<PAGE> 1
As filed with the Securities and Exchange Commission on December 29, 1995
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. ____ Post-effective Amendment No. ____
(Check appropriate box or boxes)
AIM EQUITY FUNDS, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza
Suite 1919
Houston, TX 77046
----------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
CAROL F. RELIHAN, ESQUIRE MARTHA J. HAYS, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll
11 Greenway Plaza 1735 Market Street, 51st Floor
Suite 1919 Philadelphia, PA 19103
Houston, TX 77046
CONRAD A. GOODKIND, ESQUIRE
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
Registrant hereby elects to register an indefinite number of shares under
the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company
Act of 1940, and as a result no filing fee is due. The Rule 24f-2 Notice was
filed by Registrant on December 22, 1995.
It is proposed that this filing will become effective on January 29, 1996
pursuant to Rule 488.
<PAGE> 2
AIM EQUITY FUNDS, INC.
Cross Reference Sheet
Pursuant to Rule 481(a) under the Securities Act of 1933
<TABLE>
<CAPTION>
LOCATION IN COMBINED PROXY
FORM N-14 ITEM NO. STATEMENT AND PROSPECTUS
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PART A
Item 1. Beginning of Registration Statement and Cover page of Registration Statement; Front
Outside Front Cover Page of Prospectus Cover Page of Prospectus
Item 2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
Item 3. Synopsis and Risk Factors Synopsis; Risk Factors
Item 4. Information About the Transaction Reasons for the Transaction; Synopsis;
Additional Information About the Agreement;
Capitalization
Item 5. Information About the Registrant Front Cover Page of Prospectus; Synopsis;
Risk Factors; Comparison of Investment
Objectives and Policies; Additional
Information about AIM Blue Chip; Information
Filed with the Securities and Exchange
Commission
Item 6. Information About the Company Being Front Cover Page of Prospectus; Synopsis;
Acquired Risk Factors; Comparison of Investment
Objectives and Policies; Information Filed
with the Securities and Exchange Commission;
Additional Information About Baird Blue Chip
Item 7. Voting Information Prospectus Cover Page; Notice of Special
Meeting of Shareholders; Introduction;
Ownership of AIM Blue Chip and Baird Blue
Chip Shares
Item 8. Interest of Certain Persons and Experts Not Applicable
Item 9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
</TABLE>
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<TABLE>
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PART B
Item 10. Cover Page Cover Page of Statement of Additional
Information
Item 11. Table of Contents Table of Contents
Item 12. Additional Information about the Entire Statement of Additional Information
Registrant
Item 13. Additional Information about the Company Not Applicable
Being Acquired
Item 14. Financial Statements Financial Information; Selected Baird Blue
Chip Per Share Data and Ratios;
Incorporation of documents by reference in
the Statement of Additional Information;
Incorporation of documents by reference in
Part C; Statement of Additional Information
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this document.
<PAGE> 4
BAIRD BLUE CHIP FUND, INC.
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 15, 1996
TO THE SHAREHOLDERS OF BAIRD BLUE CHIP FUND, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Baird Blue Chip Fund, Inc. ("Baird Blue Chip"), will be held at The University
Club, 924 East Wells Street, Milwaukee, WI 53202 on March 15, 1996, at 10:00
a.m., local time, for the following purposes:
1. To approve an Agreement and Plan of Reorganization (the
"Agreement") between Baird Blue Chip and AIM Equity Funds, Inc. ("AEF") and the
consummation of the transactions contemplated therein (the "Transaction").
Pursuant to the Agreement, substantially all of the assets of Baird Blue Chip
will be transferred to AIM Blue Chip Fund ("AIM Blue Chip"), a newly created
portfolio of AEF. Upon such transfer, AEF will issue shares of AIM Blue Chip
directly to the shareholders of Baird Blue Chip. Shareholders of Baird Blue
Chip will receive shares of AIM Blue Chip with an aggregate net asset value
equal to the aggregate net value of Baird Blue Chip assets transferred in
connection with the Transaction. It is expected that the value of each
shareholder's account with AIM Blue Chip immediately after the Transaction will
be the same as the value of such shareholder's account with Baird Blue Chip
immediately prior to the Transaction.
2. To transact any other business, not currently contemplated,
that may properly come before the Special Meeting, in the discretion of the
proxies or their substitutes.
The Transaction has been structured as a tax-free reorganization.
No sales charge will be imposed in connection with the Transaction. The
Transaction is described in the attached Combined Proxy Statement and
Prospectus.
Shareholders of record as of the close of business on January 25,
1996, are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
To assist Baird Blue Chip in making suitable arrangements at the
Special Meeting, shareholders planning to attend the Special Meeting in person
are requested to notify Baird Blue Chip by calling (414) 765-3500.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE THE ACCOMPANYING PROXY WHICH IS BEING SOLICITED BY THE
MANAGEMENT OF BAIRD BLUE CHIP. THIS IS IMPORTANT FOR THE PURPOSE OF ENSURING A
QUORUM AT THE SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY
ARE EXERCISED BY THE SUBSEQUENT EXECUTION AND SUBMISSION OF A REVISED PROXY, BY
GIVING WRITTEN NOTICE OF REVOCATION TO BAIRD BLUE CHIP AT ANY TIME BEFORE THE
PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
Glen F. Hackmann
Secretary
February 2, 1996
<PAGE> 5
BAIRD BLUE CHIP FUND, INC. AIM BLUE CHIP FUND
(A PORTFOLIO OF AIM EQUITY FUNDS, INC.)
COMBINED PROXY STATEMENT AND PROSPECTUS
DATED: FEBRUARY 2, 1996
This document is being furnished in connection with the Special
Meeting of Shareholders of Baird Blue Chip Fund, Inc. ("Baird Blue Chip"), to
be held on March 15, 1996 (the "Special Meeting"). At the Special Meeting, the
shareholders of Baird Blue Chip are being asked to consider and approve a
proposed Agreement and Plan of Reorganization (the "Agreement") between Baird
Blue Chip and AIM Equity Funds, Inc. ("AEF") and the consummation of the
transactions contemplated therein (the "Transaction"). THE BOARD OF DIRECTORS
OF BAIRD BLUE CHIP HAS UNANIMOUSLY APPROVED THE AGREEMENT AND TRANSACTION AS
BEING FAIR TO, AND IN THE BEST INTERESTS OF, BAIRD BLUE CHIP SHAREHOLDERS.
Pursuant to the Agreement, substantially all of the assets of Baird
Blue Chip will be transferred to AIM Blue Chip Fund ("AIM Blue Chip"), a newly
created portfolio of AEF. Upon such transfer, AEF will issue shares of AIM
Blue Chip directly to shareholders of Baird Blue Chip. Shareholders of
Baird Blue Chip will receive shares of AIM Blue Chip with an aggregate net
asset value equal to the aggregate net value of Baird Blue Chip assets
transferred in connection with the Transaction. As soon as reasonably
practicable after the closing of the transaction, Baird Blue Chip will pay or
make provision for payment of all its liabilities and dissolve its corporate
existence. Any assets held by Baird Blue Chip after the Transaction that are
not used to discharge debts of Baird Blue Chip will be distributed to its
shareholders, although none is expected. It is expected that the value of each
shareholder's account with AIM Blue Chip immediately after the Transaction will
be the same as the value of such shareholder's account with Baird Blue Chip
immediately prior to the Transaction.
The Transaction has been structured as a tax-free reorganization.
No sales charge will be imposed in connection with the Transaction.
AIM BLUE CHIP IS A DIVERSIFIED SERIES PORTFOLIO OF AEF, AN OPEN-
END, SERIES MANAGEMENT INVESTMENT COMPANY. THE INVESTMENT OBJECTIVE OF AIM
BLUE CHIP IS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL, WITH CURRENT INCOME AS A
SECONDARY OBJECTIVE. AIM BLUE CHIP WILL INVEST PRIMARILY IN COMMON STOCKS,
BONDS, AND CONVERTIBLE PREFERRED STOCKS AND BONDS OF BLUE CHIP COMPANIES
(I.E., COMPANIES WHICH ARE MARKET LEADERS AND TYPICALLY HAVE STRONG FINANCIAL
FUNDAMENTALS). AIM BLUE CHIP HAS INVESTMENT OBJECTIVES SIMILAR TO THOSE OF
BAIRD BLUE CHIP, ALTHOUGH THEIR INVESTMENT POLICIES AND RESTRICTIONS DIFFER.
SEE "COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES" BELOW.
The principal executive offices of Baird Blue Chip are located at
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 (telephone (414)
765-3500). The principal executive offices of AEF are located at 11 Greenway
Plaza, Suite 1919, Houston, Texas 77046 (telephone: (713) 626-1919 in Houston,
(800) 347-4246 elsewhere).
This Combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus") sets forth concisely the information that a shareholder
of Baird Blue Chip should know before voting on the Agreement. It should be
read and retained for future reference.
The current Prospectus of Baird Blue Chip, dated January 31, 1995
is on file with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference herein. A statement of additional
information of AIM Blue Chip dated February 2, 1996 ("Statement of Additional
Information") has been filed with the SEC and is incorporated by reference
herein. Such Baird Blue Chip prospectus and the Statement of Additional
Information are available without charge by writing to AEF at 11 Greenway
Plaza, Suite 1919, Houston, Texas 77046 or by calling (713) 626-1919 in
Houston or (800) 347-4246 elsewhere.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
REASONS FOR THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Background and Reasons for the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Approval by, and Recommendation of, Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Comparison of AIM Blue Chip and Baird Blue Chip . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Investment Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Additional Investment Policies of AIM Blue Chip . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ADDITIONAL INFORMATION ABOUT AIM BLUE CHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Management of AIM Blue Chip . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Portfolio Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Custodial and Transfer Agency Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Portfolio Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Shares of AEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Shareholder Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ADDITIONAL INFORMATION ABOUT THE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Terms of the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Federal Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Election of Directors and Annual Shareholder Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Terms of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Vacancies of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Shareholder Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Liability of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Supermajority Voting Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Amendment to Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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<TABLE>
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OWNERSHIP OF AIM BLUE CHIP AND BAIRD BLUE CHIP SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ADDITIONAL INFORMATION ABOUT BAIRD BLUE CHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SELECTED BAIRD BLUE CHIP PER SHARE DATA AND RATIOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Baird's Discussion of Baird Blue Chip Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
The AIM Family of Funds, The AIM Family of Funds and Design (i.e., the AIM
logo), AIM and Design, AIM, AIM LINK and AIM Institutional Funds are registered
service marks of A I M Management Group Inc.
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<PAGE> 8
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by Baird Blue Chip's Board of Directors from the
shareholders of Baird Blue Chip for use at the Special Meeting of Shareholders
to be held at The University Club, 924 East Wells Street, Milwaukee,
Wisconsin, 53202 on March 15, 1996, at 10:00 a.m., local time (such meeting and
any adjournment thereof are referred to as the "Special Meeting").
Baird Blue Chip has engaged the services of Shareholder
Communications Corporation ("SCC") to assist it in the solicitation of proxies
for the Special Meeting. Baird Blue Chip expects to solicit proxies
principally by mail, but Baird Blue Chip or SCC may also solicit proxies by
telephone, facsimile, telegraph or personal interview. Baird Blue Chip's
officers will not receive any additional or special compensation for any such
solicitation. Although Baird Blue Chip and AIM Blue Chip will bear their
respective costs and expenses incurred in connection with the Transaction,
Robert W. Baird & Co. Incorporated ("Baird"), the investment adviser of Baird
Blue Chip, has agreed with Baird Blue Chip that all costs, fees and expenses
incurred in connection with the Transaction in excess of $10,000 (aggregated
among all other mutual funds advised by Baird ("Baird Mutual Funds") involved
in transactions similar to the Transaction) which are reasonable and of a type
normally incurred in transactions of this nature will be borne by Baird. A I M
Advisors, Inc. ("AIM"), the investment adviser of AIM Blue Chip, has agreed to
pay Baird one-half of those expenses, and all of such expenses in excess of
$120,000.
All properly executed and unrevoked proxies received in time for
the Special Meeting will be voted in accordance with the instructions contained
therein; if no instructions are given, shares represented by proxies will be
voted FOR the proposal to approve the Agreement and in accordance with
management's recommendation on other matters. The presence in person or by
proxy of a majority of the outstanding shares of Baird Blue Chip at the Special
Meeting will constitute a quorum ("Quorum"). Approval of the Agreement
requires the affirmative vote of a majority of the outstanding shares of Baird
Blue Chip. Abstentions and broker non-votes will be counted as shares present
at the Special Meeting for quorum purposes and will have the effect of counting
as a vote against the applicable proposal. Any person giving a proxy has the
power to revoke it at any time prior to its exercise by executing a superseding
proxy or by submitting a notice of revocation to the Secretary of Baird Blue
Chip. In addition, although mere attendance at the Special Meeting will not
revoke a proxy, a shareholder present at the Special Meeting may withdraw his
proxy and vote in person. Shareholders may also transact any other business,
not currently contemplated, that may properly come before the Special Meeting,
in the discretion of the proxies or their substitutes.
In the event that sufficient votes in favor of the proposal to
approve the Agreement are not received by the scheduled time of the Special
Meeting, the persons named as proxies in the enclosed proxy may propose and
vote in favor of one or more adjournments of the Special Meeting to permit
further solicitation of proxies without the necessity of further notice. Any
such adjournment will require the affirmative vote of a majority of the shares
represented at the Special Meeting to be adjourned. Proxies cast for approval
of the Agreement will be voted for adjournment, and proxies cast against
approval of the Agreement or abstaining on the matter will be voted against
adjournment.
Shareholders of record as of the close of business on January 25,
1996 (the "Record Date"), are entitled to vote at the Special Meeting. On the
Record Date, there were outstanding ___________ shares of Baird Blue Chip.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
Baird Blue Chip intends to mail this Proxy Statement/Prospectus and
the accompanying proxy on or about February 2, 1996.
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REASONS FOR THE TRANSACTION
BACKGROUND AND REASONS FOR THE TRANSACTION
Baird has indicated its desire not to continue to serve as
investment advisor and distributor of Baird Blue Chip and two other Baird
mutual funds, and has agreed to remain in such capacities until suitable
replacements are secured. Baird has concluded, and the Board of Directors
agrees, that the interests of shareholders of Baird Blue Chip, many of whom are
brokerage clients of Baird, would be well-served if Baird Blue Chip were part
of a large, growing mutual fund complex managed by a reputable advisor with an
extensive distribution network and competitive costs. Baird believes, and the
Board of Directors agrees, that association with a large fund complex could
enable Baird Blue Chip to achieve larger and wider distribution of shares,
potentially resulting in economies of scale which to date have not been
achieved by Baird Blue Chip. Association with a large fund complex could also
facilitate the ability of the shareholders of Baird Blue Chip to invest in a
variety of other funds within the complex and offer the shareholders quality
services at a competitive cost.
Management of Baird and Baird Blue Chip, at the direction of the
Board of Directors, reviewed and analyzed information relating to several
mutual fund complexes, including their advisors, numbers and types of funds
offered in the complexes and their performance, their sales loads and expenses,
distribution capabilities, and shareholder services.
Baird Blue Chip received proposals from several mutual fund
complexes and investment management firms, including AIM. Baird also received
separate proposals for the purchase of Baird's records, account information and
goodwill applicable to its advisory relationship to the Baird Mutual Funds.
Following its review of the proposals, management of Baird Blue Chip (each of
whom is an interested person of Baird) recommended AIM's proposal to the Board
of Directors for approval.
APPROVAL BY, AND RECOMMENDATION OF, BOARD OF DIRECTORS
The Board of Directors of Baird Blue Chip considered and
unanimously approved the Agreement and Transaction, subject to shareholder
approval, during meetings held on December 11 and 20, 1995. The Board believes
the proposed Transaction offers shareholders the following benefits, among
others: the strong reputation and performance of AIM; the full complement of
investment objectives in The AIM Family of Funds(R); and the distribution
network and capacity of A I M Distributors, Inc. ("AIM Distributors").
In determining to recommend approval to the shareholders, the Board
of Directors of Baird Blue Chip reviewed and requested information about AIM
and the Transaction, met with certain members of AIM senior management
(including two of its founders, the director of investments, a vice president
responsible for supervising AIM's equity portfolio management and its general
counsel), consulted with legal counsel, made inquiries and considered the
following factors, among others:
(i) the intention of Baird to step down as Baird Blue
Chip's investment advisor and distributor;
(ii) the reputation, experience, investment philosophy,
performance, personnel, resources and financial
condition of AIM;
2
<PAGE> 10
(iii) a comparison of the investment objectives, policies,
strategies and restrictions of Baird Blue Chip and
AIM Blue Chip;
(iv) the quality, scope and cost of the advisory services
to be provided by AIM, and a comparison of such
attributes to those of other advisors of comparable
mutual funds;
(v) the distribution performance, resources and
capabilities of AIM Distributors and the economies of
scale which potentially may be achieved through
larger and wider distribution of shares of AIM Blue
Chip;
(vi) the distribution fees and expenses to be paid by AIM
Blue Chip and the services to be received for such
fees and expenses, together with a comparison of such
attributes to Baird Blue Chip and other comparable
mutual funds;
(vii) the various other services (including administrative,
accounting, custodial, transfer agency and legal
services) provided to AIM Blue Chip and the
associated costs of such services, including a
comparison of such attributes to Baird Blue Chip and
other comparable mutual funds;
(viii) a comparison of the current and pro forma expense
ratios for Baird Blue Chip and AIM Blue Chip,
together with a comparison of expense ratios for
other comparable mutual funds, and consideration of
AIM's agreement to waive certain fees or reimburse
AIM Blue Chip as necessary to assure that AIM Blue
Chip's total operating expenses as a percentage of
average net assets for the next two years will not be
greater than Baird Blue Chip's expense ratio for its
fiscal year ended September 30, 1995;
(ix) the number and variety of other mutual funds within
The AIM Family of Funds(R), and the ability of Baird
Blue Chip shareholders to exchange shares of AIM Blue
Chip into shares of other funds in The AIM Family of
Funds(R) without a sales load;
(x) the terms and conditions of the Agreement and the
Transaction, including the structure of the
Transaction as a tax-free reorganization and the fact
that no sales charge will be imposed in connection
with the Transaction; and
(xi) such other factors deemed relevant by the Board.
Baird and AIM have entered into an Acquisition Agreement dated
December 20, 1995 (the "Acquisition Agreement") pursuant to which Baird will
transfer to AIM all of its files, books and records relating to Baird's
provision of investment advisory services to Baird Blue Chip and certain other
Baird Mutual Funds and all goodwill applicable to Baird's role as investment
adviser to the Baird Mutual Funds. The purchase price to be paid by AIM
pursuant to the Acquisition Agreement is $3,600,000, $3,000,000 of which is
payable on the closing date for the Acquisition Agreement and $600,000 of which
is payable on the 60th day after the first anniversary of the closing date.
The second payment is subject to upward adjustment in the amount of any damages
owed by AIM to Baird under the Acquisition Agreement as of the payment date and
to downward adjustment in the amount of any damages owed by Baird to AIM under
the Acquisition Agreement as of the payment date together with the amount of
any adjustment to the value of the goodwill acquired by AIM. The goodwill
adjustment takes into account, among other
3
<PAGE> 11
things, (i) the number of shares of mutual funds advised by AIM ("AIM Funds")
that were issued in connection with reorganization transactions of the Baird
Mutual Funds (including the Transaction) which remain outstanding on such first
anniversary date and (ii) the number of shares of the AIM Funds involved in the
reorganization transactions involving the Baird Mutual Funds that were issued
after the reorganization transactions as to which Baird and certain other
persons who may become party to a selling agreement with AIM Distributors
after December 28, 1995 are listed as agent of record and which remain
outstanding on such first anniversary date. Consummation of the transaction
described in the Acquisition Agreement is contingent upon, among other things,
approval of the Transaction by Baird Blue Chip shareholders and approval of the
reorganization of other Baird Mutual Funds by the shareholders of such other
Baird Mutual Funds.
The Board of Directors also considered whether the Transaction is
consistent with the requirements of Section 15(f) of the Investment Company Act
of 1940, as amended (the "1940 Act"). Section 15(f) of the 1940 Act provides,
in substance, that when a sale of an interest in an investment adviser occurs,
the investment adviser or any of its affiliated persons may receive any amount
or benefit in connection with the transaction so long as two conditions are
satisfied.
The first is that 75% of the Board of Directors not be "interested
persons" of the proposed or predecessor investment adviser for the three-year
period immediately following the transaction. The Board of Directors of AEF
will have seven out of nine members who are not interested persons of AIM or
Baird. In addition, the Baird Blue Chip directors are not and are not
expected to become interested persons of AIM.
A second condition of Section 15(f) is that no "unfair burden" be
imposed on the investment company as a result of the transactions relating to
the sale of such interest or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden," as defined in the
1940 Act, includes, but is not limited to, any arrangement during the two-year
period following the transaction whereby the fund's investment adviser or any
interested person of such adviser receives or is entitled to receive any
compensation, directly or indirectly: (i) from any person in connection with
the purchase of or sale of securities or other property to, from, or on behalf
of such company, other than bona fide ordinary compensation as principal
underwriter for such company, or (ii) from such company or its security holders
for other than bona fide investment advisory or other services.
Based on its review of the terms of the Transaction, including the
provisions of the Agreement and the Acquisition Agreement between AIM and
Baird, the Board of Directors is not aware of any express or implied term,
condition, arrangement or understanding which would impose an "unfair burden"
on AIM Blue Chip or Baird Blue Chip as a result of the Transaction.
The Board of Directors of Baird Blue Chip concluded that the
Agreement and the Transaction are fair to, and in the best interests of, Baird
Blue Chip shareholders. Accordingly, the Board of Directors, including all of
the directors who are not interested persons of Baird or AIM, unanimously
approved the Agreement and the Transaction, and recommends to the shareholders
of Baird Blue Chip that they vote FOR the Agreement and the Transaction.
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<PAGE> 12
SYNOPSIS
THE TRANSACTION
The Agreement and the Transaction described therein will result in
the combination of Baird Blue Chip with AIM Blue Chip, a newly created
portfolio of AEF, a Maryland corporation. In the event shareholders approve
the Agreement and other closing conditions are satisfied, Baird Blue Chip will
transfer substantially all of its portfolio securities and other assets to AIM
Blue Chip. In exchange, shareholders of Baird Blue Chip will receive shares of
AIM Blue Chip with an aggregate net asset value equal to the aggregate net
asset value of the Baird Blue Chip assets transferred in connection with the
reorganization as determined using AEF's valuation methodology. It is expected
that the value of each shareholder's account with AIM Blue Chip immediately
after the Transaction will be the same as the value of such shareholder's
account with Baird Blue Chip immediately prior to the Transaction.
Shareholders will pay no sales charges in connection with the Transaction.
Promptly after the Closing, Baird Blue Chip will take steps to pay any
outstanding liabilities and dissolve its corporate existence. Any assets held
by Baird Blue Chip after the Transaction that are not used to discharge debts
of Baird Blue Chip will be distributed to its shareholders as a dividend,
although none is expected. A copy of the Agreement is attached as Appendix I
to this Proxy Statement/Prospectus. See "Additional Information About the
Agreement -- Transfer of Assets."
Baird Blue Chip is to receive an opinion of Ballard Spahr Andrews &
Ingersoll to the effect that the Transaction will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not
have to pay Federal income taxes as a result of the Transaction. See
"Additional Information about the Agreement -- Federal Tax Consequences."
AIM Blue Chip is a diversified investment portfolio of AEF, an
open-end series management investment company registered under the 1940 Act.
The principal offices of AEF are located at 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046 (telephone: (713) 626-1919 in Houston, (800) 347-4246
elsewhere). AIM Blue Chip was created initially for the purpose of acquiring
the investment portfolio of Baird Blue Chip, and currently has only nominal
assets.
COMPARISON OF AIM BLUE CHIP AND BAIRD BLUE CHIP
Discussed below is a brief comparison of the principal features of
AIM Blue Chip and Baird Blue Chip.
Investment Objective and Policies
The investment objectives of AIM Blue Chip and Baird Blue Chip are
similar, although their investment policies and restrictions differ. The
investment objective of AIM Blue Chip is to provide long-term growth of capital,
with current income being a secondary objective. AIM Blue Chip seeks to
achieve its objective by investing in common stocks, bonds, and convertible
preferred stocks and bonds of Blue Chip companies (which AIM defines as
companies which possess leading market characteristics and typically certain
financial characteristics). While current income is a secondary objective, most
of the stocks in AIM Blue Chip's portfolio are expected to pay dividends. The
primary investment objective of Baird Blue Chip is long-term growth of capital
and income, with current income being a secondary objective. Baird Blue Chip
seeks to achieve its investment objectives by investing in dividend-paying Blue
Chip common stocks (which Baird defines as companies rated at least A+, A or A-
by Standard & Poor's Corporation ("S&P")). See "Comparison of Investment
Objectives and Policies" below. AIM believes that its definition of Blue Chip
companies will permit AIM Blue Chip to invest in a greater number of companies
which are market leaders and have strong financial fundamentals than is
currently permitted under Baird Blue Chip's definition of Blue Chip companies.
By investing in a greater number of companies, AIM Blue Chip hopes to increase
portfolio diversification.
5
<PAGE> 13
In order to increase total return by taking greater advantage of
market opportunities, as well as for hedging purposes, AIM Blue Chip will engage
to a greater extent in a number of investment practices which are not currently
used by Baird Blue Chip. Such practices include investments in foreign
securities, covered put and call options, stock index futures and related
options, short sales against the box, fully collateralized securities lending,
purchases of warrants, investment in joint trading accounts, purchases of Rule
144A securities, and investments in other investment companies. See " Risk
Factors" and "Comparison of Investment Objectives and Policies" below.
Risk Factors
The investment practices of AIM Blue Chip described above may result in
risks which are different than those currently associated with the investment
practices of Baird Blue Chip. For a more detailed discussion of AIM Blue Chip's
investment practices, see "Risk Factors" and "Comparison of Investment
Objectives and Policies" below.
Advisory and Administrative Services
AIM Blue Chip
AIM serves as the investment advisor to AIM Blue Chip pursuant to a
Master Advisory Agreement dated October 18, 1993, as amended (the "Master
Advisory Agreement"). AIM was organized in 1976, and advises or manages 40
investment company portfolios, including AIM Blue Chip and the 23 portfolios
which comprise "The AIM Family of Funds(R)" listed in the attached Investor's
Guide to The AIM Family of Funds(R) ("The AIM Family of Funds(R)"). As of
November 30, 1995, the total assets of the investment company portfolios
advised or managed by AIM and its affiliates were approximately $41.1 billion.
AIM is a wholly-owned subsidiary of A I M Management Group Inc. ("AIM
Management").
As compensation for its services, AIM is entitled to receive an
investment advisory fee in an amount equal to 0.75% of the first $350,000,000
of AIM Blue Chip's average daily net assets and 0.625% of the average daily net
assets over $350,000,000. The total advisory fee paid by AIM Blue Chip is
higher than those paid by many other investment companies of all sizes and
investment objectives.
AEF has entered into a Master Administrative Services Agreement
dated as of October 18, 1993, as amended, with AIM, pursuant to which AIM has
agreed to provide or arrange for the provision of certain accounting and other
administrative services to AEF, including the services of a principal financial
officer and related staff. In consideration of AIM's services under the Master
Administrative Services Agreements, AIM Blue Chip will reimburse AIM for
expenses incurred by AIM or its affiliates in connection with such services.
Under a Transfer Agency and Service Agreement, as amended, A I M Fund Services,
Inc. ("AFS"), AIM's wholly-owned subsidiary and a registered transfer agent,
receives a fee for its provision of transfer agency, dividend distribution and
disbursement, and shareholder services to AEF.
AIM has agreed to waive certain fees or reimburse AIM Blue Chip as
necessary to ensure that AIM Blue Chip's total operating expenses as a
percentage of average net assets for the next two years will not be greater
than Baird Blue Chip's expense ratio of 1.31% for its fiscal year ended
September 30, 1995. Such waivers and reimbursements will have the effect of
increasing AIM Blue Chip's yield to investors.
Baird Blue Chip
Baird, through its Investment Management Services Group, serves as
investment advisor to Baird Blue Chip. Baird supervises and manages the
investment portfolio of Baird Blue Chip and subject to such policies as its
Board of Directors may determine, directs the purchase and sale of investment
securities in the day-to-day management of Baird Blue Chip. Under the Baird
Advisory Agreement, Baird receives a monthly fee of 1/12 of 0.74% (0.74% per
annum) of the daily net assets of Baird Blue Chip.
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<PAGE> 14
Baird Blue Chip has entered into an administration agreement with
Fiduciary Management, Inc. ("FMI") pursuant to which FMI supervises all aspects
of Baird Blue Chip's operations, except those performed by Baird. FMI prepares
and maintains the books, accounts and other documents required by the 1940 Act,
determines Baird Blue Chip's net asset value, responds to shareholder inquires,
prepares financial statements and excise tax returns, prepares reports and
filings with the Securities and Exchange Commission (the "SEC"), furnishes
statistical and research data, clerical, accounting and bookkeeping services
and stationery and office supplies, keeps and maintains Baird Blue Chip's
financial accounts and records and generally assists in all aspects of
operations other than portfolio decisions. FMI, at its own expense and without
reimbursement from Baird Blue Chip, furnishes office space and all necessary
office facilities, equipment and executive personnel for supervising Baird Blue
Chip's operations. For the foregoing, FMI receives from Baird Blue Chip a
monthly fee of 1/12 of 0.1% (0.1% per annum) on the first $30,000,000 of Baird
Blue Chip's daily net assets and 1/12 of 0.05% (0.05% per annum) on the daily
net assets over $30,000,000.
