cox, 56 Vice President and Chief Compliance Officer, AIM, A I M
Vice President Capital Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc. and Fund Management Company.
Gary T. Crum, 52 Director and President, A I M Capital Management, Inc.;
Vice President Director and Executive Vice President, A I M Management
Group Inc.; Director and Senior Vice President, AIM; and
Director, A I M Distributors, Inc. and AMVESCAP PLC.
Carol F. Relihan, 45 Director, Senior Vice President, General Counsel and
Vice President Secretary, AIM; Senior Vice President, General Counsel and
Secretary, A I M Management Group Inc.; Director, Vice
President and General Counsel, Fund Management Company;
General Counsel and Vice President, A I M Fund Services,
Inc.; and Vice President, A I M Capital Management, Inc. and
A I M Distributors, Inc.
Samuel D. Sirko, 40 Vice President, Assistant General Counsel and Assistant
Vice President and Secretary Secretary, AIM; and Assistant General Counsel and Assistant
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.
Dana R. Sutton, 41 Vice President and Fund Controller, AIM; and Assistant Vice
Vice President and Treasurer President and Assistant Treasurer, Fund Management Company.
</TABLE>
The Board of Trustees of the Fund has an Audit Committee, comprised of Miss
Quigley and Messrs. Anderson and Bayley, which is responsible for reviewing
annual audits of the Fund and recommending firms to serve as independent
auditors of the Fund. Each of the officers of the Fund is also an officer of
each of the other investment companies registered under the 1940 Act that is
managed or administered by AIM. The Fund pays each Trustee who is not a
director, officer or employee of AIM and/or the Sub-advisor or any affiliated
company an annual retainer component, plus a per-meeting fee component for each
Board or committee meeting attended by such Trustee and reimburses travel and
other expenses incurred in connection with attending such meetings. Other
Trustees and officers receive no compensation or expense reimbursement from the
Fund. As of December 31, 1999, the Trustees and officers and their families as a
group owned less than 1% of the outstanding shares of the Fund. The Fund
requires no employees since AIM, the Sub-advisor and other third-party service
providers perform substantially all of the services necessary for the Fund's
operations.
- --------------------------------------------------------------------------------
FUND TRANSACTIONS
Subject to policies established by the Fund's Board of Trustees, the
Sub-advisor is responsible for the execution of the Fund's transactions and the
selection of brokers and dealers who execute such transactions on behalf of the
Fund. In executing transactions for the Fund, the Sub-advisor 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 the Sub-advisor generally seeks reasonable competitive commission rates
and spreads, payment of the lowest commission or spread is not necessarily
consistent with the best net results. The Fund has no obligation to deal with
any broker or dealer or group of brokers in the execution of portfolio
transactions.
Consistent with the interests of the Fund, the Sub-advisor may select brokers
to execute the Fund's portfolio transactions on the basis of the research and
brokerage services they provide to the Sub-advisor 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 brokers are in addition to, and not in
lieu of, the services required to be performed by the Sub-advisor under the
Sub-Advisory Contract (defined above). A commission paid to such brokers may be
higher than that which another qualified broker would have charged for effecting
the same transaction, provided that the Sub-advisor determines in good faith
that such commission is reasonable in terms either of that particular
transaction or the overall responsibility of the Sub-advisor to the Fund and its
other clients and that the total commissions paid by the Fund will be reasonable
in relation to the benefits received by the Fund over the long term.
Investment decisions for the Fund and for other investment accounts managed or
sub-advised by the Sub-advisor 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,
purchases or sales are 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 the Sub-advisor believes that coordination and
the ability to participate in volume transactions will be beneficial to the
Fund.
The Fund engages in trading when the Sub-advisor has concluded that the sale
of a security owned by the Fund and/or the purchase of another security can
enhance principal and/or increase income. A security may be sold to avoid any
prospective decline in market value, or a security may be purchased in
anticipation of a market rise. Consistent with the Fund's investment objective,
a security also may be sold and a
20
<PAGE> 21
comparable security purchased coincidentally in order to take advantage of what
is believed to be a disparity in the normal yield and price relationship between
the two securities.
The Fund's portfolio turnover rate is not expected to exceed 100%, but may
vary greatly from year to year and will not be a limiting factor when the
Sub-advisor deems portfolio changes appropriate. Although the Fund generally
does not intend to trade for short-term profits, the securities held by the Fund
will be sold whenever the Sub-advisor believes it is appropriate to do so,
without regard to the length of time a particular security may have been held. A
100% portfolio turnover rate would occur if the lesser of the value of purchases
or sales of the Fund's securities for a year (excluding purchases of U.S.
Treasury and other securities with a maturity at the date of purchase of one
year or less) were equal to 100% of the average monthly value of the securities,
excluding short-term investments, held by the Fund during such year. Higher
portfolio turnover involves correspondingly greater brokerage commissions and
other transaction costs that the Fund will bear directly.
- --------------------------------------------------------------------------------
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund distributes substantially all of its net investment income. Dividends
from the Fund's net investment income are declared daily and paid monthly to
Shareholders. Substantially all of the Fund's net realized capital gains, if
any, are distributed at least annually to Shareholders. Shares accrue dividends
as long as they are outstanding (i.e., from the settlement date of a purchase
order to the settlement date of a Repurchase Offer).
Under the 1940 Act, the Fund is not permitted to incur indebtedness unless
immediately after such incurrence it has an asset coverage of at least 300% of
the aggregate outstanding principal balance of the indebtedness. Additionally,
under the 1940 Act, the Fund may not declare any dividend or other distribution
on any Class of Shares or purchase any Shares unless it has, at the time of the
declaration of any such distribution or at the time of any such purchase, asset
coverage of at least 300% of the aggregate indebtedness after deducting the
amount of such distribution, or purchase price, as the case may be. This latter
limitation could under certain circumstances impair the Fund's ability to
maintain its qualification for taxation as a RIC. See "Special Considerations
and Risk Factors -- Effects of Leverage" and "Taxes."
Dividends and other distributions to Shareholders may be automatically
reinvested in Shares pursuant to the Fund's Dividend Plan. See "Dividend
Reinvestment Plan." Dividends and other distributions will be taxable to
Shareholders whether they are reinvested in Shares or received in cash. See
"Taxes."
- --------------------------------------------------------------------------------
TAXES
TAXATION OF THE FUND
The Fund intends to continue to qualify for the special tax treatment afforded
RICs under Subchapter M of the Code. In each taxable year that it so qualifies,
the Fund (but not its Shareholders) will be relieved of federal income tax on
that part of its investment company taxable income and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) that it
distributes to Shareholders. If the Fund failed to qualify for treatment as a
RIC for any taxable year, (a) it would be taxed as an ordinary corporation on
the full amount of its taxable income for that year without being able to deduct
the distributions it makes to Shareholders and (b) the Shareholders would treat
all those distributions, including distributions of net capital gain, as
dividends (that is, ordinary income) to the extent of the Fund's earnings and
profits. In addition, the Fund could be required to recognize unrealized gains,
pay substantial taxes and interest, and make substantial distributions before
requalifying for RIC treatment.
To qualify for treatment as a RIC, 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, net short-term
capital gains, and net gains from certain foreign currency transactions) and
must meet several additional requirements. Among these requirements are 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 derived with respect to its business of investing in
securities or those currencies; and (2) at the close of each quarter of the
Fund's taxable year, (i) at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and 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 (ii) not more than 25% of the value of its
total assets may be invested in securities (other than U.S. Government
securities) of any one issuer.
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 at least 98% 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.
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 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 these taxes, however, and many foreign countries do not impose taxes
on capital gains in respect of investments by foreign investors.
Gains or losses (1) from the disposition of foreign currencies, (2) on the
disposition of a debt security denominated in a foreign currency that are
attributable to fluctuations in the value of that currency between the dates of
acquisition and disposition of the security, and (3) that are
21
<PAGE> 22
attributable to fluctuations in exchange rates that occur between the time the
Fund accrues interest or other receivables or expenses or other liabilities
denominated in a foreign currency and the time it actually collects the
receivables or pays the liabilities, generally are treated as ordinary income or
loss. These gains or losses, referred to under the Code as "section 988" gains
or losses, will increase or decrease the amount of investment company taxable
income available to the Fund for distribution to Shareholders as ordinary
income, rather than affecting the amount of its net capital gain.
The federal income tax rules governing the taxation of interest rate swaps are
not entirely clear and may require the Fund to treat payments received under
such arrangements as ordinary income and to amortize payments under certain
circumstances. The Fund will limit its activity in this regard in order to
maintain its qualification as a RIC.
TAXATION OF THE SHAREHOLDERS
Dividends paid by the Fund from its investment company taxable income, whether
received in cash or reinvested in Shares pursuant to the Dividend Plan, are
taxable to the Shareholders as ordinary income to the extent of its earnings and
profits. (Any distributions in excess of the Fund's earnings and profits first
will reduce the adjusted tax basis of a Shareholder's Shares and, after that
basis is reduced to zero, will constitute capital gains to the Shareholder,
assuming the Shares are held as capital assets.) Distributions, if any, from the
Fund's net capital gain, when designated as such, are taxable to the
Shareholders as long-term capital gains, regardless of the length of time they
have owned their Shares and whether they receive them in cash or reinvest them
in Shares pursuant to the Dividend Plan. A noncorporate taxpayer's net capital
gain is taxed at a maximum rate of 20% (10% for taxpayers in the 15% marginal
tax bracket). Following the end of each calendar year, the Fund notifies the
Shareholders of the amounts of any dividends and capital gain distributions paid
(or deemed paid) by the Fund during that year.