Distribution
AIM Blue Chip
AIM Blue Chip's shares will be distributed through AIM's nationwide
distribution network which consists of more than 2,200 broker-dealers and
financial and other institutions located throughout the United States. It is
expected that the broader distribution arrangements will benefit AIM Blue Chip
by increasing the size of AIM Blue Chip with attendant lower expense ratios and
greater potential for diversification as compared with Baird Blue Chip. AIM
Distributors, a registered broker-dealer and a wholly-owned subsidiary of AIM,
acts as the distributor of the shares of AIM Blue Chip. AEF has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act under which AEF may compensate AIM
Distributors an aggregate amount of 0.35% of the average daily net assets of AIM
Blue Chip on an annualized basis for the purpose of financing any activity that
is intended to result in the sale of shares of AIM Blue Chip.
Baird Blue Chip
Baird acts as distributor of Baird Blue Chip pursuant to a
Distribution Assistance Agreement with Baird Blue Chip. Substantially all of
the shares of Baird Blue Chip have been sold through Baird to its clients and
customers. Baird Blue Chip has adopted a Distribution Plan (the "Baird Blue
Chip Plan") pursuant to Rule 12b-1 under the 1940 Act. The Baird Blue Chip
Plan provides that Baird Blue Chip shall pay Baird from its assets a
distribution fee calculated as the lesser of (a) 0.45% per year of Baird Blue
Chip's average daily net assets, or (b) Baird's total costs incurred during the
year for distribution of Baird Blue Chip's shares. Amounts paid under the
Baird Blue Chip Plan may be spent by Baird on any activities or expenses
primarily intended to result in the sale of shares.
Expense Levels
Set forth below are the expenses a shareholder would incur in
purchasing shares of AIM Blue Chip and Baird Blue Chip. No sales charges are
applicable to the Transaction.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
AIM Baird
Blue Blue
Chip Chip
---- ----
<S> <C> <C>
Maximum sales load imposed on purchase
of shares (as a % of the offering price) . . . . . . 5.50% 5.75%
</TABLE>
7
<PAGE> 15
The rules of the SEC require that the maximum sales charge be
reflected in the table even though certain investors may qualify for reduced
sales charges. See the attached Investors Guide to The AIM Family of Funds(R)
and the Baird Blue Chip prospectus for more information on sales charges.
Neither fund charges redemption fees or exchange fees; however, a $5 service
fee will be charged for exchanges of AIM Blue Chip by accounts of market
timers. Broker-dealers may charge a service fee for redemptions or repurchases
of Baird Blue Chip or AIM Blue Chip effected through them. Purchases of $1
million or more of either fund are at net asset value. See the discussion
"Sales Charges" below and the attached Investors Guide to The AIM Family of
Funds(R) for more information about the deferred sales charge applicable to
certain redemptions of such purchases. Reinvestment of dividends of both AIM
Blue Chip and Baird Blue Chip are exempt from sales loads.
Set forth below is a comparison of annual operating expenses as a
percentage of net assets ("Expense Ratio") for AIM Blue Chip and for Baird Blue
Chip.
ANNUAL OPERATING EXPENSES (AS A % OF NET ASSETS) (AFTER FEE WAIVERS OR EXPENSE
REIMBURSEMENTS, IF ANY)
<TABLE>
<CAPTION>
AIM Baird
Blue Blue
Chip1 Chip2
---- ----
<S> <C> <C>
Management fees3 0.68% 0.74%
Rule 12b-1 distribution plan payments 0.35 0.27
Administration fees 0.05 0.07
All other expenses 0.23 0.23
---- ----
Total fund operating expenses 1.31% 1.31%
==== ====
</TABLE>
- - -------------------------------------
1 Expenses are estimates based upon the assumption that the value of the
assets acquired by AIM Blue Chip upon consummation of the Transaction
is the same as the net asset value of Baird Blue Chip at September 30,
1995.
2 Information presented for Baird Blue Chip is for fiscal year ended
9/30/95.
3 AIM has agreed to waive management fees for two years to the extent
necessary to keep the annual expense ratio at 1.31% for such period.
Without such waiver, "Management fees" would be 0.75%.
As a result of 12b-1 distribution plan payments, a long-term
shareholder of either AIM Blue Chip or Baird Blue Chip may pay more than the
economic equivalent of the maximum front-end sales charges permitted by rules
of the National Association of Securities Dealers, Inc. ("NASD"), although it
is estimated that it would require a substantial number of years to exceed such
maximum charges.
Sales Charges
AIM Blue Chip
No sales charges are applicable to the Transaction.
Shares of AIM Blue Chip may be purchased at their net asset
value plus an initial sales charge. The sales charge represents a percentage
of the offering price, and ranges from 5.50% to 2.00% of the offering
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<PAGE> 16
price on purchases of under $1,000,000. AIM Blue Chip's sales charge is lower
than Baird Blue Chip's sales charge for purchases of less than $50,000, but
higher for purchases between $50,000 and $500,000.
Certain categories of AIM Blue Chip shareholders may purchase
shares of funds in The AIM Family of Funds(R) at net asset value without the
imposition of a sales charge. In addition, purchases of shares of AIM Blue
Chip of $1 million or more may be made at net asset value, subject to a
contingent deferred sales charge ("CDSC") of 1% of the lesser of the value of
the shares redeemed (excluding reinvested dividends and capital gain
distributions) or the total cost of such shares if the shares are redeemed
prior to 18 months from the date of purchase. For more information, see the
attached Investor's Guide to The AIM Family of Funds(R).
Baird Blue Chip
Shares of Baird Blue Chip may be purchased at their net asset
value plus an initial sales charge. The sales charge represents a percentage
of the offering price. The sales charge for shares of Baird Blue Chip, ranges
from 2.00% to 5.75% of the offering price on purchases of under $1,000,000.
Baird Blue Chip imposes a 1% CDSC (but no initial sales load) in the event of a
redemption occurring within 12 months of a purchase of shares of Baird Blue
Chip (i) of $1,000,000 and over, (ii) by an investment advisory client of
Baird, or (iii) with the proceeds of a redemption of shares of an unrelated
mutual fund. For more information, see the Baird Blue Chip prospectus.
Shares of AIM Blue Chip received in connection with the
Transaction which correspond to shares of Baird Blue Chip purchased in an
amount of $1,000,000 or over and subject to the 12 month CDSC period continue
to be subject to a CDSC for the remainder of such period.
Baird Blue Chip also permits certain categories of investors
to purchase shares of the Baird Mutual Funds at net asset value without the
imposition of a sales charge. Some of these categories differ from the
categories of shareholders who may purchase shares of The AIM Family of
Funds(R) at net asset value. As a result, certain shareholders of Baird Blue
Chip who are presently permitted to purchase shares of the Baird Mutual Funds
at net asset value without the imposition of a sales charge, including
investment advisory clients of Baird, may be subject to sales charges upon the
purchase of funds in The AIM Family of Funds(R). See the Investors Guide to
The AIM Family of Funds(R).
Minimum Purchases
AIM Blue Chip
The minimum initial investment in AIM Blue Chip is $500.
Lower minimums apply to investments made by certain retirement plans and
accounts. There are no such minimum investment requirements for investment of
dividends and distributions of any of the funds in The AIM Family of Funds(R).
See the attached Investor's Guide to The AIM Family of Funds(R).
Baird Blue Chip
Baird Blue Chip has established $1,000 as the minimum initial
purchase and $100 as the minimum for any subsequent purchase, with certain
exceptions as set forth in the Baird Blue Chip prospectus.
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<PAGE> 17
Exchanges
AIM Blue Chip
AIM Blue Chip is a part of The AIM Family of Funds(R) which
consists of 23 portfolios, including a variety of debt and equity portfolios,
taxable and tax-free portfolios, domestic and international portfolios, and
money market funds. AIM Blue Chip shareholders generally may exchange their
AIM Blue Chip shares for Class A shares of any of the other funds in The AIM
Family of Funds(R). Exchanges may be made by mail or, subject to certain
conditions, by telephone. AIM Blue Chip shareholders may exchange their shares
for Class A shares of other funds in The AIM Family of Funds(R) at net asset
value (without payment of a sales charge).
There is no fee for exchanges among funds in The AIM Family of
Funds(R). A service fee of $5 per transaction will, however, be charged by AIM
Distributors on accounts of market timing investment firms to help to defray
the costs of maintaining an automated exchange service. This service fee will
be charged against the market timing account from which shares are being
exchanged. For more information, consult the attached Investor's Guide to The
AIM Family of Funds(R).
Baird Blue Chip
Shareholders of each of the four Baird Mutual Funds (including
Baird Blue Chip) may redeem all or a portion of their shares having a net asset
value of at least $1,000 and use the proceeds to purchase shares of any of the
other Baird Mutual Funds, if such shares are offered in the shareholder's state
of residence. Both the redemption and purchase of shares will be effected at
the respective net asset values of the Baird Mutual Funds. For more
information, see the Baird Blue Chip prospectus.
Redemption Procedures
AIM Blue Chip
Shares of AIM Blue Chip may be redeemed directly through AIM
Distributors or through any dealer who has entered into an agreement with AIM
Distributors. AIM Distributors also repurchases shares. There is no
redemption fee imposed when shares of AIM Blue Chip are redeemed or
repurchased; however, dealers may charge service fees for handling repurchase
transactions. Upon receipt of a redemption request in proper form, payment
will be made as soon as practicable, but in any event within seven days after
receipt.
Shares of AIM Blue Chip will be issued at the time of the
Transaction to shareholders of Baird Blue Chip. Such AIM Blue Chip shares will
be issued in book entry form, and will accrue dividends and confer all other
shareholder rights. However, AIM Blue Chip shareholders who held their
corresponding Baird Blue Chip shares in certificated form may not redeem or
exchange their AIM Blue Chip shares and may not receive AIM Blue Chip
certificates (if they so requested) until such Baird Blue Chip certificates
have been physically surrendered to AIM.
Shares of AIM Blue Chip are redeemed at their net asset value
next computed after a request for redemption in proper form is received by
either AFS or AIM Distributors, except that AIM Blue Chip shares subject to the
CDSC program applicable to purchases of $1,000,000 or more may be subject to the
application of deferred sales charges that will be deducted from the redemption
proceeds. See the attached Investors Guide to The AIM Family of Funds(R).
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<PAGE> 18
Baird Blue Chip
A shareholder may require any of the Baird Mutual Funds to
redeem the shareholder's shares in whole or part at any time. Redemption
requests must be made in writing and directed to Baird Mutual Funds, c/o Firstar
Trust Company. The redemption price is the net asset value next determined
after receipt by Firstar Trust Company in its capacity as transfer agent of the
written request in proper form with all required documentation. A CDSC is
imposed upon the redemption of shares initially purchased without a sales charge
because the purchase was (i) $1,000,000 or more with respect to shares of Baird
Blue Chip, (ii) by an investment advisory client (or affiliate of an investment
advisory client) of Baird, or (iii) with the proceeds of a redemption of shares
of an unrelated mutual fund. The CDSC is imposed in the event of a redemption
transaction occurring within 12 months following such a purchase. This CDSC is
equal to 1% of the lesser of the net asset value of such shares at the time of
purchase or at the time of redemption. For more information see the Baird Blue
Chip prospectus.
RISK FACTORS
The policies followed by AIM in selecting investments for AIM
Blue Chip are different than those followed by Baird in selecting investments
for Baird Blue Chip. Baird Blue Chip invests primarily in common stocks rated
A+, A or A- by S&P, whereas AIM Blue Chip may invest in securities which,
although meeting AIM's definition of Blue Chip, have no ratings or lower
ratings. Securities without ratings may be of comparable quality to the rated
securities in which Baird Blue Chip invests or may be of lower quality.
Lower-rated equity securities may exhibit greater price volatility, which would
be reflected in greater volatility of AIM Blue Chip's net asset value. Lower-
rated equity securities may also pay smaller dividends, or pay them less
frequently, resulting in reduced income for AIM Blue Chip. AIM Blue Chip
believes, however, that its definition of Blue Chip companies will permit it to
invest in a greater number of different companies which are market leaders and
have strong financial fundamentals than is currently permitted under Baird Blue
Chip's definition of Blue Chip companies. By investing in a greater number of
different companies, AIM Blue Chip hopes to reduce risk through increased
portfolio diversification. The investment limitations applicable to Baird Blue
Chip are more restrictive than those applicable to AIM Blue Chip, and fewer of
the investment limitations applicable to AIM Blue Chip are fundamental policies
of AIM Blue Chip, meaning they can be changed by the board of directors of AIM
Blue Chip without shareholder approval. Additionally, AIM Blue Chip may invest
to a greater extent in foreign securities than Baird Blue Chip, and may employ
investment strategies and techniques, such as the purchase of put options or
sale of covered call options, that are not permitted for Baird Blue Chip.
Those investment strategies and techniques may present both greater
opportunities for return and greater risk of loss of value for shareholders.
For these reasons, an investment in AIM Blue Chip may present greater risks
than an investment in Baird Blue Chip. See "Comparison of Investment
Objectives and Policies."
The following is a description of risks associated with
certain permitted investments of AIM Blue Chip which are in addition to the
risks associated with permitted investments of Baird Blue Chip.
FOREIGN SECURITIES. AIM Blue Chip may invest up to 25% of its total assets in
foreign securities, including American Depositary Receipts ("ADRs") and
European Depositary Receipts ("EDRs"). Foreign securities include securities
issued and sold primarily outside the United States. Investments by AIM Blue
Chip in foreign securities, whether denominated in U.S. currency or foreign
currencies, may entail all of the risks set forth below. Investments in ADRs,
EDRs or similar securities also may entail some or all of the risks as set
forth below.
Currency Risk. The value of AIM Blue Chip's foreign
investments will be affected by changes in currency exchange rates. The U.S.
dollar value of a foreign security decreases when the value of the U.S. dollar
rises against the foreign currency in which the security is denominated, and
increases when the value of the U.S. dollar falls against such currency.
11
<PAGE> 19
Political and Economic Risk. The economies of many of the
countries in which AIM Blue Chip may invest are not as developed as the United
States economy and may be subject to significantly different forces. Political
or social instability, expropriation or confiscatory taxation, and limitations
on the removal of funds or other assets could also adversely affect the value
of AIM Blue Chip's investments.
Regulatory Risk. Foreign companies are not registered with
the SEC and are generally not subject to the regulatory controls imposed on
United States issuers and, as a consequence, there is generally less publicly
available information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities owned
by AIM Blue Chip may be reduced by a withholding tax at the source, which tax
would reduce dividend income payable to AIM Blue Chip's shareholders.
Market Risk. The securities markets in many of the countries
in which AIM Blue Chip may invest will have substantially less trading volume
that the major United States markets. As a result, the securities of some
foreign companies may be less liquid and experience more price volatility than
comparable domestic securities. Increased custodian costs as well as
administrative costs (such as the need to use foreign custodians) may be
associated with the maintenance of assets in foreign jurisdictions. There is
generally less government regulation and supervision of foreign stock
exchanges, brokers and issuers which may make it difficult to enforce
contractual obligations. In addition, transaction costs in foreign securities
markets are likely to be higher, since brokerage commission rates in foreign
countries are likely to be higher than in the United States. See "Comparison
of Investment Objectives and Policies -- Investment Policies of AIM Blue
Chip."
COVERED PUT AND CALL OPTION CONTRACTS. AIM Blue Chip
may engage in transactions in covered put and call options comprising no more
than 25% of the value of its net assets. Options are subject to certain risks,
including the risk of imperfect correlation between the option and AIM Blue
Chip's other investments and the risk that there might not be a liquid
secondary market for the option when AIM Blue Chip seeks to hedge against
adverse market movements. In general, options whose strike prices are close to
their underlying securities' current values will have the highest trading
value, while options whose strike prices are further away may be less liquid.
The liquidity of options may also be affected if options exchanges impose
trading halts, particularly when markets are volatile. See "Comparison of
Investment Objectives and Policies -- Investment Policies of AIM Blue
Chip."
SHORT SELLING AGAINST THE BOX. Although it has no
present intention of doing so, AIM Blue Chip may engage in short sales against
the box. AIM Blue Chip may not pledge more than 10% of its net assets as
collateral for such short sales. Since short selling can result in profits
when stock prices generally decline, AIM Blue Chip in this manner can, to a
certain extent, hedge the market risk to the value of its other investments and
protect its equity in a declining market. However, AIM Blue Chip could, at any
given time, suffer both a loss on the purchase or retention of one security, if
that security should decline in value, and a loss on a short sale of another
security, if the security sold short should increase in value. When a short
position is closed out, it may result in a short term capital gain or loss for
federal income tax purposes. Moreover, to the extent that in a generally
rising market AIM Blue Chip maintains short positions in securities rising with
the market, the net asset value of AIM Blue Chip would be expected to increase
to a lesser extent than the net asset value of an investment company that does
not engage in short sales.
ILLIQUID SECURITIES. AIM Blue Chip may invest up to
15% of its net assets in illiquid securities. Illiquid securities include
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the
"1933 Act"), securities which are not otherwise readily marketable and
repurchase agreements having a maturity longer than seven days. Mutual funds
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability
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<PAGE> 20
of portfolio securities and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days.
A mutual fund might also have to register such restricted securities in order
to dispose of them resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities. See "Comparison
of Investment Objectives and Policies -- Additional Information about AIM Blue
Chip."
RULE 144A SECURITIES. AIM Blue Chip may purchase
Rule 144A securities without regard to the limitation on investments in
illiquid securities described above under "Illiquid Securities," provided that
a determination is made that such securities have a readily available trading
market. This Rule permits certain qualified institutional buyers, such as AIM
Blue Chip, to trade in privately placed securities even though such securities
are not registered under the 1933 Act. Investing in Rule 144A securities could
have the effect of increasing the amount of AIM Blue Chip's investments in
illiquid securities if qualified institutional buyers are unwilling to purchase
such securities. See "Comparison of Investment Objectives and Policies --
Additional Information about AIM Blue Chip."
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The primary investment objective of AIM Blue Chip is to
provide long-term growth of capital. Current income is a secondary objective.
It is anticipated that the major portion of AIM Blue Chip's portfolio will
ordinarily be invested in common stocks, bonds, and convertible preferred
stocks and bonds of Blue Chip companies (i.e., companies with leading market
positions and strong financial fundamentals).
The primary investment objective of Baird Blue Chip is
long-term growth of capital and income. Current income is a secondary
objective. The major portion of Baird Blue Chip's portfolio is ordinarily
invested in dividend paying common stocks rated A+, A or A- by S&P.
INVESTMENT POLICIES
The investment objectives of AIM Blue Chip and Baird Blue Chip
are similar, although their investment policies and restrictions differ. The
primary investment objective of AIM Blue Chip is long-term growth of capital.
The primary investment objective of Baird Blue Chip is long-term growth of
capital and income. Current income is a secondary objective for both funds.
Both funds ordinarily invest the major portion of their portfolio in dividend-
paying common stocks.
AIM Blue Chip
AIM Blue Chip's investment objective is to provide long-term
growth of capital. While current income is a secondary objective, most of the
stocks in AIM Blue Chip's portfolio are expected to pay dividends.
AIM Blue Chip will invest primarily (at least 65% of its total
assets) in the common stocks of Blue Chip companies as determined by AIM.
These companies will have the potential for above-average growth in earnings
and be well established in their respective industries. AIM Blue Chip will
generally invest in large and medium sized Blue Chip companies which possess
some or all of the following characteristics:
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o Market Characteristics
Blue Chip companies often occupy leading market
positions that are expected to be maintained or
enhanced over time. Strong market positions,
particularly in growing industries, can give a
company pricing flexibility as well as the potential
for strong unit sales. These factors can in turn lead
to higher earnings growth and greater share price
appreciation. Market leaders can be identified
within an industry as those companies which have:
- superior growth prospects compared with other
companies in the same industry;
- possession of proprietary technology with the
potential to bring about major changes within
an industry; and/or
- leading sales within an industry, or the
potential to become a market leader.
o Financial Characteristics
Blue Chip companies will often possess some or all of
the following attributes:
- faster earnings growth than competitors and
the market in general;
- higher profit margins relative to
competitors;
- strong cash flow; and/or
- a balance sheet with relatively low debt, and
a relatively high return on equity with a
relatively low dividend payout ratio.
AIM Blue Chip will diversify among industry sectors by
investing no more than 25% of its assets in one industry sector. Under normal
market conditions, AIM Blue Chip's portfolio will be broadly diversified among
industry sectors similar to the industry diversification of broad market
indices.
When AIM believes securities other than common stocks offer
opportunity for long-term growth of capital and income, AIM Blue Chip may
invest in United States government securities, publicly distributed corporate
bonds and debentures and convertible preferred stocks and debt securities. AIM
Blue Chip will only purchase debt securities (other than convertible debt
securities) which are rated as "Investment Grade" by either S&P or Moody's
Investors Services, Inc. ("Moody's"). Debt Securities in the lowest investment
grade debt category (e.g., rated BBB by S&P or Baa by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. AIM Blue Chip may invest in
United States government securities and corporate bonds and debentures when AIM
believes interest rates on such investments may decline thereby potentially
increasing the market value of the United States government securities and
corporate bonds and debentures purchased by AIM Blue Chip or to meet the
additional investment objective of producing current income. AIM Blue Chip
will limit its investments in convertible securities to those in which the
underlying common stock is a suitable investment for AIM Blue Chip. Under
normal market conditions, AIM Blue Chip expects at all times to have at least
80% of its total assets invested in securities which AIM believes offers
opportunity for long-term growth of capital and income.
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Baird Blue Chip
Baird Blue Chip purchases common stocks of issuers which Baird
believes to have superior fundamental characteristics, which may include:
o an experienced and tested management
o a superior and pragmatic growth strategy
o leadership positions in their market
o proprietary products, processes or services
o an above-average record of dividend consistency and growth
o a strong balance sheet
In determining that the above characteristics are present with
respect to specific investments, Baird generally will study the financial
statements of the issuing corporations and other companies in the same
industry, the issuing corporation's reports to shareholders and analysts, and
general economic and industry reports of brokers. In determining whether an
issuer has an above-average record of dividend consistency and growth, Baird
will generally compare the dividend record of the issuer in question with the
dividend record of similarly sized issuers over a period of time which it
believes covers the full peak-to-peak range of a business cycle. Under normal
circumstances, Baird Blue Chip will have at least 65% of its total assets
invested in common stocks rated A+ or A or A- by S&P. Baird considers common
stocks so rated to be "blue chip" stocks. Up to 10% of Baird Blue Chip's
portfolio of common stocks may be unrated or rated below B+ by S&P.
The investment philosophy employed by Baird seeks to avoid
strategies which pursue aggressive growth through short-term investment
techniques or high-risk speculation. Substantial emphasis is placed on the
fundamental investment quality (i.e., the earnings, dividends and operations of
an issuer) of the securities purchased. Baird Blue Chip will be diversified
among securities issued by different companies and will not be concentrated in
any single industry. Since current income is only a secondary objective of
Baird Blue Chip, its shares may not be an appropriate investment for investors
needing current income.
When Baird believes securities other than common stocks offer
opportunity for long-term growth of capital and income, Baird Blue Chip may
invest in United States government securities, publicly distributed corporate
bonds and debentures and convertible preferred stocks and debt securities.
Baird will limit its investments in non-convertible corporate bonds and
debentures to those which have been assigned one of the highest three ratings
of either S&P or Moody's. Baird Blue Chip will invest in United States
government securities and corporate bonds and debentures when Baird believes
interest rates on such investments may decline thereby potentially increasing
the market value of the United States government securities and corporate bonds
and debentures purchased by Baird Blue Chip or to meet the additional
investment objective of producing current income. Baird Blue Chip will limit
its investments in convertible securities to those which have been assigned one
of the highest three ratings of S&P or Moody's and in which the underlying
common stock is a suitable investment for Baird Blue Chip. Under normal market
conditions, Baird Blue Chip expects at all times to have at least 80% of its
total assets invested in securities which Baird believes offers opportunity for
long-term growth of capital and income.
INVESTMENT RESTRICTIONS
Set forth below are certain investment restrictions of AIM
Blue Chip and Baird Blue Chip. Several of the investment limitations of AIM
Blue Chip and Baird Blue Chip are substantially the same. Unless otherwise
noted, the following investment restrictions are fundamental policies.
Fundamental policies may not be changed without the approval of a majority of
such fund's outstanding shares, as defined in the 1940 Act. Certain
fundamental policies of Baird Blue Chip are non-fundamental or less restrictive
in AIM Blue Chip, however, to provide AIM Blue Chip with greater flexibility in
responding to market conditions or events without the added expense and delay
involved in a shareholders' meeting. Such flexibility may expose AIM Blue Chip
to risks to which Baird Blue Chip is not otherwise exposed. In addition, unless
otherwise noted, AIM Blue Chip may, from
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<PAGE> 23
time to time in order to qualify its shares for sale in a particular state,
agree to investment restrictions in addition to or more stringent than those
set forth below. Such restrictions are not fundamental and may be changed
without the approval of shareholders.
The following chart summarizes the differences between the
investment restrictions of AIM Blue Chip and Baird Blue Chip:
<TABLE>
<S> <C> <C>
Investment Restriction AIM Blue Chip Baird Blue Chip
---------------------- ------------- ---------------
Puts, Calls, Straddles, AIM Blue Chip may not write, Baird Blue Chip will not sell
Spreads, Commodities and purchase, or sell puts, calls, securities short, or write or invest
Short Selling straddles, spreads or combinations in put or call options. Baird Blue
thereof (other than covered put and Chip will not purchase or sell
call options), or sell securities commodities or commodities contracts.
short (except against the box
collateralized by not more than 10%
of its net assets) or deal in
commodities, (except that it may
engage in transactions in financial
futures).
Illiquid Securities AIM Blue Chip may not invest more Repurchase agreements maturing in
than 15% of its net assets in more than seven days plus all other
illiquid securities, including illiquid securities will not exceed
repurchase agreements with maturities 10% of Baird Blue Chip's total
in excess of seven days. This is not assets.
a fundamental policy.
Borrowing AIM Blue Chip may not borrow money or Baird Blue Chip will not borrow money
pledge its assets except that, as a or issue senior securities, except
temporary measure for extraordinary for temporary bank borrowings (not in
or emergency purposes and not for excess of 5% of the value of its
investment purposes, it may borrow assets) for emergency or
from banks (including its custodian extraordinary purposes, and will not
bank) amounts of up to 10% of the pledge any of its assets except to
value of its total assets, and may secure borrowings and only to an
pledge amounts of up to 20% of its extent not greater than 10% of the
total assets to secure such value of its net assets.
borrowings.
Purchase of Securities AIM Blue Chip may not purchase Baird Blue Chip will not purchase
on Margin securities on margin, except that it warrants or securities on margin.
may obtain such short-term credits as
may be necessary for the clearance of
purchases or sales of securities, or
sell securities short, (except
against the box collateralized by not
more than 10% of its net assets).
</TABLE>
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<PAGE> 24
<TABLE>
<S> <C> <C>
Investment Restriction AIM Blue Chip Baird Blue Chip
---------------------- ------------- ---------------
Loans AIM Blue Chip may not make loans, Baird Blue Chip will not lend money
except that the purchase of a portion (except by purchasing publicly
of an issue of publicly distributed distributed debt securities and other
bonds, debentures or other debt than entering into repurchase
securities, or purchasing short-term agreements) and will not lend its
obligations, is not considered to be portfolio securities.
a loan for purposes of this
restriction, provided that AIM Blue
Chip may lend its portfolio
securities provided the value of such
loaned securities does not exceed
one-third of its total assets. AIM
Blue Chip will comply with Texas Rule
123.2(6) and follow SEC guidelines
that provide that loans of its
securities will be fully
collateralized.
Warrants AIM Blue Chip may not purchase Baird Blue Chip will not purchase
warrants, valued at the lower of cost warrants on margin.
or market, in excess of 5% of the
value of its net assets, and no more
than 2% of its net assets may be
invested in warrants which are not
listed on the New York or American
Stock Exchanges. This is not a
fundamental policy.
Securities of Single With respect to 75% of its total Baird Blue Chip will not purchase
Issuer assets, AIM Blue Chip may not invest securities of any issuer (other than
more than 5% of its total assets in the United States or an
securities of any one issuer (other instrumentality of the United States)
than obligations of the U.S. if, as a result of such purchase, it
Government and its would hold more than 10% of any class
instrumentalities), or purchase more of securities, including voting
than 10% of the outstanding securities, of such issuer or more
securities of any one issuer or more than 5% of Baird Blue Chip's assets,
than 10% of any class of securities taken at current value, would be
of an issuer. These are not invested in securities of such
fundamental policies, although any issuer.
change in investment policies which
would cause AIM Blue Chip to become a
non-diversified portfolio would
require shareholder approval.
Forward Contracts AIM Blue Chip may not deal in forward No corresponding restriction.
contracts. This is not a fundamental
policy.
</TABLE>
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<PAGE> 25
<TABLE>
<S> <C> <C>
Investment Restriction AIM Blue Chip Baird Blue Chip
---------------------- ------------- ---------------
Joint Trading Accounts AIM Blue Chip may participate in Baird Blue Chip will not participate
joint trading accounts (under in a joint-trading account.
conditions set forth in an exemptive
order issued by the SEC). This is
not a fundamental policy.
Investment Companies AIM Blue Chip may invest in the Baird Blue Chip will not purchase the
securities of other investment securities of other investment
companies, subject to the limitations companies except as part of a plan of
imposed by the 1940 Act. This is not merger, consolidation or
a fundamental policy. reorganization approved by the
shareholders of Baird Blue Chip.
Foreign Currency AIM Blue Chip may purchase foreign No corresponding restriction.
currency for settlements but not for
hedging purposes. This is not a
fundamental policy.
Unseasoned Issuers AIM Blue Chip may not invest in Baird Blue Chip will not invest in
securities of companies which have a securities of issuers which have a
record of less than three years of record of less than three years
continuous operation if such purchase continuous operation, including the
at the time thereof would cause more operation of any predecessor business
than 5% of its total assets to be of a company which came into
invested in the securities of such existence as a result of a merger,
companies (with such period of three consolidation, reorganization or
years to include the operation of any purchase of substantially all of the
predecessor company or companies, assets of such predecessor business.
partnership or individual enterprise
if the company whose securities are
proposed for investment by AIM Blue
Chip has come into existence as the
result of a merger, consolidation,
reorganization or purchase of
substantially all of the assets of
such predecessor company or
companies, partnership or individual
enterprise). This is not a
fundamental policy.
Investing for Control No corresponding restriction. Baird Blue Chip may not make
investments for the purpose of
exercising control or management of
any company.
Issuance of Bonds, AIM Blue Chip may not issue bonds, No corresponding restriction.
Debentures or Senior debentures or senior equity
Equity Securities securities.
</TABLE>
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<PAGE> 26
<TABLE>
<S> <C> <C>
Investment Restriction AIM Blue Chip Baird Blue Chip
---------------------- ------------- ---------------
Industry Concentration AIM Blue Chip may not concentrate its Baird Blue Chip will not concentrate
investments -- that is, invest more more than 25% of the value of its
than 25% of the value of its assets assets, determined at the time the
in issuers which conduct their investment is made, exclusive of
business operations in the same government securities, in securities
industry. issued by companies primarily engaged
in the same industry.
Real Estate AIM Blue Chip may not invest in real Baird Blue Chip will not purchase or
estate, except that this restriction sell real estate, interests in real
does not preclude investments in real estate or real estate mortgage loans
estate investment trusts. and will not make any investments in
real estate limited partnerships.
Underwriting AIM Blue Chip may not act as an Baird Blue Chip will not act as an
underwriter of securities of other underwriter or distributor of
issuers. securities other than shares of Baird
Blue Chip and will not purchase any
securities which are restricted from
sale to the public without
registration under the 1933 Act.
Purchase of Securities AIM Blue Chip may not purchase or Baird Blue Chip will not acquire or
of Issuers Owned by retain the securities of any issuer, retain any security issued by a
Officers or Directors of if the officers and directors of AEF, company in which directors or
Advisors or Distributors its advisors or distributor who own officers of Baird Blue Chip, or
individually more than 1/2 of 1% of directors or officers of its
the securities of such issuer, investment adviser, individually own
together own more than 5% of the more than 1/2 of 1% of such company's
securities of such issuer. This is securities or in the aggregate own
not a fundamental policy. more than 5% of the securities of
such company.
Oil, Gas and Mineral AIM Blue Chip may not invest in Baird Blue Chip will not purchase any
Interests interests in oil, gas or other interest in any oil, gas or any other
mineral exploration or development mineral exploration or development
programs. This is not a fundamental program.
policy.
Securities of Companies No corresponding restriction. Baird Blue Chip will not acquire or
with Overlapping retain any security issued by a
Officers or Directors of company, an officer or director of
the Fund or its which is an officer or director of
Investment Adviser Baird Blue Chip or an officer,
director or other affiliated person
of its investment adviser.
</TABLE>
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<PAGE> 27
<TABLE>
<S> <C> <C>
Investment Restriction AIM Blue Chip Baird Blue Chip
---------------------- ------------- ---------------
Subsequent Changes in If a percentage restriction is No corresponding restriction.
Value or Assets adhered to at the time of investment,
a later change in percentage
resulting from changes in values or
assets will not be considered a
violation of the restriction. This
is not a fundamental policy.
</TABLE>
ADDITIONAL INVESTMENT POLICIES OF AIM BLUE CHIP
In pursuit of its objectives and policies, AIM Blue Chip may
employ one or more of the following strategies in order to enhance investment
results. The policies stated below are not fundamental policies of AIM Blue
Chip and may be changed by the Board of Directors of AEF without shareholder
approval. Shareholders will be notified before any material change in the
investment policies stated below becomes effective.
FOREIGN SECURITIES. AIM Blue Chip may invest up to 25% of its
total assets in the securities of companies domiciled in foreign countries.
For purposes of computing such limitation, ADRs, EDRs and other securities
representing underlying securities of foreign issuers are treated as foreign
securities. These securities will be marketable equity securities (including
common and preferred stock, depositary receipts for stock and fixed income or
equity securities exchangeable for or convertible into stock) of foreign
companies which, with their predecessors, have been in continuous operation for
three years or more and which generally are listed on a recognized foreign
securities exchange or traded in a foreign over-the-counter market.
SHORT-TERM INVESTMENTS. AIM Blue Chip may invest without
limitation in short-term instruments, such as treasury bills and other U.S.
government and governmental agency securities, bank obligations, commercial
paper and repurchase agreements with a maturity of one year or less, as a
reserve for expenses or anticipated redemptions and as a temporary defensive
measure when AIM Blue Chip's investment adviser deems appropriate. To the
extent that AIM Blue Chip invests to a significant degree in these instruments,
its ability to achieve its investment objectives may be adversely affected.
REPURCHASE AGREEMENTS. AIM Blue Chip may enter into
repurchase agreements. A repurchase agreement is an instrument under which AIM
Blue Chip acquires ownership of a debt security and the seller agrees, at the
time of the sale, to repurchase the obligation at a mutually agreed upon time
and price, thereby determining the yield during AIM Blue Chip's holding period.
With regard to repurchase transactions, in the event of a bankruptcy or other
default of a seller of a repurchase agreement, AIM Blue Chip could experience
both delays in liquidating the underlying securities and losses, including: (a)
a possible decline in the value of the underlying security during the period
while AIM Blue Chip seeks to enforce its rights thereto; (b) possible subnormal
levels of income and lack of access to income during this period; and (c)
expenses of enforcing its rights.
SECURITIES LENDING. Although it has no present intention to
do so, AIM Blue Chip may lend its portfolio securities in amounts up to
one-third of its total assets. Such loans could involve the risks of delay in
receiving additional collateral in the event the value of the collateral
decreases below the value of the securities loaned or of delay in recovering
the securities loaned or even loss of rights in the collateral should the
borrowers of the securities fail financially. However, loans will be made only
to borrowers deemed by AIM to be of good standing and only when, in AIM's
judgment, the income to be earned from the loans justifies the attendant risks.
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS. AIM Blue
Chip may purchase and sell stock index futures contracts and may also purchase
options on stock index futures as a hedge against changes in market conditions.
A stock index futures contract is an agreement pursuant to which two parties
agree to take or
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<PAGE> 28
make delivery of an amount of cash equal to a specified dollar or other
currency amount times the difference between the stock index value at the close
of the last trading day of the contract and the price at which the futures
contract is originally struck. No physical delivery of the underlying stocks
in the index is made. AIM Blue Chip will only enter into futures contracts, or
purchase options thereon, as a hedge against changes resulting from market
conditions in the values of the securities held or which AIM Blue Chip intends
to purchase. Generally, AIM Blue Chip may elect to close a position in a
futures contract by taking an opposite position which will operate to terminate
AIM Blue Chip's position in the futures contract. See the Statement of
Additional Information for a description of AIM Blue Chip's investments in
futures contracts and options on futures contracts, including certain related
risks. AIM Blue Chip may only purchase or sell futures contracts or purchase
related options if, immediately thereafter, the sum of the amount of margin
deposits and premiums on open positions with respect to futures contracts and
related options would not exceed 5% of the market value of AIM Blue Chip's
total assets.
OPTION CONTRACTS. AIM Blue Chip may write (sell) covered call
options, purchase covered put options, and engage in strategies employing
combinations of covered put and call options. The purpose of such transactions
is to hedge against changes in the market value of AIM Blue Chip's portfolio
securities caused by fluctuating interest rates, fluctuating currency exchange
rates and changing market conditions, and to close out or offset existing
positions in such options or futures contracts as described below. AIM Blue
Chip will not engage in such transactions for speculative purposes.
AIM Blue Chip may write (sell) call options and purchase
covered call options, but only if such options are covered and remain covered
as long as the option is open. A call option is "covered" if AIM Blue Chip
owns the underlying security covered by the call, and a put option is "covered"
if AIM Blue Chip has segregated cash or other liquid assets in an amount at
least equal to the value of the option. If an option expires unexercised, the
writer realizes a gain in the amount of the premium received. If the option is
exercised, a gain or loss will be recognized from the sale or purchase of the
underlying security depending on the relationship between the market price and
strike price of the security. Prior to its expiration, an option may be closed
out by means of a purchase of an offsetting option.
The investment policies of AIM Blue Chip permit the use of
options on securities comprising no more than 25% of the value of AIM Blue
Chip's net assets. AIM Blue Chip's policies with respect to the use of options
may be changed by the AEF's Board of Directors without shareholder approval.
ILLIQUID SECURITIES. AIM Blue Chip will not invest more than
15% of its net assets in illiquid securities, including repurchase agreements
with maturities in excess of seven days.
RULE 144A SECURITIES. AIM Blue Chip may invest in securities
that are subject to restrictions on resale because they have not been
registered under the 1933 Act. These securities are sometimes referred to as
private placements. Although securities which may be resold only to "qualified
institutional buyers" in accordance with the provisions of Rule 144A under the
1933 Act are unregistered securities, AIM Blue Chip may purchase Rule 144A
securities without regard to the limitation on investments in illiquid
securities described above under "Illiquid Securities," provided that a
determination is made that such securities have a readily available trading
market. AIM will determine the liquidity of Rule 144A securities under the
supervision of AEF's Board of Directors. The liquidity of Rule 144A securities
will be monitored by AIM, and if as a result of changed conditions it is
determined that a Rule 144A security is no longer liquid, AIM Blue Chip's
holdings of illiquid securities will be reviewed to determine what, if any,
action is required to assure that AIM Blue Chip does not exceed its applicable
percentage limitation for investments in illiquid securities.
FOREIGN EXCHANGE TRANSACTIONS. AIM Blue Chip has authority to
deal in foreign exchange between currencies of the different countries in which
it will invest for the settlement of transactions, but not for hedging
purposes.
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<PAGE> 29
PORTFOLIO TURNOVER. Any particular security will be sold, and
the proceeds reinvested, whenever such action is deemed prudent from the
viewpoint of AIM Blue Chip's investment objectives, regardless of the holding
period of that security. The estimated portfolio turnover rate for AIM Blue
Chip is 100%. A higher rate of portfolio turnover may result in higher
transaction costs, including brokerage commissions. Also, to the extent that
higher portfolio turnover results in a higher rate of net realized capital
gains to AIM Blue Chip, the portion of AIM Blue Chip's distributions
constituting taxable capital gains may increase.
Reference is made to the Statement of Additional Information
for additional descriptions of AIM Blue Chip's investment policies and the
risks associated with the permitted investments of AIM Blue Chip.
ADDITIONAL INFORMATION ABOUT AIM BLUE CHIP
MANAGEMENT OF AIM BLUE CHIP
The overall management of the business and affairs of AIM Blue
Chip is vested with AEF's Board of Directors. The Board of Directors approves
all significant agreements between AEF and persons or companies furnishing
services to AIM Blue Chip, including the Master Advisory Agreement with AIM,
the Master Administrative Services Agreement with AIM, the Master Distribution
Agreement with AIM Distributors as the distributor of the shares of AIM Blue
Chip, the Custodian Agreement with State Street Bank and Trust Company as
custodian and the Transfer Agency and Service Agreement with AFS as transfer
agent. The day-to-day operations of AIM Blue Chip are delegated to its
officers and to AIM, subject always to the objectives and policies of AIM Blue
Chip and to the general supervision of AEF's Board of Directors. Certain
directors and officers of AEF are affiliated with AIM and AIM Management, the
parent of AIM. AIM Management is a holding company engaged in the financial
services business. Information concerning the Board of Directors of AEF may be
found in the Statement of Additional Information.
Under the terms of the Master Advisory Agreement, AIM
supervises all aspects of AIM Blue Chip's operations and provides investment
advisory services to AIM Blue Chip. AIM obtains and evaluates economic,
statistical and financial information to formulate and implement investment
programs for AIM Blue Chip. AIM will not be liable to AIM Blue Chip or its
shareholders except in the case of AIM's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty; provided, however, that AIM may be
liable for certain breaches of duty under the 1940 Act.
PORTFOLIO MANAGERS
AIM uses a team approach and a disciplined investment process
in providing investment advisory services to all of its accounts, including AIM
Blue Chip. AIM's investment staff consists of 95 individuals. While
individual members of AIM's investment staff are assigned primary
responsibility for the day-to-day management of each of AIM's accounts, all
accounts are reviewed on a regular basis by AIM's Investment Policy Committee
to ensure that they are being invested in accordance with the account's and
AIM's investment policies. The individuals who are primarily responsible for
the day-to-day management of AIM Blue Chip and their titles, if any, with AIM
or its affiliates and AEF, the length of time they have been responsible for
the management, and their years of investment experience and prior experience
(if they have been with AIM for less than five years) are discussed below.
Jonathan C. Schoolar, Lanny H. Sachnowitz and Monika H. Degan
are primarily responsible for the day-to-day management of AIM Blue Chip. Mr.
Schoolar, is Senior Vice President and Director of A I M Capital Management,
Inc., a wholly-owned subsidiary of AIM ("AIM Capital"),
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<PAGE> 30
Vice President of AIM and Senior Vice President of AEF. He has been associated
with AIM and/or its affiliates since 1986 and has twelve years of experience as
an investment professional.
Mr. Sachnowitz is Vice President of AIM Capital. He has been
associated with AIM and/or its affiliates since 1987 and has seven years of
experience as an investment professional.
Ms. Degan joined AIM Management in 1995 as a portfolio analyst
for equity securities. She was elected Investment Officer of AIM Capital in
1995. Ms. Degan has been in the investment business since 1991. Prior
to joining AIM she was Senior Financial Analyst for Shell Oil Co. Pension Trust
for four years.
DISTRIBUTION
AEF has entered into a Master Distribution Agreement, dated as
of October 18, 1993, as amended (the "Distribution Agreement"), with AIM
Distributors, a registered broker-dealer and a wholly-owned subsidiary of AIM.
The address of AIM Distributors is 11 Greenway Plaza, Suite 1919, Houston, TX
77046-1173. Certain directors and officers of AEF are affiliated with AIM
Distributors. Pursuant to the Distribution Agreement, AIM Distributors acts as
the distributor of the shares of AIM Blue Chip. The Distribution Agreement
provides that AIM Distributors has the exclusive right to distribute shares of
AIM Blue Chip through affiliated broker-dealers and through other
broker-dealers with whom AIM Distributors has entered into selected dealer
agreements.
Under the Plan adopted by AEF pursuant to Rule 12b-1 of the
1940 Act, AEF may compensate AIM Distributors an aggregate amount of 0.35% of
the average daily net assets of AIM Blue Chip on an annualized basis for the
purpose of financing any activity that is intended to result in the sale of
shares of AIM Blue Chip. The Plan is designed to compensate AIM Distributors,
on a quarterly basis, for certain promotional and other sales-related costs,
and to implement a program which provides for periodic payments to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own shares of AIM Blue Chip.
Activities appropriate for financing under the Plan include, but are not
limited to, the following: preparation and distribution of advertising
material and sales literature; expenses of organizing and conducting sales
seminars; overhead of AIM Distributors; printing of prospectuses and statements
of additional information (and supplements thereto) and reports for other than
existing shareholders; supplemental payments to dealers under a dealer
incentive program; and costs of administering the Plan. The fees payable to
selected dealers, banks and retirement plan administrators who participate in
the program are calculated at the annual rate of 0.25% of the average daily net
asset value of AIM Blue Chip's shares that are held in the customer accounts of
such institutions which were purchased on or after a prescribed date set forth
in the Plan.
The Plan became effective on September 5, 1991, and was most
recently amended on December 5, 1995. The Plan provides that payments to
dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of AIM Blue
Chip are characterized as service fees for amounts up to 0.25% of the average
net assets attributable to the customers of such dealers or financial
institutions, and payments in excess of that amount are characterized as an
asset-based sales charge. The Plan also imposes a cap on the total amount of
sales charges, including asset-based sales charges, that may be paid by AEF
with respect to AIM Blue Chip. The Plan does not obligate AIM Blue Chip to
reimburse AIM Distributors for the actual expenses AIM Distributors may incur
in fulfilling its obligations under the Plan on behalf of AIM Blue Chip.
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<PAGE> 31
Thus, under the Plan, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, AIM Blue Chip will
not be obligated to pay more than that fee. If AIM Distributors' expenses are
less than the fee it receives, AIM Distributors will retain the full amount of
the fee. Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the NASD.
Under the Plan, AIM Distributors may in its discretion from
time to time agree to waive voluntarily all or any portion of its fee, while
retaining its ability to be reimbursed for such fee prior to the end of each
fiscal year.
The Plan may be terminated at any time by a vote of the
majority of those directors who are not "interested persons" of AEF or by a
vote of the majority of the outstanding shares of AIM Blue Chip.
CUSTODIAL AND TRANSFER AGENCY FEES
State Street Bank and Trust Company ("State Street Bank")
serves as custodian for AIM Blue Chip. For its custodial services to AIM Blue
Chip, State Street Bank is entitled to receive a fee calculated at 1/30th of 1%
of the first $50 million of such fund's assets, plus 1/60th of 1% of the next
$50 million of such fund's net assets, plus 1/100th of 1% of the next $175
million of such fund's assets, plus 1/150th of 1% of the next $1.75 billion of
such fund's net assets, plus 1/250th of 1% of such fund's assets over $2
billion. In addition, AIM Blue Chip pays the same special handling fees for the
processing of certain types of settlements and the provision of certain special
services.
AFS, a wholly-owned subsidiary of AIM, acts as transfer agent
and dividend disbursing agent for AIM Blue Chip. For these services, AFS
receives a fee calculated primarily on the basis of the aggregate open accounts
of AIM Blue Chip.
PORTFOLIO BROKERAGE
AIM may take into account sales of shares of AIM Blue Chip and
other funds advised by AIM in selecting broker-dealers to effect portfolio
transactions on behalf of AIM Blue Chip. AIM does not currently intend to
utilize an affiliated broker in effecting portfolio transactions for AIM Blue
Chip. For additional information, see "Portfolio Transactions and Brokerage"
in the Statement of Additional Information.
SHARES OF AEF
AEF does not issue share certificates unless a shareholder so
requests.
AIM Blue Chip is one of six portfolios of AEF. AEF is an
open-end, series, management investment company organized as a Maryland
corporation. On the Record Date, AIM Blue Chip had only nominal assets.
AEF currently consists of six separate portfolios: AIM Charter
Fund and AIM Weingarten Fund, each of which has retail classes of shares
consisting of Class A and Class B shares, and an Institutional Class; AIM
Constellation Fund, which has a retail class of shares consisting of Class A
shares and an Institutional Class; and AIM Aggressive Growth Fund, AIM Blue
Chip and AIM Capital Development Fund, each of which has a retail class of
shares consisting of Class A shares.
The authorized capital stock of AEF consists of 7,000,000,000
shares of common stock with a par value of $.001 per share, of which
750,000,000 shares are classified Class A Shares of each investment portfolio,
750,000,000 shares are classified Class B Shares of each of AIM Charter Fund
and AIM Weingarten Fund, 200,000,000 shares are classified Institutional Shares
of each of AIM Charter Fund, AIM Weingarten Fund and
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<PAGE> 32
AIM Constellation Fund, and the balance of which are unclassified. Each class
of shares of the same portfolio represents interests in that portfolio's assets
and has identical voting, dividend, liquidation and other rights on the same
terms and conditions, except that each class of shares bears differing
class-specific expenses, is subject to differing sales loads, conversion
features and exchange privileges, and has exclusive voting rights on matters
pertaining to the distribution plan for that class.
Except as specifically noted above, shareholders of each
portfolio are entitled to one vote per share (with proportionate voting for
fractional shares), irrespective of the relative net asset value of the
different classes of shares, where applicable, of a portfolio. However, on
matters affecting one portfolio of AEF or one class of shares, a separate vote
of shareholders of that portfolio or class is required. Shareholders of a
portfolio or class are not entitled to vote on any matter which does not affect
that portfolio or class but which requires a separate vote of another portfolio
or class. An example of a matter which would be voted on separately by
shareholders of a portfolio is the approval of an advisory agreement, and an
example of a matter which would be voted on separately by shareholders of a
class of shares is approval of a distribution plan. When issued, shares of
each portfolio are fully paid and nonassessable, have no preemptive or
subscription rights, and are fully transferable. Other than the automatic
conversion of Class B shares to Class A shares, there are no conversion rights.
Shares do not have cumulative voting rights, which means that in situations in
which shareholders elect directors, holders of more than 50% of the shares
voting for the election of directors can elect all of the directors of AEF, and
the holders of less than 50% of the shares voting for the election of directors
will not be able to elect any directors.
A portfolio shareholder is entitled to such dividends payable
out of the net assets allocable to the portfolio as may be declared by the
Board of Directors of AEF. In the event of liquidation or dissolution of AEF,
the holders of shares of AIM Blue Chip will be entitled to receive pro rata,
subject to the rights of creditors, the net assets of AEF allocable to AIM Blue
Chip. Fractional shares of AIM Blue Chip have the same rights as full shares
to the extent of their proportionate interest.
SHAREHOLDER INQUIRIES
The toll free number for access to routine account information
and shareholder assistance is (800) 959- 4246. Inquiries will be received from
7:30 a.m. to 5:30 p.m. Central Time.
OTHER INFORMATION
Information on purchases, redemptions and exchanges of shares,
determination of net asset value, dividends, distributions, tax matters and
other general information can be found in the Investors Guide to the AIM Family
of Funds(R) attached as Appendix I hereto and incorporated by reference herein.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE TRANSACTION
The terms and conditions under which the Transaction may be
consummated are set forth in the Agreement. Significant provisions of the
Agreement are summarized below; however, this summary is qualified in its
entirety by reference to the Agreement, a copy of which is attached as Appendix
II to this Proxy Statement/Prospectus.
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<PAGE> 33
TRANSFER OF ASSETS
AIM Blue Chip will acquire substantially all of the assets of
Baird Blue Chip in exchange for shares of AIM Blue Chip. The actual transfer of
assets (the "Closing") is expected to occur on March 29, 1996, at 2:00 p.m.
Central Time (the "Effective Time") on the basis of values calculated as of the
close of business on the preceding business day in accordance with the policies
of AIM Blue Chip.
At the Closing, AEF will issue directly to the shareholders of
Baird Blue Chip that number of shares of AIM Blue Chip equal in aggregate net
asset value to the aggregate value of Baird Blue Chip's assets then
transferred. It is expected that the value of each shareholder's account with
AIM Blue Chip immediately after the Transaction will be the same as the value
of such shareholder's account with Baird Blue Chip immediately prior to the
Transaction. The asset value calculations will be made pursuant to procedures
customarily used by AIM Blue Chip. Securities for which there is no readily
ascertainable market value will be valued by mutual agreement of Baird Blue
Chip and AEF, provided such value is consistent with AEF's pricing procedures.
Promptly after the Closing, Baird Blue Chip will take steps to pay any
outstanding liabilities and dissolve its corporate existence. Any assets held
by Baird Blue Chip after the Transaction that are not used to discharge debts
of Baird Blue Chip will be distributed to its shareholders as a dividend,
although none is expected.
OTHER TERMS
The Agreement may be amended without shareholder approval by
mutual agreement of Baird Blue Chip and AEF. If any amendment is made to the
Agreement which effects a material change to the Agreement and the Transaction,
such change will be submitted to the shareholders for their approval.
Each of Baird Blue Chip and AEF have made representations and
warranties in the Agreement that are customary in matters such as the
Transaction. The obligations of Baird Blue Chip and AEF pursuant to the
Agreement are subject to various conditions, including the following: (a) the
assets of Baird Blue Chip to be acquired by AIM Blue Chip shall constitute
at least 90% of the fair market value of the net assets and at least 70% of the
fair market value of the gross assets held by Baird Blue Chip immediately prior
to Closing; (b) the Transactions contemplated by that certain Agreement and
Plan of Reorganization dated December 20, 1995 between Baird Capital
Development Fund, Inc. and AEF, acting on behalf of AIM Capital Development
Fund, and that certain Agreement and Plan of Reorganization dated December 20,
1995 between The Baird Funds, Inc., acting on behalf of Baird Quality Bond
Fund, and AIM Funds Group, acting on behalf of AIM Income Fund, shall have been
consummated; (c) the transactions contemplated by that certain Acquisition
Agreement dated December 20, 1995 between AIM and Baird shall have been
consummated; (d) a post-effective amendment to the registration statement of
AEF filed on Form N-1A to register shares of AIM Blue Chip to be offered to the
public after the Closing Date shall have become effective under the 1933 Act
and no stop orders suspending the effectiveness thereof shall have been issued,
and no proceeding for that purpose shall have been initiated or threatened by
the SEC; (e) AEF's Registration Statement on Form N-14 under the 1933 Act and
the 1940 Act shall have been filed with the SEC and such Registration Statement
shall have become effective, and no stop-order suspending the effectiveness of
the Registration Statement shall have been issued, and no proceeding for that
purpose shall have been initiated or threatened by the SEC (and not withdrawn
or terminated); (f) the shareholders of Baird Blue Chip shall have approved the
Agreement; (g) upon written request by AEF, Baird Blue Chip shall, prior to
the Closing, have disposed of equity securities held by it to assure that
consummation of the Transaction shall not result in the investment portfolios
of AEF owning in the aggregate ten percent or more of the voting securities of
any issuer, or Baird Blue Chip shall have cooperated with and assisted AEF in
preparing and filing a notification and report form required by the Hart-Scott-
Rodino Antitrust Improvements Act and the waiting periods prescribed by that
act shall have passed; and (h) the receipt of an opinion from Ballard Spahr
Andrews & Ingersoll that the Transaction will not result in the recognition of
gain or loss for Federal income tax purposes for Baird Blue Chip, AIM Blue Chip
or their shareholders.
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AIM Blue Chip and Baird Blue Chip have each agreed to bear
their respective expenses in connection with the Transaction. Baird has agreed
with Baird Blue Chip that all costs, fees and expenses incurred in connection
with the Transaction (aggregated with the costs incurred by other Baird Mutual
Funds involved in transactions similar to the Transaction) in excess of $10,000
which are reasonable and of a type normally incurred in transactions of this
nature will be borne by Baird. AIM has agreed to pay Baird one-half of those
expenses, and all of such expenses in excess of $120,000. The costs and
expenses to be borne by Baird Blue Chip are estimated to be $5,160. The costs
and expenses of AIM Blue Chip are estimated to be $15,000-$20,000, and will be
treated as a current expense, subject to AIM's agreement to waive fees and
reimburse expenses so that total operating expenses as a percentage of net
assets will not exceed 1.31% for two years after the Closing.
The Board of Directors of Baird Blue Chip may waive without
shareholder approval any default by AEF or any failure by AEF to satisfy any of
the conditions to Baird Blue Chip's obligations as long as such a waiver will
not have a material adverse effect on the benefits intended under the Agreement
for the shareholders of Baird Blue Chip. The Agreement may be terminated and
the Transaction may be abandoned by either Baird Blue Chip or AEF at any time
by mutual agreement of Baird Blue Chip and AEF, or by either party in the event
that the Baird Blue Chip shareholders do not approve the Agreement or if the
Closing does not occur on or before June 30, 1996.
If the Agreement is approved, an account will be established
for each shareholder of Baird Blue Chip containing the appropriate number of
shares of AIM Blue Chip which is expected to be the same as the number of
shares of Baird Blue Chip. Such accounts will contain certain information about
the shareholder that is identical to the account currently maintained for each
shareholder of Baird Blue Chip.