If 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. Distributions by the
Fund generally will not be eligible for the dividends-received deduction allowed
to corporations. 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.
The Fund must withhold 31% from dividends, capital gain distributions, and
proceeds from sales of Shares pursuant to a Repurchase Offer, if any, payable to
any individuals and certain other noncorporate Shareholders who have not
furnished to the Fund a correct taxpayer identification number ("TIN") or a
properly completed claim for exemption on Form W-8 or W-9 ("backup
withholding"). Withholding at that rate also is required from dividends and
capital gain distributions payable to such Shareholders who otherwise are
subject to backup withholding. When establishing an account, an investor must
certify under penalty of perjury that the investor's TIN is correct and that the
investor is not otherwise subject to backup withholding.
A loss realized on a sale or exchange of Shares will be disallowed if other
Shares are acquired (whether through the reinvestment of distributions under the
Dividend Plan or otherwise) within a 61-day period beginning 30 days before and
ending 30 days after the date that the Shares are disposed of. In such a case,
the basis of the Shares acquired will be adjusted to reflect the disallowed
loss.
Dividends paid by the Fund to a Shareholder who, as to the United States, is a
nonresident alien individual or nonresident alien fiduciary of a trust or
estate, foreign corporation, or foreign partnership ("foreign Shareholder") will
be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply if a dividend paid by the Fund to a foreign
Shareholder 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. Distributions of net capital gain generally
are not subject to that withholding tax, except in the case of a foreign
Shareholder who is a nonresident alien individual physically present in the
United States for more than 182 days during the taxable year and with respect to
whom the distributions are "effectively connected." Foreign Shareholders are
urged to consult their own tax advisers concerning the applicability of this
withholding tax.
REPURCHASE OFFERS
A Shareholder who, pursuant to any Repurchase Offer, tenders all Shares owned
by such Shareholder, and any Shares considered owned thereby under attribution
rules contained in the Code, will realize a taxable gain or loss depending on
such Shareholder's basis for the Shares. Such gain or loss will be treated as
capital gain or loss if the Shares are held as capital assets and will be
long-term or short-term depending on the Shareholder's holding period for the
Shares; capital gain on Shares held by a noncorporate Shareholder for more than
one year will be subject to federal income tax at the rates indicated above.
Different tax consequences may apply to tendering and non-tendering
Shareholders in connection with a Repurchase Offer, and these consequences will
be disclosed in the related offering documents. For example, if a tendering
Shareholder tenders less than all Shares owned by or attributed to such
Shareholder, and if the payment to such Shareholder does not otherwise qualify
as a sale or exchange, the proceeds received will be treated as a taxable
dividend, a return of capital, or capital gain depending on the Fund's earnings
and profits and the Shareholder's basis for the tendered Shares. Also, there is
a risk that non-tendering Shareholders may be considered to have received a
deemed distribution that may be a taxable dividend in whole or in part.
Shareholders may wish to consult their tax advisers prior to tendering.
* * * * *
22
<PAGE> 23
The foregoing is a general and abbreviated summary of certain federal tax
considerations affecting the Fund and the Shareholders. For further information,
reference should be made to the pertinent Code sections and the regulations
thereunder, which are subject to change by legislative, judicial, or
administrative action either prospectively or retroactively. Investors are urged
to consult their tax advisers regarding specific questions as to federal, state,
local, or foreign taxes. Foreign investors should consider applicable foreign
taxes in their evaluation of an investment in the Fund.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
Pursuant to the Dividend Plan, each Shareholder will be deemed to have elected
to have all dividends and other distributions, net of any applicable withholding
taxes, automatically reinvested in additional Shares, newly issued by the Fund,
unless A I M Fund Services, Inc., the Fund's transfer agent, as the Dividend
Plan Agent (the "Dividend Plan Agent"), is otherwise instructed by the
Shareholder in writing. Such dividends and other distributions will be
reinvested in Shares at the net asset value per Share next determined on their
payable date. Each Class B or Class C Shareholder may also elect to have all
dividends and/or other distributions automatically reinvested in Class B shares
or Class C shares, respectively, of mutual funds distributed by AIM Distributors
(collectively, the "AIM Funds"). The prospectus of each AIM Fund describes its
investment objectives and policies. Shareholders can obtain, without charge, a
prospectus for any AIM Fund by calling (800)347-4246 and should consider these
objectives and policies before requesting this option.
Automatic reinvestment in shares of an AIM Fund are made at net asset value
without imposition of a sales charge. Reinvestments in an AIM Fund may only be
directed to an account with the identical shareholder registration and account
number. These elections may be changed by a Shareholder at any time; to be
effective with respect to a distribution, the Shareholder or the Shareholder's
broker must contact the Dividend Plan Agent by mail or telephone at least 15
business days prior to the payment date.
Shareholders who do not participate in the Dividend Plan will receive all
dividends and other distributions in cash, net of any applicable withholding
taxes, paid in U.S. dollars by check mailed directly to the Shareholder by A I M
Fund Services, Inc., as dividend-paying agent. Shareholders who do not wish to
have dividends and other distributions automatically reinvested should notify
the Dividend Plan Agent at P.O. Box 4739, Houston, TX 77210-4739. Dividends and
other distributions with respect to Shares registered in the name of a
broker-dealer or other nominee (i.e., in "street name") will be reinvested under
the Dividend Plan unless such service is not provided by the broker-dealer or
nominee or the Shareholder elects to receive dividends and other distributions
in cash. A Shareholder whose Shares are held by a broker-dealer or nominee that
does not provide a dividend reinvestment service may be required to have his
Shares registered in his own name to participate in the Dividend Plan.
There will be no charge to participants for reinvesting dividends or other
distributions. The Dividend Plan Agent's fees for the handling of reinvestment
of distributions will be paid by the Fund.
All registered holders of Shares (other than brokers and nominees) will be
mailed information regarding the Dividend Plan, including a form with which they
may elect to terminate participation in the Dividend Plan and receive further
dividends and other distributions in cash. An election to terminate
participation in the Dividend Plan must be made in writing to the Dividend Plan
Agent and should include the Shareholder's name and address as they appear on
the Share certificate. An election to terminate, until it is changed, will be
deemed to be an election by a Shareholder to take all subsequent distributions
in cash. An election will be effective only for distributions declared and
having a record date at least ten days after the date on which the election is
received.
The receipt of dividends and other distributions in Shares under the Dividend
Plan will not relieve participants of any income tax that may be payable, or tax
that may be withheld, on such distributions. See "Taxes."
Experience under the Dividend Plan may indicate that changes in the Dividend
Plan are desirable. Accordingly, the Fund and the Dividend Plan Agent reserve
the right to terminate the Dividend Plan as applied to any dividend or other
distribution paid subsequent to notice of the termination sent to the
participants in the Dividend Plan at least 30 days before the record date for
the distribution. The Dividend Plan also may be amended by the Fund or the
Dividend Plan Agent, but (except when necessary or appropriate to comply with
applicable law, rules or policies of a regulatory authority) only by at least 30
days' written notice to participants in the Dividend Plan. All correspondence
concerning the Dividend Plan should be directed to the Dividend Plan Agent, P.O.
Box 4739 Houston, TX 77210-4739.
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
Investors may purchase Shares through the Automatic Investment Plan. Under
this plan, an amount specified by the stockholder of $50 or more (or $25 for
Individual Retirement Accounts, Code Section 403(b)(7) custodial accounts and
other tax-qualified employer-sponsored retirement accounts) on a monthly or
quarterly basis will be sent to A I M Fund Services, Inc. from the investor's
bank for investment in the Fund. Participants in the Automatic Investment Plan
should not elect to receive dividends or other distributions from the Fund in
cash. Investors should contact their brokers or A I M Fund Services, Inc. for
more information.
- --------------------------------------------------------------------------------
23
<PAGE> 24
EXCHANGE PRIVILEGE
Shareholders of the Fund whose Shares are repurchased during a Repurchase
Offer may exchange those Shares at net asset value for shares of the same Class
of AIM Funds that are subject to a contingent deferred sales charge. Fund
Shareholders will not be able to participate in this exchange privilege at any
time other than in connection with a Repurchase Offer. No EWC will be imposed on
Shareholders choosing to exchange their Fund Shares for shares of any such AIM
Fund; however, the exchanging Shareholders will be subject to a contingent
deferred sales charge on any such AIM Fund equivalent to the EWC on Shares of
the Fund. Thus, shares of such AIM Fund may be subject to a contingent deferred
sales charge upon a subsequent redemption from the AIM Fund. The purchase of
shares of such AIM Fund will be deemed to have occurred at the time of the
initial purchase of the Fund's Shares. Holders of shares of other AIM Funds will
not be permitted to exchange those shares for Shares of the Fund.
The prospectus for each AIM Fund describes its investment objectives and
policies. Shareholders can obtain, without charge, a prospectus by calling (800)
347-4246 and should consider these objectives and policies carefully before
requesting an exchange. Each exchange must involve proceeds from Shares of the
Fund that have a net asset value of at least $500. An exchange is a taxable
event and may result in a taxable gain or loss. See "Taxes -- Tender Offers."