FEDERAL TAX CONSEQUENCES
In the opinion of Ballard Spahr Andrews & Ingersoll, the
principal Federal income tax consequences that will result from the
Transaction, under currently applicable law, are as follows: (i) the
Transaction will qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986 as amended (the "Code"); (ii) in
accordance with Sections 361(a) and 361(c)(1) of the Code, no gain or loss will
be recognized by Baird Blue Chip upon the transfer of its assets to AIM Blue
Chip; (iii) in accordance with Section 354(a)(1) of the Code, no gain or loss
will be recognized by any shareholder of Baird Blue Chip upon the exchange of
shares of Baird Blue Chip solely for shares of AIM Blue Chip; (iv) in
accordance with Section 358(a) of the Code, the tax basis of the shares of AIM
Blue Chip to be received by a shareholder of Baird Blue Chip will be the same
as the tax basis of the shares of Baird Blue Chip surrendered in exchange
therefor; (v) in accordance with Section 1223(1) of the Code, the holding
period of the shares of AIM Blue Chip to be received by a shareholder of Baird
Blue Chip will include the holding period for which such shareholder held the
shares of Baird Blue Chip exchanged therefor provided that such shares of Baird
Blue Chip are capital assets in the hands of such shareholder as of the
Closing; (vi) in accordance with Section 1032 of the Code, no gain or loss will
be recognized by AIM Blue Chip on the receipt of assets of Baird Blue Chip in
exchange for shares of AIM Blue Chip; (vii) in accordance with Section 362(b)
of the Code, the tax basis of the assets of Baird Blue Chip in the hands of AIM
Blue Chip will be the same as the tax basis of such assets in the hands of
Baird Blue Chip immediately prior to the Transaction; (viii) in accordance with
Section 1223(2) of the Code, the holding period of the assets of Baird Blue
Chip to be received by AIM Blue Chip will include the holding period of such
assets in the hands of Baird Blue Chip immediately prior to the Transaction;
and (ix) AIM Blue Chip will succeed to and take into account the items of Baird
Blue Chip described in Section 381(c) of the Code, subject to the conditions
and limitations specified in Sections 381 through 384 of the Code and the
Treasury regulations thereunder.
The foregoing opinions are conditioned upon the accuracy, as
of the date hereof and as of the Closing, of certain representations upon which
Ballard Spahr Andrews & Ingersoll have relied in rendering these opinions,
which representations include, but are not limited to, the following (taking
into account for purposes thereof any events that are part of the plan of
reorganization): (A) there is no plan or intention on the part of the
shareholders of Baird Blue Chip to sell, exchange, transfer by gift or
otherwise dispose of the shares of AIM Blue Chip received by them in the
Transaction following the Closing date; (B) following the Transaction, AIM Blue
Chip will continue the historic business of Baird Blue Chip (for this purpose
"historic business" shall mean the business most recently conducted by Baird
Blue Chip which was not entered into in connection with the Transaction) or use
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<PAGE> 35
a significant portion of Baird Blue Chip's historic business assets in a
business; (C) at the direction of Baird Blue Chip, AIM Blue Chip will issue
directly to Baird Blue Chip's shareholders pro rata the shares of AIM Blue Chip
that Baird Blue Chip constructively receives in the Transaction and Baird Blue
Chip will distribute its other properties (if any) to its shareholders on, or
as promptly as practicable after, the Closing; (D) AIM Blue Chip has no plan or
intention to reacquire any of its shares issued in the Transaction, except to
the extent that AIM Blue Chip is required by the 1940 Act to redeem any of its
shares presented for redemption; (E) AIM Blue Chip does not plan or intend to
sell or otherwise dispose of any of the assets of Baird Blue Chip acquired in
the Transaction, except for dispositions made in the ordinary course of its
business or dispositions necessary to maintain its status as a "regulated
investment company" under the Code.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF THE TRANSACTION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS
AND CIRCUMSTANCES OF ANY SHAREHOLDER OF BAIRD BLUE CHIP. BAIRD BLUE CHIP
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
CONSEQUENCES TO THEM OF THE TRANSACTION, INCLUDING THE APPLICABILITY AND EFFECT
OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Transaction will be accounted for on a continuing entity
(pooling of interests) basis. Accordingly, the book cost basis to AIM Blue Chip
of the assets of Baird Blue Chip will be the same as the book cost basis of
such assets to Baird Blue Chip.
RIGHTS OF SHAREHOLDERS
ELECTION OF DIRECTORS AND ANNUAL SHAREHOLDER MEETINGS
If the charter or bylaws so provide, Maryland corporate law
does not require annual meetings of shareholders of registered investment
companies to elect directors in any year in which election of directors is not
required under the 1940 Act. As a result, AEF's bylaws provide that annual
shareholders' meetings are held only when required by Federal or state law or
when otherwise deemed necessary by the Board of Directors. Similarly,
Wisconsin corporate law provides that, if the articles of incorporation or
bylaws of a registered investment company so provide, it may operate without an
annual meeting of shareholders if an annual meeting is not required by the 1940
Act. Baird Blue Chip has adopted the appropriate provisions in its Bylaws and
is not required to hold an annual meeting of shareholders to elect directors
unless otherwise required by the 1940 Act.
TERMS OF DIRECTORS
Maryland law provides that each director shall hold office
until his or her successor is duly elected and qualified. Wisconsin law
provides that each director shall hold office until the next annual meeting of
shareholders and until his or her successor shall have been elected and, if
necessary, qualified, or until there is a decrease in the number of directors.
As discussed above, Baird Blue Chip is not required to hold annual meetings of
shareholders to elect directors unless otherwise required by the 1940 Act.
VACANCIES OF DIRECTORS
In accordance with Maryland law, AEF's Bylaws provide that the
Board of Directors may fill vacancies created by an increase in the number of
Directors on the Board until their successors are duly elected and qualify.
Under Maryland law, a majority of the remaining directors may also fill a
vacancy resulting from any cause other than an increase in the number of
directors. Maryland law also provides that shareholders may elect a successor
to fill a vacancy on the board of directors which results from the removal of a
director.
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Under Wisconsin law, any vacancy on the Board of Directors,
including a vacancy resulting from an increase in the number of directors, may
be filled by (a) the shareholders; (b) the Board of Directors; or (c) if the
directors remaining in office constitute fewer than a quorum of the Board of
Directors, by the affirmative vote of a majority of all directors remaining in
office.
SHAREHOLDER LIABILITY
Wisconsin corporate law generally shields shareholders from
liability for a corporation's obligations. Under Wisconsin law, however, a
shareholder may be liable to the extent that he or she knowingly receives any
distribution which exceeds the amount which he or she could properly receive
under Wisconsin law. A shareholder may also be liable, up to an amount equal
to the par value of shares owned by the shareholder, for all debts owing to
employees of the corporation for services performed for such corporation, but
not exceeding six months' service in any one case. There is no similar
Maryland provision.
REMOVAL OF DIRECTORS
Maryland corporate law generally permits removal of a director
by the holders of not less than a majority of a company's outstanding shares.
AEF's Charter provides that directors may only be removed for cause. Wisconsin
corporate law generally permits, and Baird Blue Chip's Bylaws provide for, the
removal of a director by shareholders, with or without cause, if approved by a
majority of votes cast.
SPECIAL MEETINGS OF SHAREHOLDERS
In accordance with Maryland law, AEF's Bylaws provide that a
special meeting of shareholders may be called by the Board of Directors,
Chairman of the Board or the President, and shall be called upon the written
request of the holders of at least 10% of AEF's outstanding shares. Wisconsin
law provides that a special meeting of shareholders may be called by the Board
of Directors or any person authorized by the bylaws. Baird Blue Chip's bylaws
authorize the President to call a special meeting of shareholders. Wisconsin
law also provides that a special meeting of shareholders shall be called upon
the written request of the holders of at least 10% of all of the votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting.
LIABILITY OF DIRECTORS AND OFFICERS
AEF's Charter provides that directors and officers of AEF
shall not be liable to AEF or its shareholders for damages for any act or
omission or any conduct whatsoever in their capacity as directors or officers,
except for liability to the corporation or shareholders due to willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their office. AEF's Charter provides for the
indemnification of directors and officers to the fullest extent of Maryland
law. Maryland law provides that a corporation may indemnify any director made
a party to any proceeding by reason of service in that capacity unless it is
established that: (1) the act or omission of the director was material to the
matter giving rise to the proceeding and (a) was committed in bad faith, or (b)
was the result of active and deliberate dishonesty; or (2) the director
actually received an improper personal benefit in money, property or services;
or (3) in the case of any criminal proceeding, the director had reasonable
cause to believe the act or omission was unlawful. Maryland law allows, and
AEF's Bylaws provide for the indemnification of officers to the same extent as
director's.
Wisconsin law provides that the directors of Baird Blue Chip
are not liable for any breach of, or failure to perform, any duty resulting
solely from his or her status as director, unless the person asserting
liability proves that the breach or failure to perform constitutes: (1) wilful
failure to deal fairly with Baird Blue Chip in connection with a matter in
which the director has a material conflict of interest; (2) a violation of
criminal law (unless the director had reasonable cause to believe that the
conduct was lawful or no reasonable cause to believe that the conduct was
unlawful); (3) a transaction from which the director derived improper personal
profit; or (4) wilful misconduct. Neither Wisconsin corporate law nor Baird
Blue Chip's Articles or Bylaws specifically limits
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the liability of officers. Wisconsin law provides for the indemnification of a
director or officer, to the extent that he or she has been successful on the
merits or otherwise in the defense of a proceeding. Additionally, a
corporation shall indemnify a director or officer against liability incurred by
the director or officer in a proceeding to which the director or officer was a
party because he or she is a director or officer of the corporation, unless
liability was incurred because the director or officer breached or failed to
perform a duty that he or she owes to the corporation and the breach or failure
to perform constitutes any of the circumstances enumerated above relating to
liability of directors.
SUPERMAJORITY VOTING PROVISIONS
AEF's Charter does not require supermajority voting on any
matter. Wisconsin law requires a supermajority vote of the shareholders to
approve a merger or share exchange unless the shareholders receive a "fair
price" for their shares or the corporation's articles of incorporation contain
a provision expressly electing not be governed by such supermajority
provisions. Baird Blue Chip's Articles of Incorporation do not contain a
provision opting out of such supermajority voting provisions. Under Wisconsin
law, a sale of substantially all of the assets only requires a majority vote of
shareholders. The Transaction is a sale of substantially all of the assets.
DISSENTERS' RIGHTS
Under Maryland corporate law, shareholders of an open-end
investment company registered with the SEC, such as AEF, do not have
dissenters' rights, provided that shares involved in a transaction giving rise
to dissenters' rights are valued at net asset value.
Although there is no similar provision under Wisconsin
corporate law, the SEC takes the position that Rule 22c-1 under the 1940 Act
effectively preempts dissenters' rights permitted by Wisconsin corporate law.
Instead, shareholders have the right to redeem their shares. See "Comparison
of Baird Blue Chip and AIM Blue Chip - Redemption Procedures."
AMENDMENT TO ORGANIZATIONAL DOCUMENTS
AEF has reserved in its Charter the right from time to time to
amend, alter, change, add to, or repeal any provision contained in its Charter,
including any amendment that alters the contract rights, as expressly set forth
in its Charter, of any outstanding stock, and all rights conferred on
shareholders and others therein granted subject to these reservations. The
directors of AEF may approve amendments to the Charter to increase authorized
capital, change AEF's name, classify or reclassify unissued shares or
redesignate the name of a class of stock without shareholder approval. Other
amendments to AEF's Charter will be adopted if approved by a majority of all
the votes entitled to be cast on the amendments.
The Board of Directors of Baird Blue Chip may propose
amendments to the Articles of Incorporation for submission to shareholders,
which submission may be conditioned on any basis. To be adopted, an amendment
must be approved by a majority of votes actually cast. Wisconsin law allows
the Board of Directors to amend the Articles of Incorporation without
shareholder action to extend the duration of the corporation, delete the names
and addresses of initial directors and incorporators, make certain changes to
Baird Blue Chip's registered agent, change each share of an outstanding class
into a greater number of whole shares if the corporation has only shares of
that class outstanding or the aggregate preferences and relative rights of that
class are not increased to the prejudice of the outstanding shares of any other
class, make minor changes to the corporate name, or create one or more series
of shares and determine the numbers of shares of such series and the
designations, preferences, limitations and the relative rights thereof as
authorized in Baird Blue Chip's Articles of Incorporation.
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OWNERSHIP OF AIM BLUE CHIP AND BAIRD BLUE CHIP SHARES
AIM provided the initial capitalization of AIM Blue Chip,
which was nominal as of the date of this Proxy Statement/Prospectus, and owned
all the outstanding shares of beneficial interest of AIM Blue Chip. Although
AIM Blue Chip expects that the sale of its shares to the public pursuant to its
prospectus will reduce the percentage of such shares owned by AIM to less than
1% of the total shares outstanding, as long as AIM owns over 25% of the shares
of AIM Blue Chip that are outstanding, it may be presumed to be in "control" of
AIM Blue Chip, as defined in the 1940 Act. To the best of the knowledge of
AEF, the beneficial ownership of shares of AIM Blue Chip by officers and
directors of AEF as a group constituted less than 1% of the outstanding shares
of AIM Blue Chip as of the date of this Proxy Statement/Prospectus.
As of November 30, 1995, Baird owned of record 54.51% of the
outstanding shares of Baird Blue Chip. To the best of the knowledge of Baird,
no other person owned beneficially 5% or more of the outstanding shares of
Baird Blue Chip. To the best of the knowledge of Baird Blue Chip, the
beneficial ownership of shares of Baird Blue Chip by officers and directors of
Baird Blue Chip as a group constituted less than 1% of the outstanding shares
of Baird Blue Chip as of the date of this Proxy Statement/Prospectus.
CAPITALIZATION
The following table sets forth as of September 30, 1995 (i)
the pro forma capitalization of Baird Blue Chip, and (ii) the pro forma
capitalization of AIM Blue Chip (i.e., assuming AIM Blue Chip was in existence
on September 30, 1995) as adjusted to give effect to the transactions
contemplated by the Agreement.
<TABLE>
<CAPTION>
Pro Forma
BAIRD BLUE CHIP AIM Blue Chip
-------------
<S> <C> <C>
Net Assets $71,324,080 $71,324,080
Shares Outstanding 2,993,421 2,993,421
Net Asset Value Per Share $23.83 $23.83
</TABLE>
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of AIM
Blue Chip will be passed upon by Ballard Spahr Andrews & Ingersoll, 1735 Market
Street, 51st Floor, Philadelphia, PA 19103-7599.
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of
Additional Information do not contain all the information set forth in the
registration statements and the exhibits relating thereto and annual reports
which Baird Blue Chip has filed with the SEC pursuant to the requirements of
the 1933 Act and the 1940 Act, to which reference is hereby made. The SEC file
number for the registration statement containing Baird Blue Chip's Prospectus
is Registration No. 2-89614. Such Prospectus is incorporated herein by
reference. The registration statement of AEF relating to AIM Blue Chip has
been filed with the SEC but has not yet been declared effective. The SEC file
number for the registration statement containing AIM Blue Chip's Prospectus and
Statement of Additional Information is Registration No. 2-25469.
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Baird Blue Chip and AEF are subject to the informational
requirements of the 1940 Act and in accordance therewith file reports and
other information with the SEC. Reports, proxy statements, registration
statements and other information filed by Baird Blue Chip and AEF may be
inspected without charge and copied at the public reference facilities
maintained by the SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW,
Washington, DC 20549, and at the following regional offices of the SEC: 7
World Trade Center, New York, New York 10048; and 500 West Madison Street, 14th
Floor, Chicago, Illinois 60661.
ADDITIONAL INFORMATION ABOUT BAIRD BLUE CHIP
For more information with respect to Baird Blue Chip
concerning the following topics, please refer to the Baird Blue Chip prospectus
as indicated: (i) see "Introduction," "Investment Objectives and Policies" and
"Portfolio Securities and Investment Practices" for further general information
regarding Baird Blue Chip; (ii) see "Management of the Funds - Baird Blue Chip
Fund and Baird Quality Bond Fund" and "- Administration of Baird Mutual Funds,"
"Expense Information," and "Purchase of Shares" for further information
regarding management of Baird Blue Chip; (iii) see "Managements Discussion of
Performance of the Funds - Baird Blue Chip" for further information regarding
management's discussion of Baird Blue Chip's performance; (iv) see "Dividend
Reinvestment" and "Dividends, Distributions and Taxes" for further information
regarding the capital stock of Baird Blue Chip; (v) see "Management of the
Funds - Baird Blue Chip Fund and Baird Quality Bond Fund" and "- Administration
of Baird Mutual Funds," "Determination of Net Asset Value," "Purchase of
Shares," "Redemption and Repurchase of Shares," "Reinstatement Privilege,"
"Dividend Reinvestment," "Systematic Withdrawal Plan," "Automatic Exchange
Plan," "Exchange Privileges," "Individual Retirement Account and Simplified
Employee Pension Plan" and "Defined Contribution Retirement and 401(k) Plan"
for further information regarding the purchase, redemption or repurchase of
Baird Blue Chip shares.
FINANCIAL INFORMATION
Certain financial information for Baird Blue Chip is set forth
below. This information has been audited by Price Waterhouse LLP for the
periods indicated therein. This information should be read in conjunction with
the financial statements and the notes thereto included in the Statement of
Additional Information.
32
<PAGE> 40
SELECTED BAIRD BLUE CHIP PER SHARE DATA AND RATIOS
Certain condensed financial information is presented below as
to income, expense and capital changes of Baird Blue Chip, on a per share
basis, and related data for each of the fiscal years in the nine-year period
ended September 30, 1995. This information has been audited by Price Waterhouse
LLP, independent auditors, whose report thereon is included in the Statement of
Additional Information of Baird Blue Chip.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . $19.22 $18.89 $18.24 $16.77 $13.60
Income from Investment Operations:
Net Investment Income (Loss) . . . . 0.14 0.15 0.19 0.20 0.23
Net Gains (Losses) on Securities
(both realized and unrealized). . . 5.05 1.24 0.63 1.48 3.19
------ ------ ------ ------ ------
Total from Investment
Operations . . . . . . . . . . . 5.19 1.39 0.82 1.68 3.42
Less Distributions:
Dividends from net investment
income. . . . . . . . . . . . . . . . (0.12) (0.21) (0.17) (0.21) (0.25)
Distributions from net realized
gains. . . . . . . . . . . . . . . . (0.46) (0.85) -- -- --
------ ------ ------ ------ ------
Total Distributions. . . . . . . . (0.58) (1.06) (0.17) (0.21) (0.25)
------ ------ ------ ------ ------
Net Asset Value, End of Period . . . . . . $23.83 $19.22 $18.89 $18.24 $16.77
====== ====== ====== ====== ======
Total Return(3). . . . . . . . . . . . . . 27.8% 7.7% 4.5% 10.1% 25.5%
Ratios/Supplemental Data:
Net Assets, End of Period(4) . . . . . . 71,324 60,115 65,112 61,601 46,958
Ratio of Expenses to Average Net
Assets(5) . . . . . . . . . . . . . . . 1.3% 1.4% 1.3% 1.4% 1.5%
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . 0.7% 0.8% 1.0% 1.2% 1.6%
Portfolio Turnover Rate . . . . . . . . 16.7% 12.7% 24.9% 5.4% 8.8%
<CAPTION>
1990 1989 1988 1987(1)
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.82 $11.48 $13.10 $10.00
Income from Investment Operations:
Net Investment Income (Loss) . . . . . 0.25 0.24 0.12 0.01
Net Gains (Losses) on Securities
(both realized and unrealized) (0.20) 2.25 (1.68) 3.09
------ ------ ------ ------
Total from Investment
Operations . . . . . . . . . . . 0.05 2.49 (1.56) 3.10
Less Distributions:
Dividends from net investment
income. . . . . . . . . . . . . . . . (0.27) (0.15) (0.02) --
Distributions from net realized -- -- (0.04) --
gains . . . . . . . . . . . . . . . .
------ ------ ------ ------
Total Distributions . . . . . . . (0.27) (0.15) (0.06) --
------ ------ ------ ------
Net Asset Value, End of Period . . . . . . $13.60 $13.82 $11.48 $13.10
====== ====== ====== ======
Total Return(3). . . . . . . . . . . . . . 0.3% 22.0% (11.8%) 13.5%(2)
Ratios/Supplemental Data:
Net Assets, End of Period(4) . . . . . . 31,706 21,170 18,681 16,917
Ratio of Expenses to Average Net
Assets(5) . . . . . . . . . . . . . . . 1.6% 1.7% 2.2% 2.6%(2)
Ratio of Net Investment Income to
Average Net Assets . . . . . . . . . . . 2.0% 1.9% 3.3% 0.2%(2)
Portfolio Turnover Rate. . . . . . . . . 12.2% 14.8% 14.8% 9.0%
</TABLE>
__________
(1) For the period from December 31, 1986 (commencement of operations) to
September 30, 1987.
(2) Annualized.
(3) Total return does not include the sales load.
(4) Numbers in thousands.
(5) Includes a maximum, .75% distribution fee from December 31, 1986 through
September 30, 1988 and a maximum .45% distribution fee beginning October 1,
1988.
33
<PAGE> 41
BAIRD'S DISCUSSION OF BAIRD BLUE CHIP PERFORMANCE
There is no Management's Discussion of Fund Performance for
AIM Blue Chip because that fund had not commenced operations as of the date of
this Proxy Statement/Prospectus. Reproduced below is Baird's Management
Discussion of Fund Performance regarding Baird Blue Chip that was included in
Baird Blue Chip's Annual Report dated October 26, 1995:
We are pleased to report that the net asset value per share
rose from $22.32 to $23.83 in the last quarter, a gain of 6.77%. For
the fiscal year ended September 30, the Fund provided shareholders
with positive returns each quarter, and the 27.84% return for the 12
months was the strongest fiscal year performance in the Fund's 8-year
history.
Optimism regarding the long-term prospects for the U.S. stock
market seems to be more widespread and unchallenged than at any time
in the past 25 years. An example of this enthusiasm is that 70% of
money flowing into 401(k) retirement plans in recent months has gone
into stocks, whereas 10 years ago a majority of 401(k) contributions
went into guaranteed investment contracts. This shift to equities
may, in part, be attributed to the strong performance of the stock
market during the current economic expansion. The Standard & Poor's
500 Index has just celebrated its fifth anniversary without a
correction of 10% or more. And the current advance is actually the
third leg of an extended Bull Market that dates from mid-1982, an
epic run that has seen the Dow Industrial Average rise from 760 to
4800. Optimism has been further kindled by several highly publicized
academic studies showing that since the 1920's, stocks have provided
an average annual total return in excess of 10%, far out-distancing
the returns provided by bonds and such short-term instruments as
money market funds.
In this heady environment, we sometimes have to remind
ourselves that there is no guarantee that stocks over the next 10 or
even 25 years will necessarily provide a positive return, much less
the best return compared to alternative investments. History
provides some painful lessons: The Crash of 1929 ushered in a bear
market during which the Dow Jones Industrial Average failed to
re-attain its pre-crash level until 1954. More recently, the
inflationary period between 1966 and 1982 saw an essentially flat
market, during which stocks were among the worst performing
investments.
Ever mindful of the foregoing cautionary considerations, we
nevertheless maintain a positive long-term outlook for stocks. Our
optimism is predicated upon what we believe are powerful, positive
trends in inflation, interest rates and corporate profitability that
will likely persist well into the next century.
THE CASE FOR DISINFLATION AND LOWER INTEREST RATES
The disinflation process that dates from 1982 (when consumer
price inflation and interest rates in the U.S. were both at
double-digit levels) is both secular and global in scope. This
process, which has substantially reduced interest rates and is the
single major cause of the 13-year Bull Market, is the result of
deep-rooted business, political, and demographic trends.
Responding to increasing global competition, U.S.
corporations have been forced to reduce costs by "restructuring"
(reducing their work-forces), moving selected operations abroad to
find low-cost labor, and increasing investment in
productivity-enhancing technologies. Governments and central banks
around the globe, too, are adopting policies likely to keep inflation
in check. The current budget debate in Washington clearly indicates
a changed attitude and a genuine desire to reduce deficits, which
have been significant contributors to past
34
<PAGE> 42
inflation and high interest rates. Similar moves toward fiscal
restraint are underway in the capitals of most industrialized
economies. At the same time, the world's central bankers have come
to recognize the harmful effects of even moderate levels of
inflation, and seem increasingly determined to control inflation and
protect their currencies. Finally, demographic trends in the
industrialized nations will dampen inflationary pressures. As the
U.S. "baby boom" generation ages, an enormous "bulge" of Americans
will move from the high-consumption stage of life into a more
savings-oriented mode.
THE CASE FOR CORPORATE PROFIT GROWTH
Our belief in continuing corporate profit advances is founded
on what we perceive to be favorable growth conditions in the global
economy and the increasing ability of U.S. corporations to compete
successfully against their international counterparts.
Governments around the globe today are embracing free-market
capitalism to promote economic prosperity and satisfy the growing
demands of their populations. Vibrant, market-oriented emerging
economies are taking root in formerly Communist regions of Eastern
Europe, Southeast Asia, and, most spectacularly, China. At the same
time, new regional and global free-trade agreements are coming into
being at an increasing pace, further promoting global growth. This
environment provides a stark contrast to the 1960-1990 period, when
the Cold War raged, most major countries were elevating their levels
of unproductive military spending, and governments often subordinated
the goal of economic growth to social policy and national security
priorities.
These favorable global growth conditions provide attractive
opportunities for U.S.-based multinational companies, which have
gained a substantial advantage over their European and Japanese
competitors in recent years. American multinationals have built a
daunting set of advantages in the past 20 years: more experience in
global markets and more determination to expand abroad; world-leading
experience in cost-cutting, restructuring and productivity-enhancing
investment in technology; access to efficient and flexible
international capital markets; a dollar near historic lows in
relation to other major currencies; a corporate management system
increasingly attuned to maximizing return-on-investment and promoting
shareholder value; a relatively benign regulatory environment; and
relatively weak labor unions. Looking to the future, we believe U.S.
companies will benefit from government promises to reduce corporate
regulations, taxation, and anti-trust activity.
We are convinced that the companies in the Baird Blue Chip
Fund will continue to grow domestically and internationally in the
years ahead, to the long-term benefit of the Fund's shareholders.
35
<PAGE> 43
APPENDIX I
THE TOLL-FREE NUMBER FOR ACCESS TO ROUTINE ACCOUNT INFORMATION AND SHAREHOLDER
ASSISTANCE IS
(800) 959-4246 (7:30 A.M. TO 5:30 P.M. CENTRAL TIME).
INVESTOR'S GUIDE
TO THE AIM FAMILY OF FUNDS(R)
- - --------------------------------------------------------------------------------
INTRODUCTION TO THE AIM FAMILY OF FUNDS
THE AIM FAMILY OF FUNDS consists of the following mutual funds:
<TABLE>
<S> <C>
AIM AGGRESSIVE GROWTH FUND AIM INCOME FUND
AIM BALANCED FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM BLUE CHIP FUND AIM INTERNATIONAL EQUITY FUND
AIM CAPITAL DEVELOPMENT FUND AIM LIMITED MATURITY TREASURY SHARES
AIM CHARTER FUND AIM MONEY MARKET FUND*
AIM CONSTELLATION FUND AIM MUNICIPAL BOND FUND
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM GLOBAL GROWTH FUND AIM TAX-EXEMPT CASH FUND*
AIM GLOBAL INCOME FUND AIM TAX-FREE INTERMEDIATE SHARES
AIM GLOBAL UTILITIES FUND AIM VALUE FUND
AIM GROWTH FUND AIM WEINGARTEN FUND
AIM HIGH YIELD FUND
</TABLE>
* Shares of AIM TAX-EXEMPT CASH FUND, and Class C shares of AIM MONEY MARKET
FUND, are offered to investors at net asset value, without payment of a sales
charge, as described below. Other funds, including the Class A and Class B
shares of AIM MONEY MARKET FUND, are sold with an initial sales charge or
subject to a contingent deferred sales charge upon redemption, as described
below.
IT IS IMPORTANT FOR SHAREHOLDERS CONSIDERING AN EXCHANGE TO CAREFULLY REVIEW
THE PROSPECTUS OF THE FUND WHOSE SHARES WILL BE ACQUIRED IN AN EXCHANGE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SHARES OF ANY FUND OTHER THAN
THE FUND(S) NAMED ON THE COVER PAGE OF THIS PROSPECTUS.
- - --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
HOW TO OPEN AN ACCOUNT. In order to purchase shares of any of The AIM Family
of Funds ("AIM Funds"), an investor must submit a fully completed new Account
Application form directly to A I M Fund Services, Inc. ("AFS" or the "Transfer
Agent") or through any dealer authorized by A I M Distributors, Inc. ("AIM
Distributors") to sell shares of the AIM Funds.
Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed IRS Form W-8 (for non-resident aliens) or Form
W-9 (certifying exempt status) accompanying the registration information will be
subject to backup withholding. See the Account Application for applicable
Internal Revenue Service penalties. The minimum initial investment is $500,
except for accounts initially established through an Automatic Investment Plan,
which requires a special authorization form (see "Special Plans") and for
certain retirement accounts. The minimum initial investment for accounts
established with an Automatic Investment Plan is $50. The minimum initial
investment for an Individual Retirement Account ("IRA") is $250. There are no
minimum initial investment requirements applicable to
money-purchase/profit-sharing plans, 401(k) plans, IRA/Simplified Employee
Pension ("SEP") accounts, 403(b) plans or 457 (state deferred compensation)
plans (except that the minimum initial investment for salary deferrals for such
plans is $25), or for investment of dividends and distributions of any of the
AIM Funds into any existing AIM Funds account.