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per Share is determined Monday through Friday as of
the close of regular trading on the NYSE (generally, 4:00 p.m., New York time),
on each day during which the NYSE is open. The NYSE is not open on New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. For purposes of
determining the net asset value of a Share, the Fund's uninvested assets plus
the value of its securities and any cash or other assets (including interest
accumulated but not yet received) allocated to each Class minus all liabilities
(including accrued expenses) of the Fund allocated to each Class is divided by
the total number of each Class' Shares outstanding at such time. Expenses,
including the fees payable to the Sub-advisor, are accrued daily.
The Sub-advisor values the Corporate Loans and Corporate Debt Securities in
accordance with guidelines adopted and periodically reviewed by the Fund's Board
of Trustees. Under the Fund's current guidelines, Corporate Loans and Corporate
Debt Securities for which an active secondary market exists to a reliable degree
in the opinion of the Sub-advisor and for which the Sub-advisor can obtain one
or more quotations from banks or dealers in Corporate Loans and Corporate Debt
Securities will be valued by the Sub-advisor utilizing bid quotes of the market.
With respect to illiquid securities, i.e., Corporate Loans and Corporate Debt
Securities for which an active secondary market does not exist to a reliable
degree in the opinion of the Sub-advisor, and with respect to securities whose
bid quotes the Sub-advisor believes do not accurately reflect fair value, such
Corporate Loans and Corporate Debt Securities will be valued by the Sub-advisor
at fair value, which is intended to approximate market value. In valuing a
Corporate Loan or Corporate Debt Security at fair value, the Sub-advisor will
consider, among other factors, (i) the creditworthiness of the Borrower and any
Intermediate Participants, (ii) the current interest rate, period until next
interest rate reset and maturity of the Corporate Loan or Corporate Debt
Security, (iii) recent prices in the market for instruments of similar quality,
rate, period until next interest rate reset and maturity, and (iv) supply and
demand in the market. The Sub-advisor believes that Intermediate Participants
selling Corporate Loans or otherwise involved in a Corporate Loan transaction
may tend, in valuing Corporate Loans for their own accounts, to be less
sensitive to interest rate and credit quality changes and, accordingly, the
Sub-advisor may not rely solely on such valuations in valuing the Corporate
Loans for the Fund's account.
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
Pursuant to the Fund's Agreement and Declaration of Trust, the Fund may issue
an unlimited number of Shares. The Fund currently offers Class B and Class C
Shares. Each Share of the Fund has a par value of $0.01 per Share, represents an
equal proportionate interest in the Fund with other Shares of the Fund, and is
entitled to such dividends and distributions out of the income earned and gain
realized on the assets belonging to the Fund as may be declared by 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. Shares of the Fund, when issued, are fully paid and
nonassessable.
On any matter submitted to a vote of Shareholders, Shares of the Fund will be
voted by the Fund's Shareholders individually when the matter affects the
interests of the Fund as a whole, such as approval of its investment management
arrangements. In addition, Shares of a particular Class of the Fund may vote on
matters affecting only that Class.
Normally there will be no annual meeting of Shareholders in any year, except
as required under the 1940 Act. Shares of the Fund do not have cumulative voting
rights, which means that the Shareholders 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 Fund 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.
24
<PAGE> 25
CERTAIN ANTI-TAKEOVER PROVISIONS OF THE AGREEMENT AND DECLARATION OF TRUST
The Fund presently has provisions in its Agreement and Declaration of Trust
that have the effect of limiting (i) the ability of other entities or persons to
acquire control of the Fund, (ii) the Fund's freedom to engage in certain
transactions, and (iii) the ability of the Fund's Trustees or Shareholders to
amend the Agreement and Declaration of Trust. These provisions of the Agreement
and Declaration of Trust may be regarded as "anti-takeover" provisions. Under
the Fund's Agreement and Declaration of Trust, the affirmative vote of the
holders of at least 66 2/3% (which is higher than that required under Delaware
law or the 1940 Act) of the outstanding Shares of the Fund is required generally
to authorize any of the following transactions:
(i) merger or consolidation of the Fund with or into any other
corporation;
(ii) issuance of any securities of the Fund to a Principal Shareholder
(generally, a Shareholder that beneficially owns, whether directly or
indirectly, more than 5% of the outstanding Shares of the Fund) for cash;
(iii) sale, lease or exchange of all or any substantial part of the
assets of the Fund to any entity or person (except assets having an
aggregate market value of less than $1,000,000); or
(iv) sale, lease or exchange to the Fund, in exchange for securities
of the Fund, of any assets of any entity or person (except assets having an
aggregate fair market value of less than $1,000,000).
Such vote would not be required with respect to any of the foregoing
transactions, however, when, under certain conditions, the Board of Trustees
approves the transaction. Reference is made to the Agreement and Declaration of
Trust of the Fund, on file with the SEC, for the full text of these provisions.
The provisions of the Agreement and Declaration of Trust described above and
the Fund's rights and obligations to make Repurchase Offers for its Shares could
have the effect of depriving Shareholders of opportunities to sell their Shares
at a premium over net asset value by discouraging a third party from seeking to
obtain control of the Fund in a tender offer or similar transaction. The overall
effect of these provisions is to render more difficult the accomplishment of a
merger or the assumption of control. They provide, however, the advantage of
potentially requiring persons seeking control of the Fund to negotiate with its
management regarding the price to be paid and facilitating the continuity of the
Fund's management, investment objectives and policies. The Board of Trustees of
the Fund has considered the foregoing anti-takeover provisions and concluded
that they are in the best interest of the Fund and its Shareholders.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
From time to time the Fund may include its distribution rate and/or total
return for various specified time periods in advertisements or information
furnished to present or prospective Shareholders.
The distribution rate of the Fund refers to the income generated by an
investment in the Fund over a stated period. The distribution rate is calculated
by annualizing the Fund's distributions per Share during such period and
dividing the annualized distribution by the Fund's maximum offering price per
Share on the last day of such period.
The Fund also may quote annual total return and aggregate total return
performance data. Total return quotations for the specified periods will be
computed by finding the rate of return (based on net investment income and any
capital gains or losses on portfolio investments over such periods) that would
equate the initial amount invested to the redeemable value of such investment at
the end of the period.
The calculation of distribution rate and total return does not reflect the
imposition of any EWCs or the amount of any Shareholder's tax liability.
Distribution rate and total return figures are based on the Fund's historical
performance and are not intended to indicate future performance. The Fund's
distribution rate is expected to fluctuate, and its total return will vary
depending on market conditions, the Corporate Loans, Corporate Debt Securities
and other securities comprising the Fund's investments, the Fund's operating
expenses and the amount of net realized and unrealized capital gains or losses
during the period.
On occasion, the Fund may compare its yield to (1) LIBOR, quoted daily in The
Wall Street Journal, (2) the Prime Rate, quoted daily in The Wall Street Journal
as the base rate on corporate loans at large U.S. money center commercial banks,
(3) one or more averages compiled by Donoghue's Money Fund Report, a widely
recognized independent publication that monitors the performance of money market
mutual funds, (4) the average yield reported by the Bank Rate Monitor National
Index(TM) for money market deposit accounts offered by the 100 leading banks and
thrift institutions in the ten largest standard metropolitan statistical areas,
(5) yield data published by Lipper Analytical Services, Inc., or (6) the yield
on an investment in 90-day Treasury bills on a rolling basis, assuming quarterly
compounding. In addition, the Fund may compare the Prime Rate, the Donoghue's
averages and the other yield data described above to each other. As with yield
quotations, yield comparisons should not be considered indicative of the Fund's
yield or relative performance for any future period.
25
<PAGE> 26
OTHER INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION OF THE FUND
The Fund is a continuously offered, non-diversified, closed-end management
investment company. The Fund was organized as a Delaware business trust on
December 6, 1999. The Fund has registered under the 1940 Act. The Fund's
principal office is located at 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, and its telephone number is 1-800-347-4246.
On March 31, 2000, the Fund acquired the assets and assumed the liabilities of
GT Global Floating Rate Fund, Inc. (d/b/a AIM Floating Rate Fund), a Maryland
corporation (the "Old Fund"). Pursuant to an Agreement and Plan of Conversion
and Liquidation, the Old Fund changed its place and form of organization from a
Maryland corporation to a Delaware business trust through a reorganization into
the Fund.
SHAREHOLDER LIABILITY
Under Delaware law, the Fund's Shareholders enjoy the same limitations
extended to shareholders of private, for-profit corporations. There is a remote
possibility, however, that under certain circumstances Shareholders of the Fund
may be held personally liable for the Fund's obligations. However, the Fund's
Agreement and Declaration of Trust disclaims Shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Fund or
a Trustee. If a Shareholder is held personally liable for the obligations of the
Fund, the Agreement and Declaration of Trust provides that the Shareholder shall
be entitled out of the assets of 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 Fund'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 Fund itself would be unable
to meet its obligations and where the other party was held not to be bound by
the disclaimer.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT AND REGISTRAR
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy,
Massachusetts 02171, will serve as custodian of the Fund's assets held in the
United States. A I M Fund Services, Inc. (the "Transfer Agent") will serve as
the Fund's transfer and dividend disbursing agent and registrar.