AFS' mailing address is:
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
For additional information or assistance, investors should call the Client
Services Department of AFS at one of the following telephone numbers:
(713) 626-1919 Extension 5224 (in Houston)
(800) 959-4246 (elsewhere)
BF 12/95
A-1
<PAGE> 44
Shares of any AIM Funds not named on the cover of this Prospectus are offered
pursuant to separate prospectuses. Copies of other prospectuses may be obtained
by calling (713) 626-1919, Extension 5001 (in Houston) or (800) 347-4246
(elsewhere).
HOW TO PURCHASE ADDITIONAL SHARES. The minimum investment for subsequent
purchases is $50. The minimum employee salary deferral investment for
participants in money-purchase/profit sharing plans, 401(k), IRA/SEP, 403(b) or
457 plans is $25. There are no such minimum investment requirements for
investment of dividends and distributions of any of the AIM Funds into any other
existing AIM Funds account.
Additional shares may be purchased directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors.
Direct investments may be made by mail or by wiring payment to AFS as follows:
SUBSEQUENT PURCHASES BY MAIL: Investors must indicate their account number and
the name of the Fund being purchased. The remittance slip from a confirmation
statement should be used for this purpose, and sent to AFS.
PURCHASES BY WIRE: To insure prompt credit to his account, an investor or his
dealer should call AFS' Client Services Department at (800) 959-4246 prior to
sending a wire to receive a reference number for the wire. The following wire
instructions should be used:
<TABLE>
<S> <C>
Beneficiary Bank ABA/Routing #: 113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: AIM Fund Services, Inc.
RFB: Fund name, Reference Number (16 character limit)
OBI: Shareholder Name, Shareholder Account Number
(70 character limit)
</TABLE>
If wires are received after 4:00 p.m. Eastern Time or during a bank holiday,
purchases will be confirmed at the price determined on the next business day of
the applicable AIM Fund.
- - --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF PURCHASE OF THE AIM FUNDS
Shares of the AIM Funds, including Class A shares (the "Class A shares") of
AIM AGGRESSIVE GROWTH FUND, AIM BALANCED FUND, AIM BLUE CHIP FUND, AIM CAPITAL
DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM GLOBAL
AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM
GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM HIGH YIELD FUND, AIM INCOME FUND,
AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM MONEY
MARKET FUND, AIM MUNICIPAL BOND FUND, AIM VALUE FUND and AIM WEINGARTEN FUND,
(other than AIM AGGRESSIVE GROWTH FUND, AIM BLUE CHIP FUND, AIM CAPITAL
DEVELOPMENT FUND and AIM CONSTELLATION FUND, collectively, the "Multiple Class
Funds") may be purchased at their respective net asset value plus a sales charge
as indicated below, except that shares of AIM TAX-EXEMPT CASH FUND and Class C
shares (the "Class C shares") of AIM MONEY MARKET FUND are sold without a sales
charge and Class B shares (the "Class B shares") of the Multiple Class Funds are
sold at net asset value subject to a contingent deferred sales charge payable
upon certain redemptions. These contingent deferred sales charges are described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Securities dealers and other persons entitled to receive compensation for
selling or servicing shares of a Multiple Class Fund may receive different
compensation for selling or servicing one particular class of shares over
another class in the same Multiple Class Fund. Factors an investor should
consider prior to purchasing Class A or Class B shares (or, if applicable, Class
C shares) of a Multiple Class Fund are described below under "Special
Information Relating to Multiple Class Funds." For information on purchasing any
of the AIM Funds and to receive a prospectus, please call (713) 626-1919,
Extension 5001 (in Houston) or (800) 347-4246 (elsewhere). As described below,
the sales charge otherwise applicable to a purchase of shares of a fund may be
reduced if certain conditions are met. In order to take advantage of a reduced
sales charge, the prospective investor or his dealer must advise AIM
Distributors that the conditions for obtaining a reduced sales charge have been
met. Net asset value is determined in the manner described under the caption
"Determination of Net Asset Value." The following tables show the sales charge
and dealer concession at various investment levels for the AIM Funds.
BF 12/95
A-2
<PAGE> 45
SALES CHARGES AND DEALER CONCESSIONS
GROUP I. Certain AIM Funds are currently sold with a sales charge ranging from
5.50% to 2.00% of the offering price on purchases of less than $1,000,000. These
AIM Funds include Class A shares of each of AIM AGGRESSIVE GROWTH FUND, AIM BLUE
CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION
FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM INTERNATIONAL EQUITY FUND,
AIM MONEY MARKET FUND, AIM VALUE FUND and AIM WEINGARTEN FUND.
<TABLE>
<CAPTION>
INVESTOR'S DEALER
SALES CHARGE CONCESSION
--------------------- ----------
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF
THE THE THE
PUBLIC NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
- - --------------------------------- ----- -------- -----
<S> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions. See "All Groups of AIM Funds." Purchases of $1,000,000 or more are
at net asset value, subject to a contingent deferred sales charge of 1% if
shares are redeemed prior to 18 months from the date such shares were purchased,
as described under the caption "How to Redeem Shares -- Contingent Deferred
Sales Charge Program for Large Purchases."
GROUP II. Certain AIM Funds are currently sold with a sales charge ranging
from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds are: AIM TAX-EXEMPT BOND FUND OF CONNECTICUT; and the Class A
shares of each of AIM BALANCED FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM
GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH YIELD FUND, AIM INCOME
FUND, AIM INTERMEDIATE GOVERNMENT FUND and AIM MUNICIPAL BOND FUND.
<TABLE>
<CAPTION>
INVESTOR'S DEALER
SALES CHARGE CONCESSION
--------------------- ----------
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF
THE THE THE
PUBLIC NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
- - --------------------------------- ----- -------- -----
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/ or advance a service fee on such
transactions. See "All Groups of AIM Funds." Purchases of $1,000,000 or more are
at net asset value, subject to a contingent deferred sales charge of 1% if
shares are redeemed prior to 18 months from the date such shares were purchased,
as described under the caption "How to Redeem Shares -- Contingent Deferred
Sales Charge Program for Large Purchases."
GROUP III. Certain AIM Funds are currently sold with a sales charge ranging
from 1.00% to 0.50% of the offering price on purchases of less than $1,000,000.
These AIM Funds are AIM LIMITED MATURITY TREASURY SHARES and AIM TAX-FREE
INTERMEDIATE SHARES.
<TABLE>
<CAPTION>
INVESTOR'S DEALER
SALES CHARGE CONCESSION
--------------------- ----------
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF
THE THE THE
PUBLIC NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
- - --------------------------------- ----- -------- -----
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/ or advance a service fee on such
transactions.
BF 12/95
A-3
<PAGE> 46
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of shares. At the option of the dealer, such incentives may take the form of
payment for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and their families to
places within or outside the United States. The total amount of such additional
bonus payments or other consideration shall not exceed 0.25% of the public
offering price of the shares sold. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the applicable AIM Fund's
shares or the amount that any particular AIM Fund will receive as proceeds from
such sales. Dealers may not use sales of the AIM Funds' shares to qualify for
any incentives to the extent that such incentives may be prohibited by the laws
of any state.
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more of Class A shares (or shares which
normally involve payment of initial sales charges), which are sold at net asset
value and are subject to a contingent deferred sales charge, for all AIM Funds
other than AIM LIMITED MATURITY TREASURY SHARES and AIM TAX-FREE INTERMEDIATE
SHARES as follows: 1% of the first $2 million of such purchases, plus 0.80% of
the next $1 million of such purchases, plus 0.50% of the next $17 million of
such purchases, plus 0.25% of amounts in excess of $20 million of such
purchases. See "Contingent Deferred Sales Charge Programs for Large Purchases."
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1,000,000 or more of shares which normally involve
payment of initial sales charges, and which are sold at net asset value and are
not subject to a contingent deferred sales charge, in an amount up to 0.10% of
such purchases of shares of AIM LIMITED MATURITY TREASURY SHARES, and in an
amount up to 0.25% of such purchases of shares of AIM TAX-FREE INTERMEDIATE
SHARES.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.0% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
TIMING OF PURCHASE ORDERS. Orders for the purchase of shares of an AIM Fund
(other than the Money Market Funds, as described below) received by dealers
prior to 4:00 p.m. Eastern Time on any business day of an AIM Fund and either
received by AIM Distributors in its Houston, Texas office prior to 5:00 p.m.
Central Time on that day or transmitted by dealers to the Transfer Agent through
the facilities of the National Securities Clearing Corporation ("NSCC") by 7:00
p.m. Eastern Time on that day, will be confirmed at the price determined as of
the close of that day. Orders received by dealers after 4:00 p.m. Eastern Time
will be confirmed at the price determined on the next business day of the AIM
Fund. It is the responsibility of the dealer to ensure that all orders are
transmitted on a timely basis to AIM Distributors or to the Transfer Agent
through the facilities of NSCC. Any loss resulting from the dealer's failure to
submit an order within the prescribed time frame will be borne by that dealer.
Please see "How to Purchase Shares -- Purchases by Wire" for information on
obtaining a reference number for wire orders, which will facilitate the handling
of such orders and ensure prompt credit to an investor's account. A "business
day" of an AIM Fund is any day on which the New York Stock Exchange ("NYSE") is
open for business. It is expected that the NYSE will be closed during the next
twelve months on Saturdays and Sundays and on the days on which New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day are observed by the NYSE.
An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. However, in the event of a redemption or exchange of such
shares, the investor may be required to wait up to ten business days before the
redemption proceeds are sent. This delay is necessary in order to ensure that
the check has cleared. If the check does not clear, or if any investment order
must be cancelled due to nonpayment, the investor will be responsible for any
resulting loss to an AIM Fund or to AIM Distributors.
SPECIAL INFORMATION RELATING TO MULTIPLE CLASS FUNDS. The Multiple Class
Funds, other than AIM MONEY MARKET FUND, currently offer two classes of shares,
and AIM MONEY MARKET FUND currently offers three classes of shares, through
separate distribution systems (the "Multiple Distribution System"). Although the
Class A and Class B shares (and with respect to AIM MONEY MARKET FUND, Class C
shares) of a particular Multiple Class Fund represent an interest in the same
portfolio of investments, each class is subject to a different distribution
structure and, as a result, differing expenses. This Multiple Distribution
System allows investors to select the class that is best suited to the
investor's needs and objectives. In considering the options afforded by the
Multiple Distribution System, investors should consider both the applicable
initial sales charge or contingent deferred sales charge, as well as the ongo-
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ing expenses borne by Class A or Class B shares and, if applicable, Class C
shares, and other relevant factors, such as whether his or her investment goals
are long-term or short-term.
CLASS A SHARES are sold subject to the initial sales charges described
above and are subject to the other fees and expenses described herein.
Class A shares of AIM MONEY MARKET FUND are designed to meet the needs of
an investor who wishes to establish a dollar cost averaging program,
pursuant to which Class A shares an investor owns may be exchanged at net
asset value for Class A shares of another Multiple Class Fund or shares of
another AIM Fund which is not a Multiple Class Fund, subject to the terms
and conditions described under the caption "Exchange Privilege -- Terms and
Conditions of Exchanges."
CLASS B SHARES are sold without an initial sales charge. Thus, the entire
purchase price of Class B shares is immediately invested in Class B shares.
Class B shares are subject, however, to Class B Plan payments of 1.00% per
annum on the average daily net assets of a Multiple Class Fund attributable
to Class B shares. See the discussion under the caption
"Management -- Distribution Plans." In addition, Class B shares redeemed
within six years from the date such shares were purchased are subject to a
contingent deferred sales charge ranging from 5% for redemptions made
within the first year to 1% for redemptions made within the sixth year. No
contingent deferred sales charge will be imposed if Class B shares are
redeemed after six years from the date such shares were purchased.
Redemptions of Class B shares and associated charges are further described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Class B shares will automatically convert into Class A shares of the same
Multiple Class Fund (together with a pro rata portion of all Class B shares
acquired through the reinvestment of dividends and distributions) eight
years from the end of the calendar month in which the purchase of Class B
shares was made. Following such conversion of their Class B shares,
investors will be relieved of the higher Class B Plan payments associated
with Class B shares. See "Management -- Distribution Plans."
CLASS C SHARES of AIM MONEY MARKET FUND are sold without an initial sales
charge and are not subject to a contingent deferred sales charge. Such
shares are, however, subject to the other fees and expenses described in
the prospectus for AIM MONEY MARKET FUND.
SPECIAL INFORMATION RELATING TO MONEY MARKET FUNDS. Shares of AIM MONEY MARKET
FUND or AIM TAX-EXEMPT CASH FUND (the "Money Market Funds") are purchased or
exchanged at the net asset value next determined after acceptance of an order
for purchase or exchange in proper form, except for Class A shares of AIM MONEY
MARKET FUND, which are sold with a sales charge. Net asset value is normally
determined at 12:00 noon and 4:00 p.m. Eastern Time on each business day of AIM
MONEY MARKET FUND and at 4:00 p.m. Eastern Time on each business day of AIM
TAX-EXEMPT CASH FUND. Because each Money Market Fund uses the amortized cost
method of valuing the securities it holds and rounds its per share net asset
value to the nearest whole cent, it is anticipated that the net asset value of
the shares of such funds will remain constant at $1.00 per share. However, there
is no assurance that either Money Market Fund can maintain a $1.00 net asset
value per share. In order to earn dividends with respect to AIM MONEY MARKET
FUND on the same day that a purchase is made, purchase payments in the form of
federal funds must be received by the Transfer Agent before 12:00 noon Eastern
Time on that day. See "How to Purchase Shares -- Purchases by Wire." Purchases
made by payments in any other form, or payments in the form of federal funds
received after such time, will begin to earn dividends on the next business day
following the date of purchase. The Money Market Funds generally will not issue
share certificates but will record investor holdings in noncertificate form and
regularly advise the shareholder of his ownership position. Class B shares of
AIM MONEY MARKET FUND are designed for temporary investment as part of an
investment program in the Class B shares and, unlike shares of most money market
funds, are subject to a contingent deferred sales charge as well as Rule 12b-1
distribution fees and service fees.
SHARE CERTIFICATES. Share certificates for all AIM Funds will be issued upon
written request by a shareholder to AIM Distributors or the Transfer Agent.
Otherwise, such shares will be held on the shareholder's behalf by the
applicable AIM Fund(s) and be recorded on the books of such fund(s). See
"Exchange Privilege -- Exchanges by Telephone" and "How to Redeem
Shares -- Redemptions by Telephone" for restrictions applicable to shares issued
in certificate form. Please note that certificates will not be issued for shares
held in prototype retirement plans.
MINIMUM ACCOUNT BALANCE. If (1) an account opened in a fund has been in effect
for at least one year and the shareholder has not made an additional purchase in
that account within the preceding six calendar months and (2) the value of such
account drops below $500 for three consecutive months as a result of redemptions
or exchanges, the fund has the right to redeem the account, after giving the
shareholder 60 days' prior written notice, unless the shareholder makes
additional investments within the notice period to bring the account value up to
$500.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of shares of the AIM Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "purchaser" as hereinafter defined. Purchases of shares of AIM
TAX-EXEMPT CASH FUND, Class C shares of AIM MONEY MARKET FUND and Class B shares
of the Multiple Class Funds will not be taken into account in determining
whether a purchase qualifies for a reduction in initial sales charges.
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The term "purchaser" means:
o an individual and his or her spouse and minor children, including any trust
established exclusively for the benefit of any such person; or a pension,
profit-sharing, or other benefit plan established exclusively for the
benefit of any such person, such as an IRA, a single-participant
money-purchase/profit-sharing plan or an individual participant in a 403(b)
Plan (unless such 403(b) plan qualifies as the purchaser as defined below);
o a 403(b) plan, the employer/sponsor of which is an organization described
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), provided that:
a. the employer/sponsor must submit contributions for all participating
employees in a single contribution transmittal (i.e., the funds will
not accept contributions submitted with respect to individual
participants);
b. each transmittal must be accompanied by a single check or wire
transfer; and
c. all new participants must be added to the 403(b) plan by submitting
an application on behalf of each new participant with the
contribution transmittal;
o a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code, SEP, Salary Reduction and other Elective Simplified Employee Pension
accounts ("SARSEP")) and 457 plans, although more than one beneficiary or
participant is involved;
o any other organized group of persons, whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase at a discount of redeemable securities of a
registered investment company; or
o the discretionary advised accounts of A I M Advisors, Inc. ("AIM") or A I M
Capital Management, Inc. ("AIM Capital").
Investors or dealers seeking to qualify orders for a reduced initial sales
charge must identify such orders and, if necessary, support their qualification
for the reduced charge. AIM Distributors reserves the right to determine whether
any purchaser is entitled, by virtue of the foregoing definition, to the reduced
sales charge. No person or entity may distribute shares of the AIM Funds without
payment of the applicable sales charge other than to persons or entities who
qualify for a reduction in the sales charge as provided herein.
(1) LETTERS OF INTENT. A purchaser, as previously defined, may pay reduced
initial sales charges by completing the appropriate section of the account
application and by fulfilling a Letter of Intent ("LOI"). The LOI privilege is
also available to holders of the Connecticut General Guaranteed Account,
established for tax qualified group annuities, for contracts purchased on or
before June 30, 1992. The LOI confirms such purchaser's intention as to the
total investment to be made in shares of the AIM Funds (except for
(i) AIM TAX-EXEMPT CASH FUND and Class C shares of AIM MONEY MARKET FUND and
(ii) Class B shares of the Multiple Class Funds) within the following 13
consecutive months. By marking the LOI section on the account application and by
signing the account application, the purchaser indicates that he understands and
agrees to the terms of the LOI and is bound by the provisions described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI. At any time during the 13-month
period after meeting the original obligation, a purchaser may revise his
intended investment amount upward by submitting a written and signed request.
Such a revision will not change the original expiration date. By signing an LOI,
a purchaser is not making a binding commitment to purchase additional shares,
but if purchases made within the 13-month period do not total the amount
specified, the investor will pay the increased amount of sales charge as
described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the initial
purchase (or subsequent purchases if necessary) the Transfer Agent will escrow
in the form of shares an appropriate dollar amount (computed to the nearest full
share). All dividends and any capital gain distributions on the escrowed shares
will be credited to the purchaser. All shares purchased, including those
escrowed, will be registered in the purchaser's name. If the total investment
specified under this LOI is completed within the 13-month period, the escrowed
shares will be promptly released. If the intended investment is not completed,
the purchaser will pay the Transfer Agent the difference between the sales
charge on the specified amount and the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration date, he
irrevocably constitutes and appoints the Transfer Agent as his attorney to
surrender for redemption any or all shares, to make up such difference within 60
days of the expiration date.
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If at any time before completing the LOI Program, the purchaser wishes to
cancel the agreement, he must give written notice to AIM Distributors. If at any
time before completing the LOI Program the purchaser requests the Transfer Agent
to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
(2) RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may also
qualify for reduced initial sales charges based upon such purchaser's existing
investment in shares of any of the AIM Funds (except for (i) AIM TAX-EXEMPT CASH
FUND and Class C shares of AIM MONEY MARKET FUND and (ii) Class B shares of the
Multiple Class Funds) at the time of the proposed purchase. Rights of
Accumulation are also available to holders of the Connecticut General Guaranteed
Account, established for tax-qualified group annuities, for contracts purchased
on or before June 30, 1992. To determine whether or not a reduced initial sales
charge applies to a proposed purchase, AIM Distributors takes into account not
only the money which is invested upon such proposed purchase, but also the value
of all shares of the AIM Funds (except for (i) AIM TAX-EXEMPT CASH FUND and
Class C shares of AIM MONEY MARKET FUND and (ii) Class B shares of the Multiple
Class Funds) owned by such purchaser, calculated at their then current public
offering price. If a purchaser so qualifies for a reduced sales charge, the
reduced sales charge applies to the total amount of money then being invested by
such purchaser and not just to the portion that exceeds the breakpoint above
which a reduced sales charge applies. For example, if a purchaser already owns
qualifying shares of any AIM Fund with a value of $20,000 and wishes to invest
an additional $20,000 in a fund with a maximum initial sales charge of 5.50%,
the reduced initial sales charge of 5.25% will apply to the full $20,000
purchase and not just to the $15,000 in excess of the $25,000 breakpoint. To
qualify for obtaining the discount applicable to a particular purchase, the
purchaser or his dealer must furnish AFS with a list of the account numbers and
the names in which such accounts of the purchaser are registered at the time the
purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at
net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and distributions from a fund
(see "Dividends, Distributions and Tax Matters"); (b) exchanges of shares of
certain other funds (see "Exchange Privilege"); (c) use of the reinstatement
privilege (see "How to Redeem Shares"); or (d) a merger, consolidation or
acquisition of assets of a fund.
Shareholders of record of Class A shares of AIM WEINGARTEN FUND and AIM
CONSTELLATION FUND on September 8, 1986, and shareholders of record of Class A
shares of AIM CHARTER FUND on November 17, 1986, may purchase additional Class A
shares of the particular AIM Fund(s) whose shares they owned on such date, at
net asset value (without payment of a sales charge) for as long as they
continuously own Class A shares of such AIM Fund(s) having a market value of at
least $500. In addition, discretionary advised clients of any investment
advisors whose clients held Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND on September 8, 1986, or who held Class A shares of AIM
CHARTER FUND on November 17, 1986, and have held such Class A shares at all
times subsequent to such date, may purchase Class A shares of the applicable AIM
Fund(s) at the net asset value of such shares.
The following persons may purchase shares of the AIM Funds through AIM
Distributors without payment of an initial sales charge: (a) A I M Management
Group Inc. ("AIM Management") and its affiliated companies; (b) any current or
retired officer, director, trustee or employee, or any member of the immediate
family (including spouse, minor children, parents and parents of spouse) of any
such person, of AIM Management or its affiliates or of certain mutual funds
which are advised or managed by AIM, or any trust established exclusively for
the benefit of such persons; (c) any employee benefit plan established for
employees of AIM Management or its affiliates; (d) any current or retired
officer, director, trustee or employee, or any member of the immediate family
(including spouse, minor children, parents and parents of spouse) of any such
person, or of CIGNA Corporation or of any of its affiliated companies, or of
First Data Investor Services Group (formerly The Shareholders Services Group,
Inc.); (e) any investment company sponsored by CIGNA Investments, Inc. or any of
its affiliated companies for the benefit of its directors' deferred compensation
plans; (f) discretionary advised clients of AIM or AIM Capital; (g) registered
representatives and employees of dealers who have entered into agreements with
AIM Distributors (or financial institutions that have arrangements with such
dealers with respect to the sale of shares of the AIM Funds) and any member of
the immediate family (including spouse, minor children, parents and parents of
spouse) of any such person, provided that purchases at net asset value are
permitted by the policies of such person's employer; and (h) certain
broker-dealers, investment advisers or bank trust departments that provide asset
allocation or similar specialized investment services to their customers, that
charge a minimum annual fee for such services, and that have entered into an
agreement with AIM Distributors with respect to their use of the AIM Funds in
connection with such services.
In addition, shares of any AIM Fund may be purchased at net asset value,
without payment of a sales charge, by pension, profit-sharing or other employee
benefit plans created pursuant to a plan qualified under Section 401 of the Code
or plans under Section 457 of the Code, or employee benefit plans created
pursuant to Section 403(b) of the Code and sponsored by nonprofit organizations
defined under Section 501(c)(3) of the Code. Such plans will qualify for
purchases at net asset value provided that (1) the initial amount invested in
the fund(s) is at least $1,000,000, (2) the sponsor signs a $1,000,000 LOI, or
(3) such shares are purchased by an employer-sponsored plan with at least 100
eligible employees. Section 403(b) plans sponsored by public educational
institutions will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees.
Participants in such plans will be eligible for reduced sales charges based
solely on the aggregate value of their individual investments in the applicable
AIM Fund. PLEASE NOTE THAT TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR
SUCH PLANS. AIM
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Distributors may pay investment dealers or other financial service firms up to
1.00% of the net asset value of any shares of the Load Funds (as defined on page
A-10 herein), up to 0.10% of the net asset value of any shares of AIM LIMITED
MATURITY TREASURY SHARES, and up to 0.25% of the net asset value of any shares
of all other AIM Funds sold at net asset value to an employee benefit plan in
accordance with this paragraph.
Class A shares of AIM WEINGARTEN FUND and AIM CONSTELLATION FUND may be
deposited at net asset value, without payment of a sales charge, in G/SET series
unit investment trusts, whose portfolios consist exclusively of Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND and stripped United States
Treasury issued notes or bonds bearing no current interest ("Treasury
Obligations"). Class A shares of such funds may also be purchased at net asset
value by other unit investment trusts approved by the Board of Directors of AIM
Equity Funds, Inc. Unit holders of such trusts may elect to invest cash
distributions from such trusts in Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND at net asset value, including: (a) distributions of any
dividend income or other income received by such trusts; (b) distributions of
any net capital gains received in respect of Class A shares of AIM WEINGARTEN
FUND or AIM CONSTELLATION FUND and proceeds of the sale of Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND used to redeem units of such trusts;
and (c) proceeds from the maturity of the Treasury Obligations at the
termination dates of such trusts. Prior to the termination dates of such trusts,
a unit holder may invest the proceeds from the redemption or repurchase of his
units in Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND at net
asset value, provided: (a) that the investment in Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND is effected within 30 days of such
redemption or repurchase; and (b) that the unit holder or his dealer provides
AIM Distributors with a letter which: (i) identifies the name, address and
telephone number of the dealer who sold to the unit holder the units to be
redeemed or repurchased; and (ii) states that the investment in Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND is being funded exclusively by
the proceeds from the redemption or repurchase of units of such trusts.
FOR ANY FUND NAMED ON THE COVER PAGE OF THIS PROSPECTUS, AIM DISTRIBUTORS AND
ITS AGENTS RESERVE THE RIGHT AT ANY TIME (1) TO WITHDRAW ALL OR ANY PART OF THE
OFFERING MADE BY THIS PROSPECTUS; (2) TO REJECT ANY PURCHASE OR EXCHANGE ORDER
OR TO CANCEL ANY PURCHASE DUE TO NONPAYMENT OF THE PURCHASE PRICE; (3) TO
INCREASE, WAIVE OR LOWER THE MINIMUM INVESTMENT REQUIREMENTS; OR (4) TO MODIFY
ANY OF THE TERMS OR CONDITIONS OF PURCHASE OF SHARES OF SUCH FUND. For any fund
named on the cover page, AIM Distributors and its agents will use their best
efforts to provide notice of any such actions through correspondence with
broker-dealers and existing shareholders, supplements to the AIM Funds'
prospectuses, or other appropriate means, and will provide sixty (60) days'
notice in the case of termination or material modification to the exchange
privilege discussed under the caption "Exchange Privilege."
- - --------------------------------------------------------------------------------
SPECIAL PLANS
Except as noted below, each AIM Fund provides the special plans described
below for the convenience of its shareholders. Once established, there is no
obligation to continue to invest through a plan, and a shareholder may terminate
a plan at any time.
Special plan applications and further information, including details of any
fees which are charged to a shareholder investing through a plan, may be
obtained by written request, directed to AFS at the address provided under "How
to Purchase Shares," or by calling the Client Services Department of AFS at the
phone numbers provided under "How to Purchase Shares." IT IS RECOMMENDED THAT A
SHAREHOLDER CONSIDERING ANY OF THE PLANS DESCRIBED HEREIN CONSULT A TAX ADVISOR
BEFORE COMMENCING PARTICIPATION IN SUCH A PLAN.
SYSTEMATIC WITHDRAWAL PLAN. Under a Systematic Withdrawal Plan, a shareholder
who owns Class A shares of a Multiple Class Fund, Class C shares of AIM Money
Market Fund, or shares of another AIM Fund can arrange for monthly, quarterly or
annual checks in any amount (but not less than $50) to be drawn against the
balance of his account in the designated AIM Fund. Shareholders who own Class B
shares of a Multiple Class Fund can only arrange for monthly or quarterly
withdrawals under a Systematic Withdrawal Plan. Payment of this amount is
normally made on or about the tenth or the twenty-fifth day of each month in
which a payment is to be made. A minimum account balance of $5,000 is required
to establish a Systematic Withdrawal Plan, but there is no requirement
thereafter to maintain any minimum investment. No contingent deferred sales
charge with respect to Class B shares of a Multiple Class Fund will be imposed
on withdrawals made under a Systematic Withdrawal Plan, provided that the
amounts withdrawn under such a plan do not exceed on an annual basis 12% of the
account value at the time the shareholder elects to participate in the
Systematic Withdrawal Plan. Systematic Withdrawal Plans with respect to Class B
shares that exceed on an annual basis 12% of such account will be subject to a
contingent deferred sales charge on the amounts exceeding 12% of the initial
account value.
Under a Systematic Withdrawal Plan, all shares are to be held by the Transfer
Agent and all dividends and distributions are reinvested in shares of the
applicable AIM Fund by the Transfer Agent. To provide funds for payments made
under the Systematic Withdrawal Plan, the Transfer Agent redeems sufficient full
and fractional shares at their net asset value in effect at the time of each
such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are
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imposed on additional purchases of shares (other than Class B Shares and Class C
Shares of the Multiple Class Funds), it is disadvantageous to effect such
purchases while a Systematic Withdrawal Plan is in effect.