LEGAL MATTERS
The law firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W.,
Washington, D.C. 20036-1800 acts as counsel to the Fund. Certain legal matters
in connection with the Shares offered hereby will be passed on for the Fund by
Kirkpatrick & Lockhart LLP.
INDEPENDENT ACCOUNTANTS
The Fund's independent accountants are PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP will conduct an
annual audit of the Fund, assist in the preparation of the Fund's federal and
state income tax returns and consult with the Fund as to matters of accounting,
regulatory filings, and federal and state income taxation.
FURTHER INFORMATION
Further information concerning the Shares and the Fund may be found in the
Registration Statement, on file with the SEC.
26
<PAGE> 27
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTION OF DEBT SECURITIES RATINGS
Moody's Investors Service, Inc. ("Moody's") rates the debt securities issued
by various entities from "Aaa" to "C". Investment grade ratings are the first
four categories: Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt 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 -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as 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 some time in the future.
Baa -- Bonds which are rated Baa are considered as 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 -- Bonds which are rated Ba
are judged to have speculative elements; 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 -- Bonds which are rated 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 -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. C -- Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Standard & Poor's, a division of The McGraw-Hill Companies, Inc., ("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 -- An obligation rated "AAA" has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong. AA -- An obligation rated "AA" differs from the highest rated
obligations only in a small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong. A -- An obligation rated "A" is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than obligations in higher rated categories. BBB -- An
obligation rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation. BB, B, CCC, CC, C -- Obligations rated "BB," "B," "CCC," "CC," and
"C" are regarded as having significant speculative characteristics. "BB"
indicates the least degree of speculation and "C" the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions. BB -- An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation. B -- An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation. CCC -- An obligation rated "CCC" is
currently vulnerable to nonpayment, and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation. CC -- An obligation rated "CC" is
currently highly vulnerable to nonpayment. C -- The "C" rating may be used to
cover a situation where a bankruptcy petition has been filed or similar action
has been taken, but payments on this obligation are being continued. D -- An
obligation rated "D" is in payment default. The "D" rating category is used when
payments on an obligation 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. The "D" rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation 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 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 COMMERCIAL PAPER RATINGS
Moody's employs the designation "Prime-1" to indicate commercial paper having
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
27
<PAGE> 28
range of financial markets and assured sources of alternate liquidity. Issues
rated Prime-2 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.
S&P ratings of commercial paper are graded into several categories ranging
from "A-1" for the highest quality obligations to "D" for the lowest. Issues in
the "A" category are delineated with numbers 1, 2, and 3 to indicate the
relative degree of safety. 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 payments on issues with this
designation is satisfactory; however, the relative degree of safety is not as
high as for issues designated "A-1."
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.
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 Caa. 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 Company ranks in the
lower end of its generic rating category.
28
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of AIM Floating Rate
Fund, Inc.:
In our opinion, the accompanying statement of assets
and liabilities, including the schedule of
investments, and the related statements of operations,
cash flows and of changes in net assets and the
financial highlights present fairly, in all material
respects, the financial position of AIM Floating Rate
Fund Inc. (hereafter referred to as the "Fund") at
December 31, 1999, the results of its operations, of
cash flows, the changes in its net assets and the
financial highlights for each of the periods indicated
therein, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally accepted in the
United States 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 investments at December
31, 1999 by correspondence with the custodian and
intermediate participants, provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 18, 2000
FS-1
<PAGE> 30
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL MARKET
RATING AMOUNT VALUE
(Unaudited)
<S> <C> <C> <C>
SENIOR SECURED FLOATING
RATE
INTERESTS-92.15%(A)(B)
ADVERTISING-1.14%
Big Flower Press Holdings
Co.
Term Loan B due 11/30/08 B1 $5,000,000 $ 5,000,000
- --------------------------------------------------------------------
AEROSPACE & DEFENSE-2.10%
Fairchild Corp.
Term Loan due 04/30/06 Ba3 4,345,404 4,346,490
- --------------------------------------------------------------------
Transtar Metals
Term Loan B due 01/20/06 NR 4,982,143 4,894,955
- --------------------------------------------------------------------
9,241,445
- --------------------------------------------------------------------
AIR FREIGHT-COURIERS-0.54%
Atlas Freighter Leasing,
Inc.
Term Loan due 05/29/04 Ba3 2,368,378 2,362,457
- --------------------------------------------------------------------
APPAREL & TEXTILE
MANUFACTURING-1.12%
Glenoit Corp.
Term Loan B due 06/30/04 B1 4,942,229 4,923,695
- --------------------------------------------------------------------
AUTOMOBILE PARTS &
EQUIPMENT-2.32%
Avis Rent A Car, Inc.
Term Loan B due 06/30/06 Ba3 2,500,000 2,509,375
- --------------------------------------------------------------------
Term Loan C due 06/30/07 Ba3 2,500,000 2,509,375
- --------------------------------------------------------------------
Joan Fabrics Corp.
Term Loan B due 06/30/05 NR 1,430,901 1,426,429
- --------------------------------------------------------------------
Term Loan C due 06/30/06 NR 742,183 741,255
- --------------------------------------------------------------------
Tenneco Inc.
Term Loan B due 09/30/07 Ba3 1,500,000 1,508,750
- --------------------------------------------------------------------
Term Loan C due 03/30/08 Ba3 1,500,000 1,508,750
- --------------------------------------------------------------------
10,203,934
- --------------------------------------------------------------------
BEVERAGES-1.13%
Vitality Foodservice, Inc.
Term Loan B due 10/26/06 B1 5,000,000 4,975,000
- --------------------------------------------------------------------
BUILDING MATERIALS-1.87%
Atrium Co.
Term Loan B due 06/30/05 Ba3 1,354,815 1,354,815
- --------------------------------------------------------------------
Term Loan C due 06/30/06 Ba3 1,942,500 1,942,500
- --------------------------------------------------------------------
Trussway Holdings, Inc.
Term Loan B due 12/31/06 B1 5,000,000 4,925,000
- --------------------------------------------------------------------
8,222,315
- --------------------------------------------------------------------
CASINOS-2.07%
Aladdin Gaming, L.L.C.
Term Loan B due 08/26/06 B2 277,778 243,054
- --------------------------------------------------------------------
Term Loan C due 02/26/08 B2 2,222,222 1,944,445
- --------------------------------------------------------------------
Horseshoe Gaming Holding
Corp.
Term Loan B due 03/17/06 Ba2 2,992,500 2,990,630
- --------------------------------------------------------------------
</TABLE>
<TABLE>
(Unaudited)
<CAPTION>
MOODY'S PRINCIPAL MARKET
RATING AMOUNT VALUE
<S> <C> <C> <C>
CASINOS-(CONTINUED)
Resort at Summerlin, Inc.
(The)
Term Loan due 03/31/04 B3 $4,000,000 $ 3,920,000
- --------------------------------------------------------------------
9,098,129
- --------------------------------------------------------------------
CHEMICALS-COMMODITY-3.81%
Huntsman Corp.
Term Loan B due 12/22/05 Ba2 3,442,437 3,433,831
- --------------------------------------------------------------------
Lyondell Petrochemical Co.
Term Loan A due 06/30/03 Ba3 2,958,187 2,960,961
- --------------------------------------------------------------------
Term Loan B due 06/30/05 Ba3 4,926,615 4,974,857
- --------------------------------------------------------------------
Term Loan E due 06/30/06 Ba3 1,975,000 2,015,118
- --------------------------------------------------------------------
Sterling Pulp Chemicals
(SASK) Ltd.
Term Loan B due 06/27/05 B1 3,445,572 3,342,205
- --------------------------------------------------------------------
16,726,972
- --------------------------------------------------------------------
CHEMICALS-SPECIALTY-1.71%
Huntsman ICI Chemicals LLC
Term Loan B due 06/30/07 Ba3 3,750,000 3,763,125
- --------------------------------------------------------------------
Term Loan C due 06/30/08 Ba3 3,750,000 3,764,062
- --------------------------------------------------------------------
7,527,187
- --------------------------------------------------------------------
COAL-0.63%
Centennial Resources(c)
Term Loan A due 03/31/02 Caa1 850,000 --
- --------------------------------------------------------------------
Term Loan B due 03/31/04 Caa1 1,966,666 --
- --------------------------------------------------------------------
P&L Coal Holdings
Corp./Peabody
Term Loan B due 06/30/06 Ba2 2,769,231 2,762,307
- --------------------------------------------------------------------
2,762,307
- --------------------------------------------------------------------
COMPUTERS-1.01%
GENICOM Corp.
Term Loan due 09/30/00 NR 360,124 356,522
- --------------------------------------------------------------------
Term Loan B due 09/05/04 NR 4,781,250 4,064,063
- --------------------------------------------------------------------
4,420,585
- --------------------------------------------------------------------
CONSUMER SERVICES-2.69%
Bally Total Fitness Corp.
Term Loan B due 11/04/04 B1 5,000,000 4,968,750
- --------------------------------------------------------------------
Coinmach Corp.
Term Loan B due 06/30/05 NR 6,862,688 6,854,110
- --------------------------------------------------------------------
11,822,860
- --------------------------------------------------------------------
CONTAINERS &
PACKAGING-5.06%
Graham Packaging Co. L.P.
Term Loan B due 01/30/06 B1 2,430,811 2,430,203
- --------------------------------------------------------------------
Term Loan C due 01/30/07 B1 2,014,100 2,007,757
- --------------------------------------------------------------------
Term Loan D due 01/30/07 B1 3,341,250 3,339,162
- --------------------------------------------------------------------
Kerr Group, Inc.
Term Loan B due 03/09/06 NR 2,000,000 2,000,000
- --------------------------------------------------------------------
Packaging Corp. America
Term Loan B due 04/12/07 Ba3 $1,609,504 $ 1,617,954
- --------------------------------------------------------------------
Term Loan C due 04/12/08 Ba3 1,609,504 1,617,954
- --------------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 31
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL MARKET
RATING AMOUNT VALUE
(Unaudited)
<S> <C> <C> <C>
CONTAINERS & PACKAGING-(CONTINUED)
Packaging Dynamics, LLC
Term Loan B due 11/20/05 NR 2,479,792 2,479,792
- --------------------------------------------------------------------
Stone Container Corp.
Term Loan C due 11/15/03 Ba3 6,713,090 6,727,073
- --------------------------------------------------------------------
22,219,895
- --------------------------------------------------------------------
COSMETICS-PERSONAL
CARE-0.54%
American Safety Razor Co.
Term Loan B due 02/05/05 B1 2,375,000 2,376,484
- --------------------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-1.22%
Electro Mechanical
Solutions, Inc.
Term Loan B due 02/28/04 NR 2,868,163 2,581,347
- --------------------------------------------------------------------
Term Loan C due 11/30/04 NR 3,083,286 2,774,958
- --------------------------------------------------------------------
5,356,305
- --------------------------------------------------------------------
FACTORY EQUIPMENT-1.44%
Formax, Inc.
Term Loan B due 09/30/05 NR 6,359,309 6,351,360
- --------------------------------------------------------------------
FINANCIAL INSTITUTION-0.35%
Amresco Inc.
Term Loan B due 08/12/03 Caa1 1,640,903 1,558,858
- --------------------------------------------------------------------
FINANCIAL SERVICES/
DIVERSIFIED-2.55%
Bridge Information Systems,
Inc.
Term Loan B due 05/29/05 NR 4,975,000 4,931,220
- --------------------------------------------------------------------
Sovereign Bancorp, Inc.
Term Loan due 06/30/03 Ba3 6,250,000 6,257,813
- --------------------------------------------------------------------
11,189,033
- --------------------------------------------------------------------
FOOD-0.63%
Aurora Foods Inc.
Term Loan B due 09/30/06 Ba2 997,500 999,994
- --------------------------------------------------------------------
New World Pasta Co.
Term Loan B due 01/31/06 Ba2 1,773,267 1,777,700
- --------------------------------------------------------------------
2,777,694
- --------------------------------------------------------------------
HEALTH CARE PROVIDERS-2.52%
Caremark RX, Inc.
Term Loan B due 06/08/01 B1 968,640 917,787
- --------------------------------------------------------------------
Community Health Systems,
Inc.
Term Loan D due 12/31/05 NR 4,922,678 4,907,294
- --------------------------------------------------------------------
Genesis Health Ventures,
Inc.
Term Loan B due 09/30/04 B2 1,191,410 857,816
- --------------------------------------------------------------------
Term Loan C due 06/30/05 B2 1,188,615 855,803
- --------------------------------------------------------------------
Mariner Post-Acute Network,
Inc.(d)
Term Loan B due 03/31/05 Caa2 2,357,920 1,178,960
- --------------------------------------------------------------------
Term Loan C due 03/31/06 Caa2 2,357,920 1,178,960
- --------------------------------------------------------------------
</TABLE>
<TABLE>
(Unaudited)
<CAPTION>
MOODY'S PRINCIPAL MARKET
RATING AMOUNT VALUE
<S> <C> <C> <C>
HEALTH CARE PROVIDERS-(CONTINUED)
Multicare Companies, Inc.
Term Loan B due 09/30/04 B3 $1,221,875 $ 879,750
- --------------------------------------------------------------------
Term Loan C due 06/01/05 B3 406,250 292,499
- --------------------------------------------------------------------
11,068,869
- --------------------------------------------------------------------
HEAVY CONSTRUCTION-1.19%
Terex Corp.
Term Loan B due 03/06/06 Ba3 1,722,972 1,724,588
- --------------------------------------------------------------------
Term Loan C due 03/06/06 Ba3 3,500,000 3,503,283
- --------------------------------------------------------------------
5,227,871
- --------------------------------------------------------------------
HEAVY MACHINERY-1.36%
United Rentals
Term Loan C due 06/30/06 Ba2 6,000,000 5,989,998
- --------------------------------------------------------------------
HOME FURNISHINGS/
APPLIANCES-0.94%
Rent-A-Center
Term Loan B due 02/05/06 Ba3 1,857,648 1,849,136
- --------------------------------------------------------------------
Term Loan C due 02/05/07 Ba3 2,271,994 2,261,581
- --------------------------------------------------------------------
4,110,717
- --------------------------------------------------------------------
HOUSEHOLD FURNISHINGS-
APPLIANCES-0.96%
Imperial Home Decor Group,
Inc. (The)
Term Loan B due 03/13/05 B1 3,285,652 2,792,804
- --------------------------------------------------------------------
Term Loan C due 03/13/06 B1 1,690,556 1,436,972
- --------------------------------------------------------------------
4,229,776
- --------------------------------------------------------------------
HOUSEHOLD PRODUCTS-2.40%
Boyds Collection, Ltd.
(The)
Term Loan B due 04/01/06 Ba3 1,416,667 1,410,763
- --------------------------------------------------------------------
Paint Sundry Brands Corp.
Term Loan B due 08/11/05 NR 1,698,153 1,664,189
- --------------------------------------------------------------------
Term Loan C due 08/11/06 NR 1,570,750 1,539,336
- --------------------------------------------------------------------
United Industries Co. A252
Loan B due 03/24/06 B1 5,940,000 5,943,712
- --------------------------------------------------------------------
10,558,000
- --------------------------------------------------------------------
INDUSTRIAL & COMMERCIAL
SERVICES-4.20%
Century Maintenance Supply,
Inc.
Term Loan B due 06/30/05 NR 4,925,000 4,851,125
- --------------------------------------------------------------------
Decision One Corp.
Term Loan B due 08/30/04 Caa3 2,947,500 1,621,125
- --------------------------------------------------------------------
Ferrellgas, L.P.
Term Loan C due 06/17/06 NR 7,000,000 6,973,750
- --------------------------------------------------------------------
Synthetic Industries, Inc.
Term Loan B due 12/13/07 B1 5,000,000 5,025,000
- --------------------------------------------------------------------
18,471,000
- --------------------------------------------------------------------
INDUSTRIAL-DIVERSIFIED-1.86%
Goss Graphic Systems, Inc.
Term Loan due 01/29/03 B3 3,000,000 2,430,000
- --------------------------------------------------------------------
Mueller Group, Inc.
Term Loan B due 08/12/06 B1 $ 995,000 $ 997,073
- --------------------------------------------------------------------
Term Loan C due 08/12/07 B1 995,000 997,073
- --------------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 32
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL MARKET
RATING AMOUNT VALUE
(Unaudited)
<S> <C> <C> <C>
INDUSTRIAL-DIVERSIFIED-(CONTINUED)
Thermadyne Holdings Corp.
Term Loan B due 05/22/05 B1 1,975,000 1,861,438
- --------------------------------------------------------------------
Term Loan C due 05/22/06 B1 1,975,000 1,861,437
- --------------------------------------------------------------------
8,147,021
- --------------------------------------------------------------------
INSURANCE COMPANY-0.44%
Willis Corroon Corp.
Term Loan C due 02/05/08 Ba2 970,000 973,031
- --------------------------------------------------------------------
Term Loan D due 08/05/08 Ba2 970,000 973,031
- --------------------------------------------------------------------
1,946,062
- --------------------------------------------------------------------
LODGING-5.47%
Extended Stay America, Inc.
Term Loan B due 12/31/03 Ba3 4,950,000 4,919,063
- --------------------------------------------------------------------
Interval International
Corp.
Term Loan B due 12/16/05 NR 2,087,812 2,077,373
- --------------------------------------------------------------------
Term Loan C due 12/15/06 NR 2,087,812 2,077,373
- --------------------------------------------------------------------
Strategic Hotel Capital
Funding, LLC
Term Loan B due 11/22/04 Ba3 5,000,000 5,000,000
- --------------------------------------------------------------------
Wyndam International, Inc.
Term Loan B due 06/30/06 B1 10,000,000 9,975,000
- --------------------------------------------------------------------
24,048,809
- --------------------------------------------------------------------
MEDIA-BROADCASTING-5.25%
AMFM Operating Inc.
Term Loan A due 11/30/01 Ba1 5,000,000 4,981,250
- --------------------------------------------------------------------
CC Michigan, LLC & CC New
England, LLC
Term Note B due 11/15/08 Ba3 3,200,000 3,200,000
- --------------------------------------------------------------------
Charter Communications
Operating
Term Loan B due 03/18/08 Ba3 5,000,000 5,009,528
- --------------------------------------------------------------------
ComCorp Broadcasting, Inc.