The Systematic Withdrawal Plan may be terminated at any time upon 10 days'
prior notice to AFS. Each AIM Fund bears its share of the cost of operating the
Systematic Withdrawal Plan. Each AIM Fund reserves the right to initiate a fee
for each withdrawal (not to exceed its cost), but there is no present intent to
do so.
AUTOMATIC INVESTMENT PLAN. Shareholders who wish to make monthly or quarterly
investments may establish an Automatic Investment Plan. Under this plan, on or
about the tenth and/or twenty-fifth day of the applicable month, a draft is
drawn on the shareholder's bank account in the amount specified by the
shareholder (minimum $50 per investment, per account). The proceeds of the draft
are invested in shares of the designated AIM Fund at the applicable offering
price determined on the date of the draft. An Automatic Investment Plan may be
discontinued upon 10 days' prior notice to the Transfer Agent or AIM
Distributors.
AUTOMATIC DIVIDEND INVESTMENT PLAN. Shareholders may elect to have all
dividends and distributions declared by an AIM Fund paid in cash or invested at
net asset value, without payment of an initial sales charge, either in shares of
the same AIM Fund or invested in shares of another AIM Fund. For each of the
Multiple Class Funds, dividends and distributions attributable to Class A shares
may be reinvested in Class A shares of the same fund, in Class A shares of
another Multiple Class Fund or in shares of another AIM Fund which is not a
Multiple Class Fund; dividends and distributions attributable to Class B shares
may be reinvested in Class B shares of the same fund or in Class B shares of
another Multiple Class Fund; and dividends and distributions attributable to
Class C shares of AIM MONEY MARKET FUND may be reinvested in additional shares
of such fund, in Class A shares of another Multiple Class Fund or in shares of
another AIM Fund which is not a Multiple Class Fund. See "Dividends,
Distributions and Tax Matters -- Dividends and Distributions" for a description
of payment dates for these options. In order to qualify to have dividends and
distributions of one AIM Fund invested in shares of another AIM Fund, the
following conditions must be satisfied: (a) the shareholder must have an account
balance in the dividend paying fund of at least $5,000; (b) the account must be
held in the name of the shareholder (i.e., the account may not be held in
nominee name); and (c) the shareholder must have requested and completed an
authorization relating to the reinvestment of dividends into another AIM Fund.
An authorization may be given on the account application or on an authorization
form available from AIM Distributors. An AIM Fund will waive the $5,000 minimum
account value requirement if the shareholder has an account in the fund selected
to receive the dividends and distributions with a value of at least $500.
DOLLAR COST AVERAGING. Shareholders may elect to have a specified amount
automatically exchanged, either monthly or quarterly (on or about the 10th or
25th day of the applicable month), from one of their accounts into one or more
AIM Funds, subject to the terms and conditions described under the caption
"Exchange Privilege -- Terms and Conditions of Exchanges." The account from
which exchanges are to be made must have a value of at least $5,000 when a
shareholder elects to begin this program, and the exchange minimum is $50 per
transaction. All of the accounts that are part of this program must have
identical registrations. The net asset value of shares purchased under this
program may vary, and may be more or less advantageous than if shares were not
exchanged automatically. There is no charge for entering the Dollar Cost
Averaging program. Sales charges may apply, as described under the caption
"Exchange Privilege."
PROTOTYPE RETIREMENT PLANS. The AIM Funds (except for AIM TAX-FREE
INTERMEDIATE SHARES, AIM TAX-EXEMPT CASH FUND, AIM MUNICIPAL BOND FUND and AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT) have made the following prototype
retirement plans available to corporations, individuals and employees of
non-profit organizations and public schools: combination money-
purchase/profit-sharing plans; 403(b) plans; IRA plans; and SEP plans
(collectively, "retirement accounts"). Information concerning these plans,
including the custodian's fees and the forms necessary to adopt such plans, can
be obtained by calling or writing the AIM Funds or AIM Distributors. Shares of
the AIM Funds are also available for investment through existing 401(k) plans
(for both individuals and employers) adopted under the Code. The plan custodian
currently imposes an annual $10 maintenance fee with respect to each retirement
account for which it serves as the custodian. This fee is generally charged in
December. Each AIM Fund and/or the custodian reserve the right to change this
maintenance fee and to initiate an establishment fee (not to exceed its cost).
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- - --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
TERMS AND CONDITIONS OF EXCHANGES. Shareholders of the AIM Funds may
participate in an exchange privilege as described below. The exchange privilege
is also available to holders of the Connecticut General Guaranteed Account,
established for tax-qualified group annuities, for contracts purchased on or
before June 30, 1992. AIM Distributors acts as distributor for the AIM Funds,
which represent a range of different investment objectives and policies. As set
forth under the caption "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions," shares of certain of the AIM
Funds, including the Class A shares of the Multiple Class Funds, referred to
herein as the "Load Funds," are sold at a public offering price that includes a
maximum sales charge of 5.50% or 4.75% of the public offering price of such
shares; shares of certain of the AIM Funds, referred to herein as the "Lower
Load Funds," are sold at a public offering price that includes a maximum sales
charge of 1.00% of the public offering price of such shares; and shares of
certain other funds, including the Class C shares of AIM MONEY MARKET FUND,
referred to herein as the "No Load Funds," are sold at net asset value, without
payment of a sales charge.
<TABLE>
<S> <C> <C>
LOAD FUNDS: LOWER LOAD FUNDS:
AIM AGGRESSIVE GROWTH AIM GROWTH FUND -- CLASS A AIM LIMITED MATURITY TREASURY SHARES
FUND -- CLASS A AIM HIGH YIELD FUND -- CLASS A AIM TAX-FREE INTERMEDIATE SHARES
AIM BALANCED FUND -- CLASS A AIM INCOME FUND -- CLASS A
AIM BLUE CHIP FUND -- CLASS A AIM INTERMEDIATE GOVERNMENT NO LOAD FUNDS:
AIM CAPITAL DEVELOPMENT FUND -- CLASS A AIM MONEY MARKET FUND -- CLASS C
FUND -- CLASS A AIM INTERNATIONAL EQUITY AIM TAX-EXEMPT CASH FUND
AIM CHARTER FUND -- CLASS A FUND -- CLASS A
AIM CONSTELLATION AIM MONEY MARKET
FUND -- CLASS A FUND -- CLASS A
AIM GLOBAL AGGRESSIVE GROWTH AIM MUNICIPAL BOND
FUND -- CLASS A FUND -- CLASS A
AIM GLOBAL GROWTH AIM TAX-EXEMPT BOND FUND
FUND -- CLASS A OF CONNECTICUT
AIM GLOBAL INCOME AIM VALUE FUND -- CLASS A
FUND -- CLASS A AIM WEINGARTEN FUND -- CLASS A
AIM GLOBAL UTILITIES
FUND -- CLASS A
</TABLE>
Shares of any AIM Fund may be exchanged for shares of any other AIM Fund,
except that (i) Load Fund share purchases of $1,000,000 or more which are
subject to a contingent deferred sales charge may not be exchanged for Lower
Load Funds or for AIM TAX-EXEMPT CASH FUND; (ii) Lower Load Fund share purchases
of $1,000,000 or more and No Load Fund purchases may be exchanged for Load Fund
shares in amounts of $1,000,000 or more which will then be subject to a
contingent deferred sales charge; however, for purposes of calculating the
contingent deferred sales charge on the Load Fund shares acquired, the 18-month
period shall be computed from the date of such exchange; (iii) Class A shares
and shares of all other AIM Funds may not be exchanged for Class B shares; (iv)
Class B shares may be exchanged only for Class B shares; and (v) Class C shares
of AIM MONEY MARKET FUND may not be exchanged for Class A shares of AIM MONEY
MARKET FUND or for Class B shares. For shares initially purchased prior to
November 20, 1995, the exchange conditions in (i) and (ii) above will apply
effective January 16, 1996. DEPENDING UPON THE FUND FROM WHICH AND INTO WHICH AN
EXCHANGE IS BEING MADE, SHARES BEING ACQUIRED IN AN EXCHANGE MAY BE ACQUIRED AT
THEIR OFFERING PRICE OR AT THEIR NET ASSET VALUE (WITHOUT PAYMENT OF A SALES
CHARGE) AS SET FORTH IN THE TABLE BELOW FOR SHARES INITIALLY PURCHASED PRIOR TO
MAY 1, 1994:
<TABLE>
<CAPTION>
MULTIPLE CLASS
LOWER LOAD NO LOAD FUNDS:
FROM: TO: LOAD FUNDS FUNDS FUNDS CLASS B
- - ---------------- ----------------- --------------------- ---------------- --------------
<S> <C> <C> <C> <C>
Load Funds...... Net Asset Value Net Asset Value Net Asset Value Not
Applicable
Lower Load Net Asset Value if shares were held Net Asset Value Net Asset Value Not
Funds......... for at least 30 days; or if shares Applicable
were acquired upon exchange of any
Load Fund; or if shares were acquired
upon exchange from any Lower Load
Fund and such shares were held for at
least 30 days. (No exchange privilege
is available for the first 30 days
following the purchase of the Lower
Load Fund shares.)
</TABLE>
(Table continued on following page)
BF 12/95
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<TABLE>
<CAPTION>
MULTIPLE CLASS
LOWER LOAD NO LOAD FUNDS:
FROM: TO: LOAD FUNDS FUNDS FUNDS CLASS B
- - ---------------- ----------------- --------------------- ---------------- --------------
<S> <C> <C> <C> <C>
No Load Funds... Offering Price if No Load shares were Net Asset Value if No Net Asset Value Not
directly purchased. Net Asset Value Load shares were Applicable
if No Load shares were acquired upon acquired upon
exchange of shares of any Load Fund exchange of shares of
or any Lower Load Fund; Net Asset any Load Fund or any
Value if No Load shares were acquired Lower Load Fund;
upon exchange of Lower Load Fund otherwise,
shares and were held for at least 30 Offering Price.
days following the purchase of the
Lower Load Fund shares. (No exchange
privilege is available for the first
30 days following the acquisition of
the Lower Load Fund shares.)
Multiple Class
Funds:
Class B....... Not Applicable Not Applicable Not Applicable Net Asset
Value
FOR SHARES INITIALLY PURCHASED ON OR AFTER MAY 1, 1994, THE FOREGOING TABLE IS REVISED AS FOLLOWS:
Load Funds...... Net Asset Value Net Asset Value Net Asset Value Not
Applicable
Lower Load Net Asset Value if shares were Net Asset Value Net Asset Value Not
Funds......... acquired upon exchange of any Load Applicable
Fund. Otherwise, difference in sales
charge will apply.
No Load Funds... Offering Price if No Load shares were Net Asset Value if No Net Asset Value Not
directly purchased. Net Asset Value Load shares were Applicable
if No Load shares were acquired upon acquired upon
exchange of shares of any Load Fund. exchange of shares of
Difference in sales charge will apply any Load Fund or any
if No Load shares were acquired upon Lower Load Fund;
exchange of Lower Load Fund shares. otherwise, Offering
Price.
Multiple Class
Funds:
Class B....... Not Applicable Not Applicable Not Applicable Net Asset
Value
</TABLE>
An exchange is permitted only in the following circumstances: (a) if the funds
offer more than one class of shares, the exchange must be between the same class
of shares (e.g., Class A and Class B shares of a Multiple Class Fund cannot be
exchanged for each other), except that Class C shares of AIM MONEY MARKET FUND
may be exchanged for Class A shares of another Multiple Class Fund; (b) the
dollar amount of the exchange must be at least equal to the minimum investment
applicable to the shares of the fund acquired through such exchange; (c) the
shares of the fund acquired through exchange must be qualified for sale in the
state in which the shareholder resides; (d) the exchange must be made between
accounts having identical registrations and addresses; (e) the full amount of
the purchase price for the shares being exchanged must have already been
received by the fund; (f) the account from which shares have been exchanged must
be coded as having a certified taxpayer identification number on file or, in the
alternative, an appropriate Internal Revenue Service ("IRS") Form W-8
(certificate of foreign status) or Form W-9 (certifying exempt status) must have
been received by the fund; (g) newly acquired shares (through either an initial
or subsequent investment) are held in an account for at least ten business days,
and all other shares are held in an account for at least one day, prior to the
exchange; and (h) certificates representing shares must be returned before
shares can be exchanged.
THE CURRENT PROSPECTUS OF EACH OF THE AIM FUNDS AND CURRENT INFORMATION
CONCERNING THE OPERATION OF THE EXCHANGE PRIVILEGE ARE AVAILABLE THROUGH AIM
DISTRIBUTORS OR THROUGH ANY DEALER WHO HAS EXECUTED AN APPLICABLE AGREEMENT WITH
AIM DISTRIBUTORS. BEFORE EXCHANGING SHARES, INVESTORS SHOULD REVIEW THE
PROSPECTUSES OF THE FUNDS WHOSE SHARES WILL BE ACQUIRED THROUGH EXCHANGE.
EXCHANGES OF SHARES ARE CONSIDERED TO BE SALES FOR FEDERAL AND STATE INCOME TAX
PURPOSES AND MAY RESULT IN A TAXABLE GAIN OR LOSS TO A SHAREHOLDER.
THE EXCHANGE PRIVILEGE IS NOT AN OPTION OR RIGHT TO PURCHASE SHARES BUT IS
PERMITTED UNDER THE RESPECTIVE POLICIES OF THE PARTICIPATING FUNDS, AND MAY BE
MODIFIED OR DISCONTINUED BY ANY OF SUCH FUNDS OR BY AIM DISTRIBUTORS AT ANY
TIME, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WITHOUT NOTICE.
There is no fee for exchanges among the AIM Funds. A service fee of $5 per
transaction may, however, be charged by AIM Distributors on accounts of market
timing investment firms to help to defray the costs of maintaining an automated
exchange service. This service fee will be charged against the market timing
account from which shares are being exchanged.
Shares to be exchanged are redeemed at their net asset value as determined at
the close of business on the day that an exchange request in proper form
(described below) is received by AFS in its Houston, Texas office, provided that
such request is received prior to 4:00 p.m. Eastern Time. Exchange requests
received after this time will result in the redemption of shares at their net
asset value as determined at the close of business on the next business day.
Normally, shares of an AIM Fund to be acquired by exchange are purchased at
their net asset value or applicable offering price, as the case may be,
determined on the date that such request is received by AIM Distributors, but
under unusual market conditions such purchases may be delayed for up to five
business days if it is determined that a fund would be materially disadvantaged
by an immediate transfer of the proceeds of the exchange. If a shareholder is
exchang-
BF 12/95
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<PAGE> 54
ing into a fund paying daily dividends (See "Dividends, Distributions and Tax
Matters -- Dividends and Distributions," below), and the release of the exchange
proceeds is delayed for the foregoing five-day period, such shareholder will not
begin to accrue dividends until the sixth business day after the exchange.
Shares purchased by check may not be exchanged until it is determined that the
check has cleared, which may take up to ten business days from the date that the
check is received. See "Terms and Conditions of Purchase of the AIM
Funds -- Timing of Purchase Orders."
In the event of unusual market conditions, AIM Distributors reserves the right
to reject any exchange request, if, in the judgment of AIM Distributors, the
number of requests or the total value of the shares that are the subject of the
exchange places a material burden on a fund. For example, the number of
exchanges by investment managers making market timing exchanges may be limited.
EXCHANGES BY MAIL. Investors exchanging their shares by mail should send a
written request to AFS. The request should contain the account registration and
account number, the dollar amount or number of shares to be exchanged, and the
names of the funds from which and into which the exchange is to be made. The
request should comply with all of the requirements for redemption by mail,
except those required for redemption of IRAs. See "How to Redeem Shares."
EXCHANGES BY TELEPHONE. Shareholders or their agents may request an exchange
by telephone. If a shareholder does not wish to allow telephone exchanges by any
person in his account, he should decline that option on the account application.
AIM Distributors has made arrangements with certain dealers and investment
advisory firms to accept telephone instructions to exchange shares between any
of the AIM Funds. AIM Distributors reserves the right to impose conditions on
dealers or investment advisors who make telephone exchanges of shares of the
funds, including the condition that any such dealer or investment advisor enter
into an agreement (which contains additional conditions with respect to
exchanges of shares) with AIM Distributors. To exchange shares by telephone, a
shareholder, dealer or investment advisor who has satisfied the foregoing
conditions must call AFS at the appropriate telephone number indicated under the
caption "How to Purchase Shares." If a shareholder is unable to reach AFS by
telephone, he may also request exchanges by telegraph or use overnight courier
services to expedite exchanges by mail, which will be effective on the business
day received by the applicable fund(s) as long as such request is received prior
to 4:00 p.m. Eastern Time. The Transfer Agent and AIM Distributors will not be
liable for any loss, expense or cost arising out of any telephone exchange
request that they reasonably believe to be genuine, but may in certain cases be
liable for losses due to unauthorized or fraudulent transactions. Procedures for
verification of telephone transactions may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction.
EXCHANGES OF CLASS B SHARES. A contingent deferred sales charge will not be
imposed in connection with exchanges among Class B shares of Multiple Class
Funds. For purposes of determining a shareholder's holding period of Class B
shares in the calculation of the applicable contingent deferred sales charge,
the period of time during which Class B shares were held prior to an exchange
will be added to the holding period of Class B shares acquired in an exchange.
- - --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Shares of the AIM Funds may be redeemed directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors. In
addition to the obligation of the fund(s) named on the cover page to redeem
shares, AIM Distributors also repurchases shares. Although a contingent deferred
sales charge may be applicable to certain redemptions, as described below, there
is no redemption fee imposed when shares are redeemed or repurchased; however,
dealers may charge service fees for handling repurchase transactions.
MULTIPLE DISTRIBUTION SYSTEM. Class B shares purchased under the Multiple
Distribution System may be redeemed on any business day of a Multiple Class Fund
at the net asset value per share next determined following receipt of the
redemption order, as described under the caption "Timing and Pricing of
Redemption Orders," less the applicable contingent deferred sales charge shown
in the table below. No deferred sales charge will be imposed (i) on redemptions
of Class B shares following six years from the date such shares were purchased,
(ii) on Class B shares acquired through reinvestments of dividends and
distributions attributable to Class B shares or (iii) on amounts that represent
capital appreciation in the shareholder's account above the purchase price of
the Class B shares.
<TABLE>
<CAPTION>
YEAR CONTINGENT DEFERRED
SINCE SALES CHARGE AS
PURCHASE % OF DOLLAR AMOUNT
MADE SUBJECT TO CHARGE
---------- --------------------
<S> <C>
First...................................................... 5%
Second..................................................... 4%
Third...................................................... 3%
Fourth..................................................... 3%
Fifth...................................................... 2%
Sixth...................................................... 1%
Seventh and Following...................................... None
</TABLE>
BF 12/95
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<PAGE> 55
In determining whether a contingent deferred sales charge is applicable, it
will be assumed that a redemption is made first, of any shares held in the
shareholder's account that are not subject to such charge; second, of shares
derived from reinvestment of dividends and distributions; third, of shares held
for more than six years from the date such shares were purchased; and fourth, of
shares held less than six years from the date such shares were purchased. The
applicable sales charge will be applied against the lesser of the current market
value of shares redeemed or their original cost.
Contingent deferred sales charges on Class B shares will be waived on
redemptions (1) following the registered shareholder's (or in the case of joint
accounts, all registered joint owners') death or disability, as defined in
Section 72(m)(7) of the Code (provided AIM Distributors is notified of such
death or disability at the time of the redemption request and is provided with
satisfactory evidence of such death or disability), (2) in connection with
certain distributions from individual retirement accounts, custodial accounts
maintained pursuant to Code Section 403(b), deferred compensation plans
qualified under Code Section 457 and plans qualified under Code Section 401
(collectively, "Retirement Plans"), (3) pursuant to a Systematic Withdrawal
Plan, provided that amounts withdrawn under such plan do not exceed on an annual
basis 12% of the value of the shareholder's investment in Class B shares at the
time the shareholder elects to participate in the Systematic Withdrawal Plan,
(4) effected pursuant to the right of a Multiple Class Fund to liquidate a
shareholder's account if the aggregate net asset value of shares held in the
account is less than the designated minimum account size described in the
prospectus of such Multiple Class Fund and (5) effected by AIM of its investment
in Class B shares. Waiver category (1) above applies only to redemptions: (i)
made within one year following death or initial determination of disability and
(ii) of Class B shares held at the time of death or initial determination of
disability. Waiver category (2) above applies only to redemptions resulting
from: (i) required minimum distributions to plan participants or beneficiaries
who are age 70 1/2 or older, and only with respect to that portion of such
distributions which does not exceed 12% annually of the participant's or
beneficiary's account value; (ii) in kind transfers of assets where the
participant or beneficiary notifies AIM Distributors of such transfer no later
than the time such transfer occurs; (iii) tax-free rollovers or transfers of
assets to another Retirement Plan invested in Class B shares of one or more
Multiple Class Funds; (iv) tax-free returns of excess contributions or returns
of excess deferral amounts; and (v) distributions upon the death or disability
(as defined in the Code) of the participant or beneficiary.
CONTINGENT DEFERRED SALES CHARGE PROGRAM FOR LARGE PURCHASES. Except for
purchases of Class B shares of a Multiple Class Fund and purchases of shares of
the No Load Funds and Lower Load Funds, a contingent deferred sales charge of 1%
applies to purchases of $1,000,000 or more that are redeemed within 18 months of
the date of purchase. For a description of the AIM Funds participating in this
program, see "Terms and Conditions of Purchase of the AIM Funds -- Sales Charges
and Dealer Concessions." This charge will be 1% of the lesser of the value of
the shares redeemed (excluding reinvested dividends and capital gain
distributions) or the total original cost of such shares. In determining whether
a contingent deferred sales charge is payable, and the amount of any such
charge, shares not subject to the contingent deferred sales charge are redeemed
first (including shares purchased by reinvested dividends and capital gains
distributions and amounts representing increases from capital appreciation), and
then other shares are redeemed in the order of purchase. No such charge will be
imposed upon exchanges unless the shares acquired by exchange are redeemed
within 18 months of the date the shares were originally purchased. For purposes
of computing this 18-month period (i) shares of any Load Fund or Class C shares
of AIM MONEY MARKET FUND which were acquired through an exchange of shares which
previously were subject to the 1% contingent deferred sales charge will be
credited with the period of time such exchanged shares were held, and (ii)
shares of any Load Fund which are subject to the 1% contingent deferred sales
charge and which were acquired through an exchange of shares of a Lower Load
Fund or a No Load Fund which previously were not subject to the 1% contingent
deferred sales charge will not be credited with the period of time such
exchanged shares were held. The charge will be waived in the following
circumstances: (1) redemptions of shares by employee benefit plans ("Plans")
qualified under Sections 401 or 457 of the Code, or Plans created under Section
403(b) of the Code and sponsored by nonprofit organizations as defined under
Section 501(c)(3) of the Code, where (a) the initial amount invested by a Plan
in one or more of the AIM Funds is at least $1,000,000, (b) the sponsor of a
Plan signs a letter of intent to invest at least $1,000,000 in one or more of
the AIM Funds, or (c) the shares being redeemed were purchased by an
employer-sponsored Plan with at least 100 eligible employees; provided, however,
that Plans created under Section 403(b) of the Code which are sponsored by
public educational institutions shall qualify under (a), (b) or (c) above on the
basis of the value of each Plan participant's aggregate investment in the AIM
Funds, and not on the aggregate investment made by the Plan or on the number of
eligible employees; (2) redemptions of shares following the registered
shareholder's (or in the case of joint accounts, all registered joint owners')
death or disability, as defined in Section 72(m)(7) of the Code; (3) redemptions
of shares purchased at net asset value by private foundations or endowment funds
where the initial amount invested was at least $1,000,000; and (4) redemptions
of shares purchased by an investor in amounts of $1,000,000 or more where such
investor's dealer of record, due to the nature of the investor's account,
notifies AIM Distributors prior to the time of investment that the dealer waives
the payments otherwise payable to the dealer as described in the third paragraph
under the caption "Terms and Conditions of Purchase of the AIM Funds -- All
Groups of AIM Funds."
REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to the
Transfer Agent. Upon receipt of a redemption request in proper form, payment
will be made as soon as practicable, but in any event will normally be made
within seven days after receipt. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders."
BF 12/95
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<PAGE> 56
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the Fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnerships, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.
In addition to these requirements, shareholders who have invested in a fund to
establish an IRA, should include the following information along with a written
request for either partial or full liquidation of fund shares: (a) a statement
as to whether or not the shareholder has attained age 59 1/2; and (b) a
statement as to whether or not the shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.
REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by telephone.
If a shareholder does not wish to allow telephone redemptions by any person in
his account, he should decline that option on the account application. The
telephone redemption feature can be used only if: (a) the redemption proceeds
are to be mailed to the address of record or wired to the pre-authorized bank
account as indicated on the account application; (b) there has been no change of
address of record on the account within the preceding 30 days; (c) the shares to
be redeemed are not in certificate form; (d) the person requesting the
redemption can provide proper identification information; and (e) the proceeds
of the redemption do not exceed $50,000. Accounts in AIM Distributors' prototype
retirement plans (such as IRA and IRA/SEP) or 403(b) plans are not eligible for
the telephone redemption option. AIM Distributors has made arrangements with
certain dealers and investment advisors to accept telephone instructions for the
redemption of shares. AIM Distributors reserves the right to impose conditions
on these dealers and investment advisors, including the condition that they
enter into agreements (which contain additional conditions with respect to the
redemption of shares) with AIM Distributors. The Transfer Agent and AIM
Distributors will not be liable for any loss, expense or cost arising out of any
telephone redemption request effected in accordance with the authorization set
forth at that item of the account application if they reasonably believe such
request to be genuine, but may in certain cases be liable for losses due to
unauthorized or fraudulent transactions. Procedures for verification of
telephone transactions may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security Number and current address, and mailings of confirmations
promptly after the transaction.
EXPEDITED REDEMPTIONS (AIM MONEY MARKET FUND ONLY). If a redemption order is
received prior to 11:30 a.m. Eastern Time, the redemption will be effective on
that day and AIM MONEY MARKET FUND will endeavor to transmit payment on that
same business day. If the redemption order is received after 11:30 a.m. and
prior to 4:00 p.m. Eastern Time, the redemption will be made at the net asset
value determined at 4:00 p.m. Eastern Time and payment will generally be
transmitted on the next business day.
REDEMPTIONS BY CHECK (AIM TAX-EXEMPT CASH FUND and Class C Shares of AIM MONEY
MARKET FUND). After completing the appropriate authorization form, shareholders
may use checks to effect redemptions from AIM TAX-EXEMPT CASH FUND and the Class
C Shares of AIM MONEY MARKET FUND. This privilege does not apply to retirement
accounts or qualified plans. Checks may be drawn in any amount of $250 or more.
Checks drawn against insufficient shares in the account, against shares held
less than ten business days, or in amounts of less than the applicable minimum
will be returned to the payee. The payee of the check may cash or deposit it in
the same way as an ordinary bank check. When a check is presented to the
Transfer Agent for payment, the Transfer Agent will cause a sufficient number of
shares of such fund to be redeemed to cover the amount of the check.
Shareholders are entitled to dividends on the shares redeemed through the day on
which the check is presented to the Transfer Agent for payment.
TIMING AND PRICING OF REDEMPTION ORDERS. Shares of the various AIM Funds are
redeemed at their net asset value next computed after a request for redemption
in proper form (including signature guarantees and other required documentation
for written redemptions) is received by the Transfer Agent, except that Class B
shares of the Multiple Class Funds, and Class A shares of the Multiple Class
Funds and shares of the other AIM Funds that are subject to the contingent
deferred sales charge program for large purchases described above, may be
subject to the imposition of deferred sales charges that will be deducted from
the redemption proceeds. See "Multiple Distribution System" and "Contingent
Deferred Sales Charge Program for Large Purchases." Orders for the redemption of
shares received in proper form by dealers prior to 4:00 p.m. Eastern Time on any
business day of an AIM Fund and either received by the Transfer Agent in its
Houston, Texas office prior to 5:00 p.m. Central Time on that day or transmitted
by dealers to the Transfer Agent through the facilities of NSCC by 7:00 p.m.
Eastern Time on that day, will be confirmed at the price determined as of the
close of that day. Orders received by dealers after 4:00 p.m. Eastern Time will
be confirmed at the price determined on the next business day of an AIM Fund. It
is the responsibility of the dealer to ensure that all orders are transmitted on
a timely basis to the Transfer Agent through the facilities of NSCC. Any
resulting loss from the dealer's failure to submit a request for redemption
within the prescribed time frame will be borne by that dealer. Telephone
redemption requests must be made by 4:00 p.m. Eastern Time on any business day
of an AIM Fund and will be confirmed at the price determined as of the close of
that day. No AIM Fund will accept requests which specify a particular date for
redemption or which specify any special conditions.