Term Loan B due 06/30/07 NR 2,500,000 2,487,500
- --------------------------------------------------------------------
Mediacom LLC
Term Loan B due 09/30/08 Ba3 2,500,000 2,500,000
- --------------------------------------------------------------------
RCN Corp.
Term Loan due 05/19/07 B1 2,400,000 2,415,000
- --------------------------------------------------------------------
White Knight Broadcasting,
Inc.
Term Loan B due 06/30/07 NR 2,500,000 2,487,500
- --------------------------------------------------------------------
23,080,778
- --------------------------------------------------------------------
MEDIA-PUBLISHING-4.49%
American Media, Inc.
Term Loan B due 05/07/05 Ba3 1,000,000 1,000,000
- --------------------------------------------------------------------
Term Loan B due 05/07/07 Ba3 4,000,000 4,000,000
- --------------------------------------------------------------------
Enterprise Publishing Co.
Term Loan due 06/30/05 NR 4,808,184 4,808,184
- --------------------------------------------------------------------
Hollinger International
Inc.
Term Loan due 12/31/04 Ba1 5,000,000 5,018,750
- --------------------------------------------------------------------
</TABLE>
<TABLE>
(Unaudited)
<CAPTION>
MOODY'S PRINCIPAL MARKET
RATING AMOUNT VALUE
<S> <C> <C> <C>
MEDIA-PUBLISHING-(CONTINUED)
21st Century Newspapers,
Inc.
Term Loan B due 09/15/05 NR $4,912,500 $ 4,900,219
- --------------------------------------------------------------------
19,727,153
- --------------------------------------------------------------------
MEDICAL &
BIOTECHNOLOGY-1.14%
Quest Diagnostics Inc.
Term Loan B due 08/16/06 Ba3 2,600,000 2,606,500
- --------------------------------------------------------------------
Term Loan C due 08/16/07 Ba3 2,400,000 2,406,000
- --------------------------------------------------------------------
5,012,500
- --------------------------------------------------------------------
MEDICAL SUPPLIES-2.08%
Dade Behring, Inc.
Term Loan B due 06/30/06 Ba3 2,487,500 2,491,853
- --------------------------------------------------------------------
Term Loan C due 06/30/07 Ba3 2,487,500 2,491,853
- --------------------------------------------------------------------
Stryker Corp.
Term Loan C due 12/31/06 Ba2 4,146,415 4,158,854
- --------------------------------------------------------------------
9,142,560
- --------------------------------------------------------------------
OFFICE EQUIPMENT-3.71%
Buhrmann N.V.
Term Loan B due 12/28/07 Ba3 5,000,000 5,016,665
- --------------------------------------------------------------------
EMED Co., Inc.
Term Loan B due 03/31/06 NR 3,970,000 3,950,150
- --------------------------------------------------------------------
Identity Group
Term Loan B due 05/07/07 NR 4,987,500 4,981,266
- --------------------------------------------------------------------
20th Century Plastics
Term Loan B due 09/30/05 NR 1,297,401 1,268,209
- --------------------------------------------------------------------
Term Loan C due 09/30/06 NR 1,136,487 1,110,916
- --------------------------------------------------------------------
16,327,206
- --------------------------------------------------------------------
PAPER PRODUCTS-0.57%
Pacifica Papers Inc.
Term Loan B due 03/11/06 Ba2 2,487,500 2,490,609
- --------------------------------------------------------------------
PHARMACEUTICALS-1.53%
Endo Pharmaceuticals, Inc.
Term Loan B due 06/30/04 B1 2,452,381 2,415,595
- --------------------------------------------------------------------
Leiner Health Products
Group, Inc.
Term Loan C due 12/30/05 Ba3 4,406,149 4,318,026
- --------------------------------------------------------------------
6,733,621
- --------------------------------------------------------------------
POLLUTION CONTROL-WASTE
MANAGEMENT-2.83%
Allied Waste Industries,
Inc.
Term Loan B due 09/30/05 Ba3 4,545,454 4,432,765
- --------------------------------------------------------------------
Term Loan C due 09/30/06 Ba3 5,454,546 5,319,316
- --------------------------------------------------------------------
Safety-Kleen Corp
Term Loan B due 04/03/05 Ba3 1,343,182 1,345,700
- --------------------------------------------------------------------
Term Loan C due 04/03/06 Ba3 1,343,182 1,345,700
- --------------------------------------------------------------------
12,443,481
- --------------------------------------------------------------------
REAL ESTATE INVESTMENT
TRUST-2.56%
Pebble Beach Co.
Term Loan B due 07/30/06 B1 1,996,364 2,001,355
- --------------------------------------------------------------------
RCPI Trust
Term Loan due 05/16/00 Ba3 $4,255,319 $ 4,255,319
- --------------------------------------------------------------------
Starwood Hotels & Resorts
Worldwide, Inc.
Term Loan due 02/23/03 Ba1 5,000,000 5,000,000
- --------------------------------------------------------------------
11,256,674
- --------------------------------------------------------------------
</TABLE>
FS-4
<PAGE> 33
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL MARKET
RATING AMOUNT VALUE
(Unaudited)
<S> <C> <C> <C>
RECREATION-ENTERTAINMENT-0.45%
ClubCorp., Inc.
Term Loan B due 03/25/07 Ba3 2,000,000 2,000,000
- --------------------------------------------------------------------
RECREATION-OTHER-0.49%
KSL Recreation Group Inc.
Revolving Credit due
04/30/04 B2 778,776 767,094
- --------------------------------------------------------------------
Term Loan A due 04/30/05 B2 700,000 693,000
- --------------------------------------------------------------------
Term Loan B due 04/30/06 B2 700,000 693,000
- --------------------------------------------------------------------
2,153,094
- --------------------------------------------------------------------
RESTAURANTS-1.09%
AFC Enterprises, Inc.
Term Loan B due 06/30/04 Ba3 4,808,391 4,811,397
- --------------------------------------------------------------------
RETAILERS-DRUG BASED-1.13%
Duane Reade Inc.
Term Loan B due 02/15/03 B1 4,421,250 4,412,960
- --------------------------------------------------------------------
Term Loan C due 02/15/06 B1 555,474 555,474
- --------------------------------------------------------------------
4,968,434
- --------------------------------------------------------------------
RETAILERS-BROADLINE-1.12%
Petco Animal Supplies, Inc.
Term Loan B due 06/18/06 B2 4,987,500 4,943,859
- --------------------------------------------------------------------
SEMICONDUCTOR &
RELATED-2.27%
International Rectifier
Corp.
Term Loan B due 06/30/05 NR 4,977,273 4,964,830
- --------------------------------------------------------------------
Semiconductor Components
Group
Term Loan B due 08/04/06 Ba3 2,407,407 2,407,407
- --------------------------------------------------------------------
Term Loan C due 08/04/07 Ba3 2,592,593 2,592,593
- --------------------------------------------------------------------
9,964,830
- --------------------------------------------------------------------
</TABLE>
<TABLE>
(Unaudited)
<CAPTION>
MOODY'S PRINCIPAL MARKET
RATING AMOUNT VALUE
<S> <C> <C> <C>
SOFTWARE & PROCESSING-0.46%
Merrill Corp.
Term Loan B due 11/15/07 B1 $2,000,000 $ 2,002,500
- --------------------------------------------------------------------
STEEL-0.68%
Neenah Foundry Co.
Term Loan B due 09/30/05 Ba1 3,000,000 2,992,500
- --------------------------------------------------------------------
TELEPHONE SYSTEMS-4.80%
CommNet Cellular Inc.
Term Loan B due 12/31/06 B1 586,380 586,380
- --------------------------------------------------------------------
Term Loan C due 03/31/07 B1 1,161,150 1,161,150
- --------------------------------------------------------------------
Term Loan D due 09/30/07 B1 3,251,743 3,251,743
- --------------------------------------------------------------------
Nextel Communications Inc.
Term Loan B due 06/30/08 Ba2 3,000,000 3,031,608
- --------------------------------------------------------------------
Term Loan C due 12/31/08 Ba2 3,000,000 3,031,608
- --------------------------------------------------------------------
Tritel Holding Corp.
Term Loan B due 03/31/08 B2 5,000,000 5,018,750
- --------------------------------------------------------------------
VoiceStream PCS
Term Loan B due 06/26/07 B2 5,000,000 4,995,835
- --------------------------------------------------------------------
21,077,074
- --------------------------------------------------------------------
TRANSPORTATION
EQUIPMENT-0.23%
Transportation Technologies Ind., Inc.
Term Loan B due 04/21/05 Ba2 997,500 997,500
- --------------------------------------------------------------------
Total Senior Secured
Floating Rate
Interests (Cost
$415,552,838) 405,040,408
- --------------------------------------------------------------------
REPURCHASE AGREEMENT-7.09%(E)
State Street Bank & Trust
Co., 2.50%, 01/03/00
(Cost $31,145,000)(f) 31,145,000 31,145,000
- --------------------------------------------------------------------
TOTAL INVESTMENTS-99.24%
(Cost $446,697,838) 436,185,408
- --------------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.76% 3,337,315
- --------------------------------------------------------------------
NET ASSETS-100% $439,522,723
- --------------------------------------------------------------------
</TABLE>
Abbreviations
NR - Not rated
Notes to Schedule of Investments:
(a)Senior secured corporate loans and senior secured debt securities in the
Fund's portfolio generally have variable rates which adjust to a base, such
as the London Inter-Bank Offered Rate ("LIBOR"), on set dates, typically
every 30 days but not greater than one year; and/or have interest rates that
float at a margin above a widely recognized base lending rate such as the
Prime Rate of a designated U.S. bank. Senior secured floating rate interests
are, at present, not readily marketable and may be subject to restrictions on
resale.
(b)Senior secured floating rate interests often require prepayments from excess
cash flow or permit the borrower to repay at its election. The degree to
which borrowers repay, whether as a contractual requirement or at their
election, cannot be predicted with accuracy. As a result, the actual
remaining maturity may be substantially less than the stated maturities
shown. However, it is anticipated that the senior secured floating rate
interests will have a expected average life of three to five years.
(c)Non-income producing security: Centennial Resources, Inc. filed for
bankruptcy under Chapter 11 on October 13, 1998.
(d)Non-income producing security: Mariner Post-Acute Network, Inc. filed for
bankruptcy under Chapter 11 on January 24, 2000.
(e)Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f)Repurchase agreement entered into 12/31/99 with a maturing value of
$31,151,489. Collateralized by U.S. Government obligations.
See Notes to Financial Statements.
FS-5
<PAGE> 34
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$446,697,838) $436,185,408
- ---------------------------------------------------------
Receivables for:
Fund shares sold 2,345,076
- ---------------------------------------------------------
Interest 3,368,395
- ---------------------------------------------------------
Unamortized organizational costs 98,903
- ---------------------------------------------------------
Other assets 31,443
- ---------------------------------------------------------
Total assets 442,029,225
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Dividend distributions 1,382,154
- ---------------------------------------------------------
Deferred facility fees 355,739
- ---------------------------------------------------------
Due to bank 364,658
- ---------------------------------------------------------
Accrued advisory and administrative fees 284,060
- ---------------------------------------------------------
Accrued accounting services fees 6,186
- ---------------------------------------------------------
Accrued transfer agent fees 21,875
- ---------------------------------------------------------
Accrued operating expenses 91,830
- ---------------------------------------------------------
Total liabilities 2,506,502
- ---------------------------------------------------------
Net assets applicable to shares outstanding $439,522,723
- ---------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE: 45,410,075
- ---------------------------------------------------------
Net asset value and offering price per
share $ 9.68
- ---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $30,228,136
- ---------------------------------------------------------
Facility fees earned 693,434
- ---------------------------------------------------------
Total investment income 30,921,570
- ---------------------------------------------------------
EXPENSES:
Advisory and administrative fees 4,352,734
- ---------------------------------------------------------
Accounting services fees 79,739
- ---------------------------------------------------------
Custodian fees 36,288
- ---------------------------------------------------------
Directors' fees 21,289
- ---------------------------------------------------------
Transfer agent fees 303,644
- ---------------------------------------------------------
Professional fees 407,904
- ---------------------------------------------------------
Other 316,767
- ---------------------------------------------------------
Total expenses 5,518,365
- ---------------------------------------------------------
Less: Expenses paid indirectly (7,557)
- ---------------------------------------------------------
Expense waivers (164,548)
- ---------------------------------------------------------
Net expenses 5,346,260
- ---------------------------------------------------------
Net investment income 25,575,310
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (515,356)
- ---------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (5,999,961)
- ---------------------------------------------------------
Net gain (loss) from investment
securities (6,515,317)
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $19,059,993
- ---------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-6
<PAGE> 35
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 25,575,310 $ 15,638,616
- --------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (515,356) 10,508
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (5,999,961) (4,634,050)
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 19,059,993 11,015,074
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (25,583,506) (15,477,327)
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities (22,939) (150,555)
- --------------------------------------------------------------------------------------------
Share transactions-net 157,995,609 130,989,233
- --------------------------------------------------------------------------------------------
Net increase in net assets 151,449,157 126,376,425
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 288,073,566 161,697,141
- --------------------------------------------------------------------------------------------
End of period $439,522,723 $288,073,566
- --------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $450,409,846 $292,414,237
- --------------------------------------------------------------------------------------------
Undistributed net investment income 153,093 161,289
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (527,786) 10,509
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (10,512,430) (4,512,469)
- --------------------------------------------------------------------------------------------
$439,522,723 $288,073,566
- --------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-7
<PAGE> 36
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash Provided by Operating Activities:
Net increase in net assets resulting from operations...... $ 19,059,993
Increase in receivables................................ (1,101,074)
Increase in payables................................... 68,961
Net realized and unrealized gain on investments........ 6,515,317
Decrease in deferred facility fees..................... (226,563)
Decrease in unamortized organization costs............. 42,473
---------------
Net cash provided by operating activities......... 24,359,107
---------------
Cash Used for Investing Activities:
Proceeds from principal payments and sales of senior
floating rate interests................................ 291,137,103
Purchases of senior secured floating rate interests....... (443,109,767)
Purchases of short-term investments....................... (4,989,462,087)
Proceeds from sales and maturities of short-term
investments............................................ 4,984,600,442
---------------
Net cash used in investing activities............. (156,834,309)
---------------
Cash Provided by Financing Activities:
Proceeds from capital shares sold and reinvested.......... 192,931,473
Disbursements from capital shares repurchased............. (49,481,864)
Dividends paid to shareholders............................ (11,339,821)
Proceeds from bank line of credit......................... --
---------------
Net cash provided by financing activities......... 132,109,788
---------------
Net decrease in cash...................................... (365,414)
Cash at Beginning of Period............................... 756
---------------
Cash at End of Period..................................... $ (364,658)
===============
Non-Cash Financing Activities:
Value of capital shares issued in reinvestment of
dividends paid to shareholders......................... $ 13,669,943
===============
</TABLE>
See notes to financial statements.
FS-8
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Floating Rate Fund, (the "Fund"), is organized as a Maryland corporation
and is registered under the Investment Company Act of 1940, as amended ("1940
Act"), as a continuously offered non-diversified, closed-end management
investment company.
The Fund invests substantially all of its investable assets in Floating Rate
Portfolio (the "Portfolio"). The Portfolio is organized as a Delaware business
trust which is registered under the 1940 Act as non-diversified, closed-end
management investment company.
The Portfolio has investment objectives, policies and limitations
substantially identical to those of the Fund. Therefore, the financial
statements of the Fund and Portfolio have been presented on a consolidated
basis, and represent all activities of both the Fund and Portfolio. Through
December 31, 1999, all of the shares of beneficial interest of the Portfolio
were owned by either the Fund or INVESCO, Inc., which has a nominal ($100)
investment in the Portfolio.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund and the Portfolio in the preparation of their financial statements.
A. Portfolio Valuation -- The Portfolio invests primarily in senior secured
corporate loans ("Corporate Loans") and senior secured debt securities
("Corporate Debt Securities") that meet credit standards established by
INVESCO Senior Secured Management, Inc., (the "Sub-advisor"). When
possible, A I M Advisors, Inc. ("AIM") or the Sub-advisor will rely on
quotations provided by banks, dealers or pricing services with respect to
Corporate Loans and Corporate Debt Securities. Whenever it is not possible
to obtain such quotes, the Sub-advisor, subject to guidelines reviewed by
the Portfolio's Board of Trustees, values the Corporate Loans and Corporate
Debt Securities at fair value, which approximates market value. In valuing
a Corporate Loan or Corporate Debt Security, the Sub-advisor considers,
among other factors, (1) the credit worthiness of the U.S. or non-U.S.
Company borrowing or issuing Corporate Debt Securities and any intermediate
loan participants, (2) the current interest rate, period until next
interest rate reset and maturity of the Corporate Loan or Corporate Debt
Security, (3) recent prices in the market for instruments of similar
quality, rate, and period until next interest rate reset and maturity.
B. Securities Transactions and Investment Income -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded as earned from settlement date and is
recorded on the accrual basis. Facility fees received are recognized as
income over the expected life of the loan.
C. Distributions -- Distributions from income are recorded on ex-dividend
date, and are declared daily and paid monthly. Distributions from net
realized capital gains, if any, are generally paid annually and recorded on
ex-dividend date.
D. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward of $525,269 as of December 31, 1999 which may be carried
forward to offset future taxable gains, if any, which expires in varying
increments, if not previously utilized, in the year 2007.
E. Intermediate Participants -- The Portfolio invests in Corporate Loans from
U.S. or non-U.S. companies (the "Borrowers"). The investment of the
Portfolio in a Corporate Loan may take the form of participation interests
or assignments. If the Portfolio purchases a participation interest from a
syndicate of lenders ("Lenders") or one of the participants in the
syndicate ("Participant"), one or more of which administers the loan on
behalf of all the Lenders (the "Agent Bank"), the Portfolio would be
required to rely on the Lender that sold the participation interest not
only for the enforcement of the Portfolio's rights against the Borrower but
also for the receipt and processing of payments due to the Portfolio under
the Corporate Loans. As such, the Portfolio is subject to the credit risk
of the Borrower and a Participant. Lenders and Participants interposed
between the Portfolio and a Borrower, together with Agent Banks, are
referred to as "Intermediate Participants".