Payment of the proceeds of redeemed shares is normally mailed within seven
days following the redemption date. However, in the event of a redemption of
shares purchased by check, the investor may be required to wait up to ten
business days before the redemption proceeds are sent. See "Terms and Conditions
of Purchase of the AIM Funds -- Timing of Purchase Orders." A charge for special
BF 12/95
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<PAGE> 57
handling (such as wiring of funds or expedited delivery services) may be made by
the Transfer Agent. The right of redemption may not be suspended or the date of
payment upon redemption postponed except under unusual circumstances such as
when trading on the NYSE is restricted or suspended. Payment of the proceeds of
redemptions relating to shares for which checks sent in payment have not yet
cleared will be delayed until it is determined that the check has cleared, which
may take up to ten business days from the date that the check is received.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect the
investor, the AIM Funds, AIM Distributors, and their agents by verifying the
signature of each investor seeking to redeem, transfer, or exchange shares of an
AIM Fund. Examples of when signature guarantees are required are: (1)
redemptions by mail in excess of $50,000; (2) redemptions by mail if the
proceeds are to be paid to someone other than the name(s) in which the account
is registered; (3) written redemptions requesting proceeds to be sent by wire to
other than the bank of record for the account; (4) redemptions requesting
proceeds to be sent to a new address or an address that has been changed within
the past 30 days; (5) requests to transfer the registration of shares to another
owner; (6) telephone exchange and telephone redemption authorization forms; (7)
changes in previously designated wiring instructions; and (8) written
redemptions or exchanges of shares previously reported as lost, whether or not
the redemption amount is under $50,000 or the proceeds are to be sent to the
address of record. These requirements may be waived or modified upon notice to
shareholders.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the Securities and
Exchange Commission ("SEC"), and further provided that such guarantor
institution is listed in one of the reference guides contained in the Transfer
Agent's current Signature Guarantee Standards and Procedures, such as certain
domestic banks, credit unions, securities dealers, or securities exchanges. The
Transfer Agent will also accept signatures with either: (1) a signature
guaranteed with a medallion stamp of the STAMP Program, or (2) a signature
guaranteed with a medallion stamp of the NYSE Medallion Signature Program,
provided that in either event, the amount of the transaction involved does not
exceed the surety coverage amount indicated on the medallion. For information
regarding whether a particular institution or organization qualifies as an
"eligible guarantor institution," an investor should contact the Client Services
Department of AFS.
REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY). Within 90 days of a redemption,
a shareholder may invest all or part of the redemption proceeds in shares of the
AIM Fund from which the redemption was made at the net asset value next computed
after receipt by the Transfer Agent of the funds to be reinvested. The
shareholder must ask the Transfer Agent for such privilege at the time of
reinvestment. A realized gain on the redemption is taxable, and reinvestment
will not alter any capital gains payable. If there has been a loss on the
redemption, all of the loss may not be tax deductible, depending on the timing
and amount reinvested. Under the Code, if the redemption proceeds of fund shares
on which a sales charge was paid are reinvested in (or exchanged for) shares of
the same fund within 90 days of the payment of the sales charge, the
shareholder's basis in the fund shares redeemed may not include the amount of
the sales charge paid, thereby reducing the loss or increasing the gain
recognized from the redemption. Each AIM Fund may amend, suspend or cease
offering this privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation. This privilege may only be exercised once
each year by a shareholder with respect to each AIM Fund.
Shareholders who are assessed a contingent deferred sales charge in connection
with the redemption of Class A shares of the Multiple Class Funds or shares of
any other AIM Fund, and who subsequently reinvest a portion or all of the value
of the redeemed shares in shares of the same AIM Fund within 90 days after such
redemption may do so at net asset value if such privilege is claimed at the time
of reinvestment. Such reinvested proceeds will not be subject to either a
front-end sales charge at the time of reinvestment or an additional contingent
deferred sales charge upon subsequent redemption. In order to exercise this
reinvestment privilege, the shareholder must notify the Transfer Agent of his or
her intent to do so at the time of reinvestment. This reinvestment privilege
does not apply to Class B shares.
- - --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each AIM Fund is determined
as of 4:00 p.m. Eastern Time (12:00 noon and 4:00 p.m. Eastern Time with respect
to AIM MONEY MARKET FUND), on each "business day" of a fund as previously
defined. In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time)
on a particular day, the net asset value of an AIM Fund's share will be
determined as of the close of the NYSE on such day. For purposes of determining
net asset value per share, futures and options contract closing prices which are
available 15 minutes after the close of trading of the NYSE will generally be
used. The net asset value per share is calculated by subtracting a fund's
liabilities from its assets and dividing the result by the total number of fund
shares outstanding. The determination of each fund's net asset value per share
is made in accordance with generally accepted accounting principles. Among other
items, a fund's liabilities include accrued expenses and dividends payable, and
its total assets include portfolio securities valued at their market value, as
well as income accrued but not yet received. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the supervision of the fund's officers and in accordance
with methods which are specifically authorized by its governing Board of
Directors or Trustees. Short-term obligations with maturities of 60 days or
less, and the securities held by the Money Market Funds, are valued at amortized
cost as reflecting fair value. AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND
OF CONNECTICUT and AIM TAX-FREE INTERMEDIATE SHARES value variable rate se-
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curities that have an unconditional demand or put feature exercisable within
seven days or less at par, which reflects the market value of such securities.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of an AIM Fund's shares are determined as of
such times. Foreign currency exchange rates are also generally determined prior
to the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which the
values of the securities are determined and the close of the NYSE which will not
be reflected in the computation of an AIM Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in good faith
by or under the supervision of the Board of Directors or Trustees of the
applicable AIM Fund.
- - --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Each AIM Fund's policy regarding the payment of dividends and distributions is
set forth below.
<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
OF NET OF NET
DIVIDENDS FROM REALIZED REALIZED
NET INVESTMENT SHORT-TERM LONG-TERM
FUND INCOME CAPITAL GAINS CAPITAL GAINS
- - ---------------------------------------- ----------------------- --------------- ---------------
<S> <C> <C> <C>
AIM AGGRESSIVE GROWTH FUND.............. declared and paid annually annually
annually
AIM BALANCED FUND....................... declared and paid annually annually
quarterly
AIM BLUE CHIP FUND...................... declared and paid annually annually
annually
AIM CAPITAL DEVELOPMENT FUND............ declared and paid annually annually
annually
AIM CHARTER FUND........................ declared and paid annually annually
quarterly
AIM CONSTELLATION FUND.................. declared and paid annually annually
annually
AIM GLOBAL AGGRESSIVE GROWTH FUND....... declared and paid annually annually
annually
AIM GLOBAL GROWTH FUND.................. declared and paid annually annually
annually
AIM GLOBAL INCOME FUND.................. declared daily; paid annually annually
monthly
AIM GLOBAL UTILITIES FUND............... declared daily; paid annually annually
monthly
AIM GROWTH FUND......................... declared and paid annually annually
annually
AIM HIGH YIELD FUND..................... declared daily; paid annually annually
monthly
AIM INCOME FUND......................... declared daily; paid annually annually
monthly................
AIM INTERMEDIATE GOVERNMENT FUND........ declared daily; paid annually annually
monthly
AIM INTERNATIONAL EQUITY FUND........... declared and paid annually annually
annually
AIM LIMITED MATURITY TREASURY SHARES.... declared daily; paid quarterly annually
monthly
AIM MONEY MARKET FUND................... declared daily; paid at least annually
monthly annually
AIM MUNICIPAL BOND FUND................. declared daily; paid annually annually
monthly
AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT........................... declared daily; paid annually annually
monthly
AIM TAX-EXEMPT CASH FUND................ declared daily; paid at least annually
monthly annually
AIM TAX-FREE INTERMEDIATE SHARES........ declared daily; paid annually annually
monthly
AIM VALUE FUND.......................... declared and paid annually annually
annually
AIM WEINGARTEN FUND..................... declared and paid annually annually
annually
</TABLE>
In determining the amount of capital gains, if any, available for
distribution, net capital gains are offset against available net capital losses,
if any, carried forward from previous fiscal periods.
All dividends and distributions of an AIM Fund are automatically reinvested on
the payment date in full and fractional shares of such fund, unless the
shareholder has made an alternate election as to the method of payment.
Dividends and distributions attributable to Class A, Class B or Class C shares
are reinvested in additional shares of such Class, absent an election by a
shareholder to receive cash or to have such dividends and distributions
reinvested in Class A or Class B shares of another Multiple Class Fund, to the
extent permitted. For funds that do not declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the ex-dividend date. For funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the payable date. Shareholders may elect, by written notice to the Transfer
Agent, to receive such distributions, or the dividend portion thereof, in cash,
or to invest such dividends and distributions in shares of another fund in the
AIM Funds; provided that (i) dividends and distributions attributable to Class B
shares may only be reinvested in Class B shares,
BF 12/95
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<PAGE> 59
(ii) dividends and distributions attributable to Class A shares may not be
reinvested in Class B shares, and (iii) dividends and distributions attributable
to the Class C shares of AIM MONEY MARKET FUND may not be reinvested in the
Class A shares of that Fund or in any Class B shares. Investors who have not
previously selected such a reinvestment option on the account application form
may contact the Transfer Agent at any time to obtain a form to authorize such
reinvestments in another AIM Fund. Such reinvestments into the AIM Funds are not
subject to sales charges, and shares so purchased are automatically credited to
the account of the shareholder.
Dividends on Class B shares are expected to be lower than those for Class A or
Class C shares because of higher distribution fees paid by Class B shares.
Dividends on Class A, Class B and Class C shares may also be affected by other
class-specific expenses.
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to the Transfer Agent and are effective as to
any subsequent payment if such notice is received by the Transfer Agent prior to
the record date of such payment. Any dividend and distribution election remains
in effect until the Transfer Agent receives a revised written election by the
shareholder.
Any dividend or distribution paid by a fund which does not declare dividends
daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes, as
discussed below.
TAX MATTERS
Each AIM Fund has qualified and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Code. As long as a fund
qualifies for this tax treatment, it is not subject to federal income taxes on
net investment income and capital gains that are distributed to shareholders.
Each fund, for purposes of determining taxable income, distribution requirements
and other requirements of Subchapter M, is treated as a separate corporation.
Therefore, no fund may offset its gains against another fund's losses and each
fund must individually comply with all of the provisions of the Code which are
applicable to its operations.
TAX TREATMENT OF DISTRIBUTIONS -- GENERAL. Because each AIM Fund intends to
distribute substantially all of its net investment income and net realized
capital gains to its shareholders, it is not expected that any such fund will be
required to pay any federal income tax. Each AIM Fund also intends to meet the
distribution requirements of the Code to avoid the imposition of a
non-deductible 4% excise tax calculated as a percentage of certain undistributed
amounts of taxable ordinary income and capital gain net income. Nevertheless,
shareholders normally are subject to federal income taxes, and any applicable
state and local income taxes, on the dividends and distributions received by
them from a fund whether in the form of cash or additional shares of a fund,
except for tax-exempt dividends paid by AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND, and AIM TAX-FREE
INTERMEDIATE SHARES (the "Tax-Exempt Funds") which are exempt from federal tax.
Dividends paid by a fund (other than capital gain distributions) may qualify for
the federal 70% dividends received deduction for corporate shareholders to the
extent of the qualifying dividends received by the fund on domestic common or
preferred stock. It is not likely that dividends received from AIM GLOBAL
AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH
YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL
EQUITY FUND, AIM LIMITED MATURITY TREASURY SHARES, AIM MONEY MARKET FUND, AIM
MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT
CASH FUND or AIM TAX-FREE INTERMEDIATE SHARES will qualify for this dividends
received deduction. Shortly after the end of each year, shareholders will
receive information regarding the amount and federal income tax treatment of all
distributions paid during the year. No gain or loss will be recognized by
shareholders upon the automatic conversion of Class B shares of a Multiple Class
Fund into Class A shares of such Fund.
For each redemption of a fund's shares by a non-exempt shareholder, the fund
or the securities dealer effecting the transaction is required to file an
information return with the IRS.
TO AVOID BEING SUBJECT TO FEDERAL INCOME TAX WITHHOLDING AT THE RATE OF 31% ON
DIVIDENDS, DISTRIBUTIONS AND REDEMPTION PAYMENTS, SHAREHOLDERS OF A FUND MUST
FURNISH THE FUND WITH THEIR TAXPAYER IDENTIFICATION NUMBER AND CERTIFY UNDER
PENALTIES OF PERJURY THAT THE NUMBER PROVIDED IS CORRECT AND THAT THEY ARE NOT
SUBJECT TO BACKUP WITHHOLDING FOR ANY REASON.
Under existing provisions of the Code, nonresident alien individuals, foreign
partnerships and foreign corporations may be subject to federal income tax
withholding at a 30% rate on income dividends and distributions (other than
exempt-interest dividends and capital gain dividends) and return of capital
distributions. Under applicable treaty law, residents of treaty countries may
qualify for a reduced rate of withholding or a withholding exemption.
DISTRIBUTIONS MAY BE SUBJECT TO TREATMENT UNDER FOREIGN, STATE OR LOCAL TAX
LAWS THAT DIFFERS FROM THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED HEREIN.
ADDITIONAL INFORMATION ABOUT TAXES IS SET FORTH IN THE STATEMENT OF ADDITIONAL
INFORMATION.
TAX-EXEMPT FUNDS -- SPECIAL TAX INFORMATION. Shareholders will not be required
to include the "exempt-interest" portion of dividends paid by the Tax-Exempt
Funds in their gross income for federal income tax purposes. However,
shareholders will be re-
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<PAGE> 60
quired to report the receipt of exempt-interest dividends and other tax-exempt
interest on their federal income tax returns. Moreover, exempt-interest
dividends from the Tax-Exempt Funds may be subject to state income taxes, may
give rise to a federal alternative minimum tax liability, may affect the amount
of social security benefits subject to federal income tax, may affect the
deductibility of interest on certain indebtedness of the shareholder, and may
have other collateral federal income tax consequences. The Tax-Exempt Funds may
invest in Municipal Securities the interest on which will constitute an item of
tax preference and which therefore could give rise to a federal alternative
minimum tax liability for shareholders, and may invest up to 20% of their net
assets in such securities and other taxable securities. For additional
information concerning the alternative minimum tax and certain collateral tax
consequences of the receipt of exempt-interest dividends, see the Statements of
Additional Information applicable to the Tax-Exempt Funds.
The Tax-Exempt Funds may pay dividends to shareholders which are taxable, but
will endeavor to avoid investments which would result in taxable dividends. The
percentage of dividends which constitute exempt-interest dividends, and the
percentage thereof (if any) which constitute an item of tax preference, will be
determined annually. This percentage may differ from the actual percentages for
any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains, whether received in cash or additional shares, and regardless of
the length of time a particular shareholder may have held his shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Tax-Exempt Funds to pay exempt-interest dividends might be adversely affected.
AIM INTERMEDIATE GOVERNMENT FUND and AIM LIMITED MATURITY TREASURY
SHARES -- SPECIAL TAX INFORMATION. Certain states exempt from state income taxes
dividends paid by mutual funds out of interest on U.S. Treasury and certain
other U.S. Government obligations, and investors should consult with their own
tax advisors concerning the availability of such exemption.
AIM INTERNATIONAL EQUITY FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL INCOME FUND AND AIM GLOBAL UTILITIES FUND -- SPECIAL TAX
INFORMATION. For taxable years in which it is eligible to do so, each of these
funds may elect to pass through to shareholders credits for foreign taxes paid.
If the fund makes such an election, a shareholder who receives a distribution
(1) will be required to include in gross income his proportionate share of
foreign taxes allocable to the distribution and (2) may claim a credit or
deduction for such share for his taxable year in which the distribution is
received, subject to the general limitations imposed on the allowance of foreign
tax credits and deductions. Shareholders should also note that certain gains or
losses attributable to fluctuations in exchange rates or foreign currency
forward contracts may increase or decrease the amount of income of the fund
available for distribution to shareholders, and should note that if such losses
exceed other income during a taxable year, the fund would not be able to pay
ordinary income dividends.
- - --------------------------------------------------------------------------------
GENERAL INFORMATION
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, serves as custodian for the
portfolio securities and cash of the AIM Funds other than AIM MUNICIPAL BOND
FUND and AIM LIMITED MATURITY TREASURY SHARES, for which The Bank of New York,
110 Washington Street, New York, New York 10286, serves as custodian. Texas
Commerce Bank National Association, P.O. Box 2558, Houston, Texas 77252-8084,
serves as Sub-Custodian for retail purchases of the AIM Funds.
A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, a
wholly-owned subsidiary of AIM, serves as each AIM Fund's transfer agent and
dividend payment agent.
LEGAL COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
Philadelphia, Pennsylvania, serves as counsel to the AIM Funds and has passed
upon the legality of the shares offered pursuant to this Prospectus.
SHAREHOLDER INQUIRIES. Shareholder inquiries concerning their accounts should
be directed to an A I M Fund Services, Inc. Client Services Representative by
calling (713) 626-1919 (extension 5224) (in Houston), or toll-free at (800)
959-4246 (elsewhere). The Transfer Agent may impose certain copying charges for
requests for copies of shareholder account statements and other historical
account information older than the current year and the immediately preceding
year.
OTHER INFORMATION. This Prospectus sets forth basic information that investors
should know about the fund(s) named on the cover page prior to investing.
Recipients of this Prospectus will be provided with a copy of the annual report
of the fund(s) to which this Prospectus relates, upon request and without
charge. A Statement of Additional Information has been filed with the SEC and is
available upon request and without charge, by writing or calling AIM
Distributors. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration statement,
including items omitted from this Prospectus, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
BF 12/95
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<PAGE> 61
APPLICATION INSTRUCTIONS
SOCIAL SECURITY OR TAXPAYER ID NUMBER. Investors should make sure that the
social security number or taxpayer identification number ("TIN") which appears
in Section 1 of the Application complies with the following guidelines:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GIVE SOCIAL SECURITY GIVE TAXPAYER I.D.
ACCOUNT TYPE NUMBER OF: ACCOUNT TYPE NUMBER OF:
Individual Individual Trust, Estate, Pension Trust, Estate, Pension
Plan Trust Plan Trust and not
personal TIN of fiduciary
Joint Individual First individual listed in the
"Account Registration" portion
of the Application
Unif. Gifts to Minor Corporation, Partnership, Corporation, Partnership,
Minors/Unif. Transfers Other Organization Other Organization
to Minors
Legal Guardian Ward, Minor or
Incompetent
Sole Proprietor Owner of Business Broker/Nominee Broker/Nominee
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Applications without a certified TIN will not be accepted unless the applicant
is a nonresident alien, foreign corporation or foreign partnership and has
attached a completed IRS Form W-8.
BACKUP WITHHOLDING. Each AIM Fund, and other payers, must, according to IRS
regulations, withhold 31% of redemption payments and reportable dividends
(whether paid or accrued) in the case of any shareholder who fails to provide
the Fund with a TIN and a certification that he is not subject to backup
withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect TIN, or
(3) the investor is notified by the IRS that the investor is subject to backup
withholding because the investor failed to report all of the interest and
dividends on such investor's tax return (for reportable interest and
dividends only), or
(4) the investor fails to certify to the Fund that the investor is not subject
to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to reportable
interest, dividend, broker or barter exchange accounts opened after 1983,
or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting and such entities should check the box "Exempt from Backup
Withholding" on the Application. A complete listing of such exempt entities
appears in the Instructions accompanying Form W-9 (which can be obtained from
the IRS) and includes, among others, the following:
o a corporation
o an organization exempt from tax under Section 501(a), an individual retirement
plan (IRA), or a custodial account under Section 403(b)(7)
o the United States or any of its agencies or instrumentalities
o a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
o a foreign government or any of its political subdivisions, agencies or
instrumentalities
o an international organization or any of its agencies or instrumentalities
o a foreign central bank of issue
o a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
o a futures commission merchant registered with the Commodity Futures Trading
Commission
o a real estate investment trust
o an entity registered at all times during the tax year under the Investment
Company Act of 1940
o a common trust fund operated by a bank under Section 584(a)
o a financial institution
o a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
o a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
BF 12/95
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<PAGE> 62
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
appropriate withholding as described in the Prospectus under "Dividends,
Distributions and Tax Matters."
SPECIAL INFORMATION REGARDING TELEPHONE EXCHANGE PRIVILEGE. By signing the new
Account Application form, an investor appoints the Transfer Agent as his true
and lawful attorney to surrender for redemption any and all unissued shares held
by the Transfer Agent in the designated account(s), or in any other account with
any of the AIM Funds, present or future, which has the identical registration as
the designated account(s), with full power of substitution in the premises. The
Transfer Agent and AIM Distributors are thereby authorized and directed to
accept and act upon any telephone redemptions of shares held in any of the
account(s) listed, from any person who requests the redemption proceeds to be
applied to purchase shares in any one or more of the AIM Funds, provided that
such fund is available for sale and provided that the registration and mailing
address of the shares to be purchased are identical to the registration of the
shares being redeemed. An investor acknowledges by signing the form that he
understands and agrees that the Transfer Agent and AIM Distributors may not be
liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction. The Transfer Agent
reserves the right to cease to act as agent subject to this appointment, and AIM
Distributors reserves the right to modify or terminate the telephone exchange
privilege at any time without notice.
SPECIAL INFORMATION REGARDING TELEPHONE REDEMPTION PRIVILEGE. By signing the
new Account Application form, an investor appoints the Transfer Agent as his
true and lawful attorney to surrender for redemption any and all unissued shares
held by the Transfer Agent in the designated account(s), present or future, with
full power of substitution in the premises. The Transfer Agent and AIM
Distributors are thereby authorized and directed to accept and act upon any
telephone redemptions of shares held in any of the account(s) listed, from any
person who requests the redemption. An investor acknowledges by signing the form
that he understands and agrees that the Transfer Agent and AIM Distributors may
not be liable for any loss, expense or cost arising out of any telephone
redemption requests effected in accordance with the authorization set forth in
these instructions if they reasonably believe such request to be genuine, but
may in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. The Transfer
Agent reserves the right to cease to act as agent subject to this appointment,
and AIM Distributors reserves the right to modify or terminate the telephone
redemption privilege at any time without notice. An investor may elect not to
have this privilege by marking the appropriate box on the application. Then any
exchanges must be effected in writing by the investor (see the applicable Fund's
prospectus under the caption "Exchange Privilege -- Exchanges by Mail").
BF 12/95
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<PAGE> 63
APPENDIX II
AGREEMENT
and
PLAN OF REORGANIZATION
for
BAIRD BLUE CHIP FUND, INC.
<PAGE> 64
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . .. . . . . . . . . . 2
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . 5
Section 2.1. Reorganization of Baird Blue Chip . . . . . . . . . . . . 5
Section 2.2. Computation of Net Asset Value. . . . . . . . . . . . . . 5
Section 2.3. Excluded Assets . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4. Valuation Date . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5. Delivery . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.6. Dissolution. . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7. Issuance of AIM Equity Shares . . . . . . . . . . . . . . 7
Section 2.8. Investment Securities . . . . . . . . . . . . . . . . . . 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BAIRD BLUE CHIP . . . . 9
Section 3.1. Incorporation: Qualification and Corporate Authority. . . 9
Section 3.2. Registration and Regulation of Baird Blue Chip. . . . . . 9
Section 3.3. Financial Statements . . . . . . . . . . . . . . . . . . 9
Section 3.4. No Material Adverse Changes; Contingent Liabilities . . . 9
Section 3.5. BBC Shares; Liabilities . . . . . . . . . . . . . . . . . 10
Section 3.6. Accountants . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.7. Binding Obligation . . . . . . . . . . . . . . . . . . . 11
Section 3.8. No Breaches or Defaults . . . . . . . . . . . . . . . . . 11
Section 3.9. Authorizations or Consents . . . . . . . . . . . . . . . 12
Section 3.10. Permits . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.11. No Actions, Suits or Proceedings . . . . . . . . . . . . 12
Section 3.12. Contracts . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.13. Properties and Assets . . . . . . . . . . . . . . . . . . 13
Section 3.14. Ineligible Persons . . . . . . . . . . . . . . . . . . . 13
Section 3.15. Rule 17e-1 . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.16. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.17. Benefit and Employment Obligations. . . . . . . . . . . . 15
</TABLE>
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Section 3.18. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.19. Voting Requirements; Dissenter's Rights . . . . . . . . . 15
Section 3.20. State Takeover Statutes . . . . . . . . . . . . . . . . . 15
Section 3.21. Books and Records . . . . . . . . . . . . . . . . . . . . 15
Section 3.22. Prospectus . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AIM EQUITY . . . . . . 16
Section 4.1. Incorporation: Qualification and Corporate Authority . . 16
Section 4.2. Binding Obligation . . . . . . . . . . . . . . . . . . . 16
Section 4.3. No Breaches or Defaults . . . . . . . . . . . . . . . . . 16
Section 4.4. Authorizations or Consents . . . . . . . . . . . . . . . 17
Section 4.5. Permits . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.6. No Actions, Suits or Proceedings . . .. . . . . . . . . . 17
Section 4.7. Ineligible Persons . . .. . . . . . . . .. . . . . . . . 18
Section 4.8. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.9. Registration and Regulation . . . . . . . . . . . . . . . 18
Section 4.10. Registration of Portfolio Shares . . . . . . . . . . . . 18
Section 4.11. Representations Concerning the Reorganization . . . . . . 19
Section 4.12. Prospectus . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.1. Conduct of Business . . . . . . . . . . . . . . . . . . . 20
Section 5.2. Confidentiality and Announcements . . . . . . . . . . . . 22
Section 5.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.4. Further Assurances . . . . . . . . . . . . . . . . . . . 24
Section 5.5. Notice of Events. . . . . . . . . . . . . . . . . . . . . 24
Section 5.6. Access to Information . . . . . . . . . . . . . . . . . . 24
Section 5.7. Consents, Approvals and Filings . . . . . . . . . . . . . 25
Section 5.8. Submission of Agreement to Shareholders . . . . . . . . . 25
Section 5.9. Acquisition Proposals . . . . . . . . . . . . . . . . . . 25
Section 5.10. Fiduciary Duties . . . . . . . . . . . . . . . . . . . . 26
Section 5.11. Section 15(f) of the 1940 Act . . . . . . . . . . . . . . 27
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION . . . . . . . 27
Section 6.1. Conditions Precedent of AIM Equity . . . . . . . . . . . 27
</TABLE>
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<TABLE>
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Section 6.2. Mutual Conditions . . . . . . . . . . . . . . . . . . . . 28
Section 6.3. Conditions Precedent of Baird Blue Chip . . . . . . . . . 31
ARTICLE VII
TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . 32
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.2. Survival After Termination . . . . . . . . . . . . . . . 33
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.1. Nonsurvival of Representations and Warranties . . . . . . 33
Section 8.2. Law Governing . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.3. Binding Effect, Persons Benefiting, No Assignment . . . . 33
Section 8.4. Obligation of AIM Equity Portfolio. . . . . . . . . . . . 34
Section 8.5. Amendments. . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.6. Enforcement . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.7. Interpretation . . . . . . . . . . . . . . . . . . . . . 34
Section 8.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.9. Entire Agreement; Schedules . . . . . . . . . . . . . . . 34
Section 8.10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 35
Schedule 3.12(a) - Contracts
Schedule 6.1(d) - Opinion of Counsel to Baird Blue Chip
Schedule 6.2(g) - Tax Opinions
Schedule 6.3(d) - Opinion of Counsel to AIM Equity
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of December
20, 1995 (this "Agreement"), by and between Baird Blue Chip Fund, Inc., a
Wisconsin corporation ("Baird Blue Chip"), and AIM Equity Funds, Inc., a
Maryland corporation ("AIM Equity"), acting on behalf of AIM Blue Chip Fund
(the "Portfolio").
WITNESSETH
WHEREAS, Baird Blue Chip is an investment company registered
with the Securities and Exchange Commission (the "SEC") under the Investment
Company Act (as defined below); and
WHEREAS, AIM Equity is an investment company registered with
the SEC under the Investment Company Act that offers separate classes of its
shares representing interests in several investment portfolios for sale to the
public; and
WHEREAS, Baird Blue Chip owns securities in which the
Portfolio is permitted to invest; and
WHEREAS, Baird Blue Chip desires to provide for its
reorganization through the transfer of substantially all of its assets to the
Portfolio in exchange for shares of the Portfolio issued in the manner set
forth in this Agreement; and
WHEREAS, this Agreement is intended to be and is adopted as a
Plan of Reorganization and Liquidation within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises
and the agreements and undertakings of AIM Equity and Baird Blue Chip contained
in this Agreement, AIM Equity and Baird Blue Chip agree as follows:
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ARTICLE I
DEFINITIONS
Section 1.1. Definitions. (a) For all purposes in this
Agreement, the following terms shall have the respective meanings set forth in
this Section 1.1 (such definitions to be equally applicable to both the singular
and plural forms of the terms herein defined):
"Acquisition Proposal" means, except for the transactions
contemplated hereby, any proposal with respect to a merger, reorganization,
consolidation, share exchange or similar transaction involving Baird Blue Chip,
or any purchase of all or any significant portion of the assets of Baird Blue
Chip, or any equity interest in Baird Blue Chip.
"AEF Registration Statement" means the registration statement
on Form N-1A of AIM Equity, as amended, Registration No. 2-25469/811-1424, that
is applicable to the Portfolio.
"Advisers Act" means the Investment Advisers Act of 1940, as
amended, and all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in
Section 2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization
together with all schedules and exhibits attached hereto and all amendments
hereto and thereof.
"AIM Equity" means AIM Equity Funds, Inc., a Maryland
corporation.
"Baird Blue Chip" means Baird Blue Chip Fund, Inc., a
Wisconsin corporation.
"BBC Financial Statements" shall have the meaning set forth
in Section 3.3 of this Agreement.
"BBC Shareholders" means the holders of record as of the
Closing Date of the issued and outstanding shares of the capital stock of Baird
Blue Chip.
"BBC Shareholders Meeting" means a meeting of the
shareholders of Baird Blue Chip convened in accordance with applicable law and
the articles of
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incorporation of Baird Blue Chip to consider and vote upon the
approval of this Agreement and the transactions contemplated by this Agreement.
"BBC Shares" means the issued and outstanding shares of the
capital stock of Baird Blue Chip.
"Benefit Plan" means any material "employee benefit plan" (as
defined in Section 3(3) of ERISA) and any material bonus, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, vacation, retirement, profit sharing, welfare plans or
other plan, arrangement or understanding maintained or contributed to by Baird
Blue Chip, or otherwise providing benefits to any current or former employee,
officer or director of Baird Blue Chip.
"Closing" means the transfer of the assets of Baird Blue Chip
against the delivery of Portfolio Shares directly to the shareholders of Baird
Blue Chip as described in Section 2.1 of this Agreement.
"Closing Date" means March 29, 1996, or such other date as
the parties may mutually determine.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall have the meaning set forth
in Section 5.2(a) of this Agreement.
"Custodian" means State Street Bank and Trust Company acting
in its capacity as custodian for the assets of the Portfolio.
"Effective Time" shall mean 2:00 p.m. Central Time on the
Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities and Exchange Act of 1934,
as amended, and all rules and regulations adopted by the SEC pursuant thereto.
"Excluded Assets" shall have the meaning set forth in Section
2.3 of this Agreement.
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"Governmental Authority" means any foreign, United States or
state government, government agency, department, board, commission (including
the SEC) or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the National Association of
Securities Dealers, Inc., the Commodities and Futures Trading Commission, the
National Futures Association, the Investment Management Regulatory Organization
Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of
1940, as amended, and all rules and regulations adopted by the SEC pursuant
thereto.
"Lien" means any pledge, lien, security interest, charge,
claim or encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a
change in the condition (financial or otherwise), properties, assets or
prospects of an entity having an adverse monetary effect in an amount equal to
or greater than $50,000.
"Person" means an individual or a corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
"Portfolio" means AIM Blue Chip Fund, an investment
portfolio of AIM Equity.
"Portfolio Shares" means shares of common stock of AIM
Equity, par value $.001, each representing an interest in the Portfolio.
"Reorganization" means the acquisition of certain of the
assets of Baird Blue Chip by the Portfolio in consideration of the issuance of
Portfolio Shares directly to BBC Shareholders as described in this Agreement.
"Required BBC Shareholder Vote" shall have the meaning set
forth in Section 3.19 of this Agreement.
"Return" means any return, report or form or any attachment
thereto required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange
Commission.
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"Securities Act" means the Securities Act of 1933, as
amended, and all rules and regulations adopted by the SEC pursuant thereto.
"Tax" means any tax or similar governmental charge, impost
or levy (including, without limitation, income taxes (including, without
limitation, alternative minimum tax and estimated tax), franchise taxes,
transfer taxes or fees, sales taxes, use taxes, gross receipts taxes, value
added taxes, employment taxes, excise taxes, ad valorem taxes, property taxes,
withholding taxes, payroll taxes, minimum taxes, or windfall profit taxes),
together with any related penalties, fines, additions to tax or interest,
imposed by the United States or any state, county, local or foreign government
or subdivision or agency thereof.
"Valuation Date" shall have the meaning set forth in Section
2.4 of this Agreement.
ARTICLE II
TRANSFER OF ASSETS
Section 2.1. Reorganization of Baird Blue Chip. At the
Effective Time, all of the assets of Baird Blue Chip, except the Excluded
Assets, shall be delivered to the Custodian for the account of the Portfolio in
exchange for, and against delivery by AIM Equity directly to the BBC
Shareholders at the opening of business on the Closing Date of a number of
Portfolio Shares (including, if applicable, fractional shares rounded to the
nearest thousandth) having an aggregate net asset value equal to the net value
of the assets of Baird Blue Chip so transferred, assigned and delivered, all
determined and adjusted as provided in Section 2.2 below. Upon delivery of
such assets, the Portfolio will receive good and marketable title to such
assets free and clear of all Liens.
Section 2.2. Computation of Net Asset Value.
(a) The net asset value of the Portfolio Shares and the
net value of the assets of Baird Blue Chip subject to this Agreement shall, in
each case, be determined as of the close of business on the NYSE on the
Valuation Date.
(b) The net asset value of the Portfolio Shares shall be
computed in the manner set forth in accordance with the policies and procedures
of the Portfolio as described in the AEF Registration Statement.
(c) The net value of the assets of Baird Blue Chip
subject to this Agreement shall be computed by AIM Equity and shall be subject
to adjustment by
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the amount, if any, agreed to by Baird Blue Chip and AIM Equity. In
determining the value of the securities transferred by Baird Blue Chip to the
Portfolio, each security shall be priced in accordance with the policies and
procedures of the Portfolio as described in the AEF Registration Statement.
For such purposes, market quotes and the security characteristics relating to
establishing such quotes shall be determined by AIM Equity, with the approval
of Baird Blue Chip. Securities for which market quotes are not available shall
be valued as mutually agreed by AIM Equity and Baird Blue Chip, provided that
such value is consistent with the pricing procedures adopted by AIM Equity.
All computations shall be made by AIM Equity in cooperation with the auditors
of AIM Equity and the auditors of Baird Blue Chip, who will apply certain
procedures agreed to by AIM Equity and Baird Blue Chip to test such
computations.
Section 2.3. Excluded Assets. There shall be
deducted from the assets of Baird Blue Chip described in Section 2.1 all
organizational expenses, any prepaid expenses that would not have value to the
Portfolio and cash in an amount estimated by Baird Blue Chip to be sufficient
to pay all the liabilities of Baird Blue Chip, including, without limitation,
(i) amounts owed or to be owed to any BBC Shareholder, including declared but
unpaid dividends, (ii) accounts payable, taxes and other accrued and unpaid
expenses, if any, incurred in the normal operation of its business up to and
including the Closing Date and (iii) the costs and expenses incurred by Baird
Blue Chip in making and carrying out the transactions contemplated by this
Agreement.
Section 2.4. Valuation Date. The assets of Baird Blue
Chip and the net asset value per share of the Portfolio Shares shall be valued
as of the close of business on the NYSE on the business day next preceding the
Closing Date (the "Valuation Date"). The stock transfer books of Baird Blue
Chip will be permanently closed as of the close of business on the Valuation
Date and only requests for the redemption of shares of Baird Blue Chip received
in proper form prior to the close of trading on the NYSE on the Valuation Date
shall be accepted by Baird Blue Chip. Redemption requests thereafter received
by Baird Blue Chip shall be deemed to be redemption requests for Portfolio
Shares (assuming that the transactions contemplated by this Agreement have been
consummated) to be distributed to BBC Shareholders under this Agreement.
Section 2.5. Delivery.
(a) Assets held by Baird Blue Chip shall be delivered by
Baird Blue Chip to the Custodian on the Closing Date. No later than three (3)
business days preceding the Closing Date Baird Blue Chip shall instruct its
custodian to make such delivery to the Custodian. Baird Blue Chip shall
further instruct its custodian
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that any trade made by Baird Blue Chip during the three day period before the
Closing Date shall settle at the Custodian. The assets so delivered shall be
duly endorsed in proper form for transfer in such condition as to constitute a
good delivery thereof, in accordance with the custom of brokers, and shall be
accompanied by all necessary state stock transfer stamps, if any, or a check
for the appropriate purchase price thereof. Cash held by Baird Blue Chip (other
than cash held as part of the Excluded Assets) shall be delivered at the
Effective Time and shall be in the form of currency or wire transfer in Federal
funds, payable to the order of the account of the Portfolio at the Custodian.
(b) If, on the Closing Date, Baird Blue Chip is unable to
make delivery in the manner contemplated by Section 2.5(a) of securities held
by Baird Blue Chip for the reason that any of such securities purchased prior
to the Closing Date have not yet been delivered to Baird Blue Chip, its broker
or brokers, then, AIM Equity shall waive the delivery requirements of Section
2.5(a) with respect to said undelivered securities, if Baird Blue Chip has
delivered to the Custodian by or on the Closing Date and with respect to said
undelivered securities, executed copies of an agreement of assignment and
escrow agreement and due bills executed on behalf of said broker or brokers,
together with such other documents as may be required by AIM Equity or the
Custodian, including brokers' confirmation slips.
Section 2.6. Dissolution. As soon as reasonably
practicable after the Closing Date, Baird Blue Chip shall pay or make
provisions for all of its debts, liabilities and taxes and distribute all
remaining assets to the BBC Shareholders, and Baird Blue Chip shall be
dissolved and deregistered under the Investment Company Act and under
applicable state laws, provided that, in the event that the transactions
contemplated herein are not approved by the BBC Shareholders, Baird Blue Chip
shall not be obligated to so dissolve and deregister.
Section 2.7. Issuance of AIM Equity Shares. At the Closing
Date, Baird Blue Chip shall instruct AIM Equity that the pro rata interest of
each of BBC Shareholders of record as of the close of business on the Valuation
Date, as certified by Baird Blue Chip's transfer agent, in the Portfolio Shares
be registered on the books of AIM Equity in full and fractional shares in the
name of each BBC Shareholder, and AIM Equity agrees promptly to comply with said
instruction. All issued and outstanding shares of Baird Blue Chip's capital
stock shall thereupon be canceled on the books of Baird Blue Chip. AIM Equity
shall have no obligation to inquire as to the validity, propriety or correctness
of any such instruction, but shall, in each case, assume that such instruction
is valid, proper and correct. AIM Equity shall record on its books the
ownership of the Portfolio Shares by BBC Shareholders and shall forward a
confirmation of such ownership to the BBC
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Shareholders. No redemption or repurchase of such shares credited to
former BBC Shareholders in respect of Baird Blue Chip shares represented by
unsurrendered stock certificates shall be permitted until such certificates
have been surrendered to AIM Equity for cancellation, or if such certificates
are lost or misplaced, until lost certificate affidavits have been executed and
delivered to AIM Equity.
Section 2.8. Investment Securities.
(a) It is expressly understood that Baird Blue Chip may
hereafter sell any securities owned by it in the ordinary course of its
business as a diversified, open-end, management investment company. Upon
written request by AIM Equity, Baird Blue Chip shall (i) prior to the Closing
Date, dispose of equity securities held by it to assure that AIM Equity does
not own ten percent (10%) or more of the outstanding voting securities of any
issuer as a result of the Reorganization, or (ii) cooperate with and assist AIM
Equity in preparing and filing on the Closing Date the notification and report
form required by the Hart-Scott-Rodino Antitrust Improvements Act, in which
case the Closing shall be delayed until the end of the waiting period
prescribed by such act.
(b) On or prior to the Valuation Date, Baird Blue Chip
shall deliver a list setting forth the securities it then owns together with
the respective Federal income tax bases thereof. Baird Blue Chip shall provide
to AIM Equity on or before the Valuation Date, detailed tax basis accounting
records for each security to be transferred to it pursuant to this Agreement.
Such records shall be prepared in accordance with the requirements for specific
identification tax lot accounting and clearly reflect the bases used for
determination of gain and loss realized on the partial sale of any security
transferred to the Portfolio hereunder. Such records shall be made available
by Baird Blue Chip prior to the Valuation Date for inspection by the Treasurer
(or his designee) or the auditors of AIM Equity upon reasonable request.
2.9. Liabilities and Expenses. The Portfolio shall not
assume any liabilities of Baird Blue Chip and Baird Blue Chip shall use its
reasonable best efforts to discharge all known liabilities, as far as may be
possible, prior to the Closing Date.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BAIRD BLUE CHIP
Baird Blue Chip represents and warrants to AIM Equity that:
Section 3.1. Incorporation: Qualification and Corporate
Authority. Baird Blue Chip has been duly incorporated and is validly existing
and in active status under the laws of the State of Wisconsin with all
requisite corporate power and authority to conduct its business as presently
conducted.
Section 3.2. Registration and Regulation of Baird Blue
Chip. Baird Blue Chip is duly registered with the SEC as an investment company
under the Investment Company Act and all BBC Shares which have been or are
being offered for sale have been duly registered under the Securities Act and
have been duly registered, qualified or are exempt from registration or
qualification under the securities laws of each state or other jurisdiction in
which such shares have been or are being offered for sale, and no action has
been taken by Baird Blue Chip to revoke or rescind any such registration or
qualification. Baird Blue Chip is in compliance in all material respects with
all applicable laws, rules and regulations, including, without limitation, the
Investment Company Act, the Securities Act, the Exchange Act and all applicable
state securities laws. Baird Blue Chip is in compliance in all material
respects with the applicable investment policies and restrictions set forth in
its registration statement currently in effect. The value of the net assets of
Baird Blue Chip is determined using portfolio valuation methods that comply in
all material respects with the requirements of the Investment Company Act and
the policies of Baird Blue Chip and all purchases and redemptions of BBC Shares
have been effected at the net asset value per share calculated in such manner.
Section 3.3. Financial Statements. The books of account
and related records of Baird Blue Chip fairly reflect in reasonable detail its
assets, liabilities and transactions in accordance with generally accepted
accounting principles applied on a consistent basis. The audited financial
statements dated September 30, 1995 of Baird Blue Chip previously delivered to
AIM Equity (the "BBC Financial Statements") present fairly in all material
respects the financial position of Baird Blue Chip as at the dates indicated
and the results of operations and cash flows for the periods then ended in
accordance with generally accepted accounting principles applied on a
consistent basis for the periods then ended.
Section 3.4. No Material Adverse Changes; Contingent
Liabilities. Since September 30, 1995, no material adverse change has occurred
in the financial condition, results of operations, business, assets or
liabilities of Baird
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Blue Chip or the status of Baird Blue Chip as a regulated investment company
under the Code, other than changes resulting from any change in general
conditions in the financial or securities markets or the performance of any
investments made by Baird Blue Chip or occurring in the ordinary course of
business of Baird Blue Chip. There are no contingent liabilities of Baird Blue
Chip not disclosed in the BBC Financial Statements which are required to be
disclosed in accordance with generally accepted accounting principles.
Section 3.5. BBC Shares; Liabilities.
(a) The BBC Shares have been duly authorized and validly
issued and are fully paid and non-assessable (except as provided in Wisconsin
Business Corporation Law Section 180.0622(2)(b)).
(b) There is no plan or intention by the shareholders of
Baird Blue Chip who own five percent (5%) or more of the BBC Shares, and to the
knowledge of Baird Blue Chip's management, the remaining BBC Shareholders have
no present plan or intention of selling, exchanging, redeeming or otherwise
disposing of a number of the Portfolio Shares received by them in connection
with the Reorganization that would reduce the BBC Shareholders' ownership of
Portfolio Shares to a number of shares having a value, as of the Closing Date,
of less than fifty percent (50%) of the value of all of the formerly
outstanding BBC Shares as of the same date. For purposes of this Section 3.5,
BBC Shares exchanged for cash or other property or exchanged for cash in lieu
of fractional shares of the Portfolio will be treated as outstanding BBC Shares
on the date of the Reorganization. Moreover, BBC Shares and Portfolio Shares
held by BBC Shareholders and otherwise sold, redeemed or disposed of prior or
subsequent to the Reorganization will be considered in making this
representation, except for BBC Shares or Portfolio Shares which have been, or
will be, redeemed by Baird Blue Chip or the Portfolio in the ordinary course of
its business as an open-end, diversified management investment company (or a
series thereof) under the Investment Company Act.
(c) At the time of the Reorganization, Baird Blue Chip
shall not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any Person could acquire BBC Shares,
except for the right of investors to acquire BBC Shares at net asset value in
the normal course of its business as an open-end diversified management
investment company operating under the Investment Company Act.
(d) Throughout the five-year period ending on the Closing
Date, Baird Blue Chip will have conducted its historic business within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code in a
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substantially unchanged manner. In anticipation of the Reorganization, Baird
Blue Chip will not dispose of assets that, in the aggregate, will result in
less than fifty percent (50%) of its historic business assets being transferred
to the Portfolio.
(e) Baird Blue Chip does not have, and has not had during
the six (6) months prior to the date of this Agreement, any employees, and
shall not hire any employees from and after the date of this Agreement through
the Closing Date.
Section 3.6. Accountants. Price Waterhouse, LLP, which
has reported upon BBC Financial Statements for the period ended September 30,
1995, are independent public accountants as required by the Securities Act and
the Exchange Act.
Section 3.7. Binding Obligation. This Agreement has been
duly authorized, executed and delivered by Baird Blue Chip and, assuming this
Agreement has been duly executed and delivered by AIM Equity and approved by
the BBC Shareholders, constitutes the legal, valid and binding obligation of
Baird Blue Chip, enforceable against Baird Blue Chip in accordance with its
terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization or similar laws relating to or affecting creditors'
rights generally or by general equity principles (whether applied in a court of
law or a court of equity and including limitations on the availability of
specific performance or other equitable remedies).
Section 3.8. No Breaches or Defaults. The execution and
delivery of this Agreement by Baird Blue Chip and performance by Baird Blue
Chip of its obligations hereunder has been duly authorized by all necessary
corporate action on the part of Baird Blue Chip, other than BBC Shareholder
approval, and (i) does not and, on the Closing Date, will not result in any
violation of the articles of incorporation or by-laws of Baird Blue Chip and
(ii) does not and, will not on the Closing Date, result in a breach of any of
the terms or provisions of, or constitute (with or without the giving of notice
or the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien
upon any property or assets of Baird Blue Chip (except for such breaches or
defaults or Liens that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect) under (A) any indenture, mortgage
or loan agreement or any other material agreement or instrument to which Baird
Blue Chip is a party or by which it may be bound or to which any of its
properties may be subject; (B) any Permit; or (C) any existing applicable law,
rule, regulation, judgment, order or decree of any Governmental Authority
having jurisdiction over
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Baird Blue Chip or any of its properties. Baird Blue Chip is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
Section 3.9. Authorizations or Consents. Other than those
which shall have been obtained or made on or prior to the Closing Date and
those that must be made after the Closing Date to comply with Section 2.6 of
this Agreement, no authorization or approval or other action by, and no notice
to or filing with, any Governmental Authority will be required to be obtained
or made by Baird Blue Chip in connection with the due execution and delivery
by Baird Blue Chip of this Agreement and the consummation by Baird Blue
Chip of the transactions contemplated hereby.
Section 3.10. Permits. Baird Blue Chip has in full force
and effect all Federal, state, local and foreign governmental approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights (collectively, "Permits") necessary for it to conduct its
business as presently conducted, and there has occurred no default under any
Permit, except for the absence of Permits and for defaults under Permits the
absence or default of which would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. To the knowledge
of Baird Blue Chip there are no proceedings relating to the suspension,
revocation or modification of any Permit, except for such that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
Section 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, litigation or proceeding,
nor, to the knowledge of Baird Blue Chip, has any litigation been overtly
threatened in writing or orally, against Baird Blue Chip before any
Governmental Authority which questions the validity or legality of this
Agreement or of the actions contemplated hereby or which seeks to prevent the
consummation of the transactions contemplated hereby, including the
Reorganization.
(b) There are no legal, administrative or arbitration
actions, suits, or proceedings instituted or pending or, to the knowledge of
Baird Blue Chip, threatened in writing or, if probable of assertion, orally
against Baird Blue Chip or affecting any property, asset, interest, or right of
Baird Blue Chip, that could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect. There are not in existence on the
date hereof any plea agreements, judgments, injunctions, consents, decrees,
exceptions or orders that
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were entered by, filed with or issued by Governmental Authority relating to the
conduct of the business of Baird Blue Chip affecting in any significant respect
the conduct of its business. Baird Blue Chip is not, and has not been, to the
knowledge of Baird Blue Chip, the target of any investigation by the SEC or any
state securities administrator.
Section 3.12. Contracts.
(a) Except for the contracts and agreements listed on
Schedule 3.12(a), Baird Blue Chip is not a party to any material contract, debt
arrangement, futures contract, plan, lease, franchise or permit of any kind or
nature whatsoever.
(b) Baird Blue Chip is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party, by which its assets, business, or operations may be
bound or affected, or under which it or its assets, business or operations
receives benefits, and which default could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect, and, to the knowledge
of Baird Blue Chip, there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
Section 3.13. Properties and Assets. Baird Blue Chip has
good and marketable title to all properties and assets reflected in BBC
Financial Statements as owned by it, free and clear of all Liens except as
described in the BBC Financial Statements.
Section 3.14. Ineligible Persons. Except as previously
disclosed to AIM Equity, neither Baird Blue Chip nor any "Affiliated Person" of
Baird Blue Chip has been convicted of any felony or misdemeanor, described in
Section 9(a)(1) of the Investment Company Act, nor has any Affiliated Person of
Baird Blue Chip been subject, or presently is subject, to any disqualification
that would be a basis for denial, suspension or revocation of registration of
an investment adviser under Section 203(e) of the Advisers Act or Rule
206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the Exchange
Act, or for disqualification as an investment adviser, employee, officer or
director of an investment company under Section 9 of the Investment Company
Act, and, to Baird Blue Chip's knowledge, there is no proceeding or
investigation that is reasonably likely to become the basis for any such
disqualification, denial, suspension or revocation.
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Section 3.15. Rule 17e-1. Baird Blue Chip has duly adopted
procedures pursuant to Rule 17e-1 under the Investment Company Act, to the
extent applicable, and Baird Blue Chip currently complies and will comply with
the requirements of Section 17(e) of the Investment Company Act and Rule 17e-1
thereunder, to the extent applicable.
Section 3.16. Taxes.
(a) Baird Blue Chip has elected to be treated as a
regulated investment company under Subchapter M of the Code. Baird Blue Chip
has qualified as such for each taxable year since inception and that has ended
prior to the Closing Date and will have satisfied the requirements of Section
851(b) of the Code for the period beginning on the first day of its current
taxable year and ending on the Closing Date. In order to (i) insure continued
qualification of Baird Blue Chip as a "regulated investment company" for tax
purposes and (ii) eliminate any tax liability of Baird Blue Chip arising by
reason of undistributed investment company taxable income or net taxable gain,
Baird Blue Chip will declare to the BBC Shareholders of record on or prior to
the Valuation Date a dividend or dividends that, together with all such
previous dividends shall have the effect of distributing (A) all of its
investment company taxable income (determined without regard to any deductions
for dividends paid) for the taxable year ended September 30, 1995 and for the
short taxable year beginning on October 1, 1995 and ending on the Closing Date
and (B) all of its net capital gains realized in its taxable year ended
September 30, 1995 and in such short taxable year (after reduction for any
capital loss carryover).
(b) Baird Blue Chip has timely filed all Returns required
to be filed by it and all Taxes with respect thereto have been paid, except
where the failure so to file or so to pay, would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. Adequate
provision has been made in the financial statements of Baird Blue Chip for all
Taxes in respect of all periods ending on or before the date of such financial
statements, except where the failure to make such provisions would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No deficiencies for any Taxes have been proposed, assessed or
asserted in writing by any taxing authority against Baird Blue Chip, and no
deficiency has been proposed, assessed or asserted, in writing, where such
deficiency would reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect. No waivers of the time to assess any such
Taxes are outstanding nor are any written requests for such waivers pending and
no Return of Baird Blue Chip is currently being or has been audited since
September 30, 1990 with respect to income taxes (and since September 30,
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1992 with respect to all other Taxes) by any Federal, state, local, or foreign
Tax authority.
(c) Baird Blue Chip's fiscal year has not been changed
for tax purposes since September 30, 1990.
Section 3.17. Benefit and Employment Obligations. Baird
Blue Chip has no obligation to provide any post-retirement or post-employment
benefit to any Person, including but not limited to under any Benefit Plan, and
has no obligation to provide unfunded deferred compensation or other unfunded
or self-funded benefits to any Person.
Section 3.18. Brokers. No broker, finder or similar
intermediary has acted for or on behalf of Baird Blue Chip in connection with
this Agreement or the transactions contemplated hereby, and no broker, finder,
agent or similar intermediary is entitled to any broker's, finder's or similar
fee or other commission in connection therewith based on any agreement,
arrangement or understanding with Baird Blue Chip or any action taken by it.
Section 3.19. Voting Requirements; Dissenter's Rights. The
affirmative votes of a majority of the holders of the outstanding BBC Shares
(the "Required BBC Shareholder Vote") are the only votes of the holders of any
class or series of Baird Blue Chip's capital stock necessary to approve this
Agreement and the transactions contemplated by this Agreement. The BBC
Shareholders may not exercise dissenter's rights granted under the Wisconsin
Business Corporation Law with respect to the Reorganization.
Section 3.20. State Takeover Statutes. No state takeover
statute or similar statute or regulation applies or purports to apply to the
Reorganization, this Agreement or any of the transactions contemplated by this
Agreement.
Section 3.21. Books and Records. The books and records of
Baird Blue Chip reflecting, among other things, the purchase and sale of BBC
Shares by BBC Shareholders, the number of issued and outstanding shares owned
by each BBC Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
Section 3.22. Prospectus. The current prospectus and
statement of additional information for Baird Blue Chip as of the date on which
they were issued did not contain, and as supplemented by any supplement thereto
dated prior to or on the Closing Date, do not contain any untrue statement of a
material fact
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or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided, however,
that no representation or warranty is made with respect to written information
provided by AIM Equity for inclusion in the prospectus or statement of
additional information of Baird Blue Chip, or any supplement thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AIM EQUITY
AIM Equity represents and warrants to Baird Blue Chip as
follows:
Section 4.1. Incorporation: Qualification and Corporate
Authority. AIM Equity has been duly incorporated and is validly existing and
in good standing under the laws of Maryland, with all requisite corporate power
and authority to enter into this Agreement and perform its obligations
hereunder.
Section 4.2. Binding Obligation. This Agreement has been
duly authorized, executed and delivered by AIM Equity and, assuming this
Agreement has been duly executed and delivered by Baird Blue Chip, constitutes
the legal, valid and binding obligation of AIM Equity, enforceable against AIM
Equity in accordance with its terms, except as the enforceability hereof may be
limited by bankruptcy, insolvency, reorganization or similar laws relating to
or affecting creditors' rights generally or by general equity principles
(whether applied in a court of law or a court of equity and including
limitations on the availability of specific performance or other equitable
remedies).
Section 4.3. No Breaches or Defaults. The execution and
delivery of this Agreement by AIM Equity and performance by AIM Equity of its
obligations hereunder have been duly authorized by all necessary corporate
action on the part of AIM Equity and (i) do not, and on the Closing Date will
not, result in any violation of the charter or by-laws of AIM Equity and (ii)
does not, and on the Closing Date will not, result in a breach of any of the
terms or provisions of, or constitute (with or without the giving of notice or
the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien
upon any property or assets of the Portfolio (except for such breaches or
defaults or Liens that would not reasonably be expected, individually or in the
aggregate, to adversely affect the consummation of the Reorganization) under
(A) any indenture, mortgage or loan or any other material agreement or
instrument to which AIM Equity is a party or by which it may be bound which
relates to the Portfolio or to which any properties of the Portfolio may be
subject;
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(B) any Permit; or (C) any existing applicable law, rule, regulation,
judgment, order or decree of any Governmental Authority having jurisdiction
over AIM Equity or any of the Portfolio's properties.
Section 4.4. Authorizations or Consents. Other than those
which shall have been obtained or made on or prior to the Closing Date, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by AIM
Equity in connection with the due execution and delivery by AIM Equity of this
Agreement and the consummation by AIM Equity of the transactions contemplated
hereby.
Section 4.5. Permits. AIM Equity has in full force and
effect all Permits necessary for it to conduct its business as presently
conducted as it relates to the Portfolio, and there has occurred no default
under any Permit, except for the absence of Permits and for defaults under
Permits the absence or default of which would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. To the
knowledge of AIM Equity there are no proceedings relating to the suspension,
revocation or modification of any Permit, except for such that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
Section 4.6. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor,
to the knowledge of AIM Equity, has any litigation been overtly threatened in
writing or, if probable of assertion, orally, against AIM Equity before any
Governmental Authority which questions the validity or legality of this
Agreement or of the transactions contemplated hereby, or which seeks to prevent
the consummation of the transactions contemplated hereby, including the
Reorganization.
(b) There are no legal, administrative or arbitration
actions, suits, or proceedings instituted or pending or, to the knowledge of
AIM Equity, threatened in writing or, if probable of assertion, orally against
AIM Equity or affecting any property, asset, interest, or right of the
Portfolio, that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. There are not in existence on the date
hereof any plea agreements, judgments, injunctions, consents, decrees,
exceptions or orders that were entered by, filed with or issued by Governmental
Authority relating to AIM Equity's conduct of the business of the Portfolio
affecting in any significant respect the conduct of such business. AIM Equity
is not, and has not been, to the knowledge of AIM Equity, the target of any
investigation by the SEC or any state securities administrator.
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Section 4.7. Ineligible Persons. Neither AIM Equity nor
any "Affiliated Person" of AIM Equity has been convicted of any felony or
misdemeanor, described in Section 9(a)(1) of the Investment Company Act, nor
has any affiliated person of AIM Equity been subject, or presently is subject,
to any disqualification that would be a basis for denial, suspension or
revocation of registration of an investment adviser under Section 203(e) of the
Advisers Act or