F. Securities Purchased on a When-Issued and Delayed Delivery Basis -- The
Portfolio may purchase and sell interests in Corporate Loans and Corporate
Debt Securities and other portfolio securities on a when-issued and delayed
delivery basis, with payment and delivery scheduled for a future date. No
income accrues to the Portfolio on such interests or securities in
connection with such transactions prior to the date the Portfolio actually
takes delivery of such interests or securities. These transactions are
subject to market fluctuations and are subject to the risk that the value
at delivery may be more or less than the trade date purchase price.
Although the Portfolio will generally purchase these securities with the
intention of
FS-9
<PAGE> 38
acquiring such securities, they may sell such securities
before the settlement date.
G. Deferred Organizational Expenses -- Expenses incurred by the Fund or
Portfolio in connection with its organization aggregated $212,350. These
expenses are being amortized on a straight-line basis over a five-year
period.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A I M Advisors, Inc. ("AIM") is the Fund's and the Portfolio's investment
manager and administrator. The Fund pays AIM administration fees at an
annualized rate of 0.25% of the Fund's average daily net assets. The Portfolio
pays AIM investment management and administration fees at an annual rate of
0.95% of the Portfolio's average daily net assets. AIM has contractually agreed
to limit the 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 Fund. During the year ended December 31, 1999,
AIM waived fees of $164,548.
Effective July 1, 1999, the Trust entered into a master administrative
services agreement with AIM, replacing the prior pricing and accounting
agreement. The Fund, pursuant to the master administrative services agreement
with AIM, has agreed to pay AIM for certain administrative costs incurred in
providing accounting services to the Fund and the Portfolio. Prior to July 1,
1999, AIM was the pricing and accounting agent for the Fund and the Portfolio.
The monthly fee for these services paid to AIM was a percentage, not to exceed
0.03% annually, of a Fund's average daily net assets. The annual fee rate was
derived based on the aggregate net assets of the funds which comprised the
following investment companies: AIM Growth Series, AIM Investment Funds, AIM
Series Trust, G.T. Global Variable Investment Series and G.T. Global Variable
Investment Trust. The fee was calculated at the rate of 0.03% of the first $5
billion of assets and 0.02% to the assets in excess of $5 billion. An amount is
allocated to and paid by each such fund based on its relative average daily net
assets. For the year ended December 31, 1999, AIM was paid $79,739 for such
services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. For the year ended December 31, 1999, AFS was
paid $243,528 for such services.
A I M Distributors, Inc. ("AIM Distributors") serves as the Fund's
distributor. AIM Distributors did not receive any commissions from sales of
shares of the Fund during the year ended December 31, 1999. During the year
ended December 31, 1999, AIM Distributors received $854,327 in early withdrawal
charges imposed on redemptions of Fund shares.
Certain officers and trustees of the Trust are officers and directors of AIM,
AFS and AIM Distributors.
NOTE 3-INDIRECT EXPENSES
During the year ended December 31, 1999, the Fund received reductions in
custodian fees of $7,557 under an expense offset arrangement. The effect of the
above arrangement resulted in a reduction of the Fund's total expenses of $7,557
during the year ended December 31, 1999.
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $1,000,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. During the year
ended December 31, 1999, the Fund did not borrow under the line of credit
agreement. The funds which are party to the line of credit are charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee is allocated among the funds based on their respective average
net assets for the period. Prior to May 28, 1999, the Fund, along with certain
other funds advised and/or administered by AIM, had a line of credit with
BankBoston and State Street Bank & Trust Company. The arrangements with the
banks allowed the Fund and certain other funds to borrow, on a first come, first
served basis, an aggregate maximum amount of $250,000,000.
NOTE 5-TENDER OFFER
The Fund's Board of Directors considers each quarter the making of Tender
offers which are offers to repurchase all or a portion of its shares of Common
Stock from stockholders at a price per share equal to the net asset value per
share of the Fund's Common Stock determined at the close of business on the day
an offer terminates. Shares of Common Stock held less than four years and which
are repurchased by the Fund pursuant to Tender Offers will be subject to an
early withdrawal charge of up to 3% of the lesser of the then current net asset
value or the original purchase price of the Common Stock being tendered.
NOTE 6-UNFUNDED LOAN COMMITMENTS
As of December 31, 1999, the Fund had unfunded loan commitments of $4,006,720,
which could be extended at the option of the borrower, pursuant to the following
loan agreements:
<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENTS
- ------------------------------------- --------------------
<S> <C>
KSL Recreation Group, Inc. $3,262,040
- -----------------------------------------------------------
RCPI Trust 744,680
- -----------------------------------------------------------
$4,006,720
- -----------------------------------------------------------
</TABLE>
FS-10
<PAGE> 39
NOTE 7-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Portfolio during the year ended December
31, 1999 was $443,100,779 and $291,106,955, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
for tax purposes, as of December 31, 1999 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 983,098
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (11,495,528)
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities $(10,512,430)
- --------------------------------------------------------------------------
Investments have the same cost for tax and financial statement purposes.
</TABLE>
NOTE 8-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold: 19,803,989 $193,807,530 16,339,303 $162,694,934
- -------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends: 1,398,875 13,669,943 741,971 7,380,819
- -------------------------------------------------------------------------------------------------------------------
Reacquired: (5,067,050) (49,481,864) (3,940,550) (39,086,520)
- -------------------------------------------------------------------------------------------------------------------
16,135,814 $157,995,609 13,140,724 $130,989,233
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
FS-11
<PAGE> 40
NOTE 9-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Capital Stock
outstanding during each of the years in the two-year period ended December 31,
1999 and the period May 1, 1997 (date operations commenced) through December 31,
1997.
<TABLE>
<CAPTION>
1999(A) 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.84 $ 10.02 $ 10.00
- ------------------------------------------------------------ -------- -------- --------
Income from investment operations:
Net investment income 0.69 0.68 0.46
- ------------------------------------------------------------ -------- -------- --------
Net realized and unrealized gain (loss) on investments (0.16) (0.18) 0.02
- ------------------------------------------------------------ -------- -------- --------
Net increase (decrease) from investment operations 0.53 0.50 0.48
- ------------------------------------------------------------ -------- -------- --------
Distributions to shareholders:
- ------------------------------------------------------------ -------- -------- --------
From net investment income (0.69) (0.67) (0.46)
- ------------------------------------------------------------ -------- -------- --------
From net realized gains -- (0.01) --
- ------------------------------------------------------------ -------- -------- --------
Total distributions (0.69) (0.68) (0.46)
- ------------------------------------------------------------ -------- -------- --------
Net asset value, end of period $ 9.68 $ 9.84 $ 10.02
- ------------------------------------------------------------ -------- -------- --------
Total return(b) 5.49% 5.25% 5.04%
- ------------------------------------------------------------ -------- -------- --------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $439,523 $288,074 $161,697
- ------------------------------------------------------------ -------- -------- --------
Ratio of net investment income to average net assets:
With fee waivers 7.02%(c) 6.88% 7.26%(d)
- ------------------------------------------------------------ -------- -------- --------
Without fee waivers 6.97%(c) 6.75% 6.24%(d)
- ------------------------------------------------------------ -------- -------- --------
Ratio of expenses to average net assets excluding interest
expense:
With fee waivers 1.47%(c) 1.50% 1.50%(d)
- ------------------------------------------------------------ -------- -------- --------
Without fee waivers 1.52%(c) 1.63% 2.52%(d)
- ------------------------------------------------------------ -------- -------- --------
Ratio of interest expense to average net assets (Note 4) NA 0.01% 0.15%(d)
- ------------------------------------------------------------ -------- -------- --------
Portfolio turnover rate 81% 75% 118%
- ------------------------------------------------------------ -------- -------- --------
</TABLE>
(a) Calculated using average shares outstanding.
(b) Does not include withdrawal charges and is not annualized for periods less
than one year.
(c) Ratios are based on average net assets of $364,173,935.
(d) Annualized.
NOTE 10-SUBSEQUENT EVENT
On December 9, 1999, the Board of Directors of the Fund approved a
restructuring of the Fund (the "Restructuring") and recommended that it be
submitted to the Fund's shareholders for their approval. The Restructuring would
include reorganizing the Fund as a Delaware business trust and eliminating the
current "master/feeder" investment structure. The Restructuring would also allow
the Fund to offer multiple classes of shares with different distribution plans
and would commit the Fund to making repurchase offers each quarter, thereby
assuring shareholders of at least partial liquidity for their shares. It is
anticipated that the Restructuring proposal will be submitted to Fund
shareholders in February, 2000, and, if approved, that the Restructuring would
be completed by March, 2000.
FS-12
<PAGE> 41
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark--
Investment Manager
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Sub-Advisor
INVESCO Senior Secured Management, Inc.
1166 Avenue of the Americas
New York, NY 10036
Sub-Sub-Advisor
INVESCO, Inc.
1166 Avenue of the Americas
New York, NY 10036
Principal Underwriter
A I M Distributors, Inc.
P.O. Box 4739
Houston, TX 77210-4739
Transfer Agent
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
For more complete information about funds in The AIM Family of Funds--Registered
Trademark--, including charges and expenses, please call your financial
consultant and request a free prospectus. Please read the prospectus carefully
before you invest or send money.
FLR-PRO-1
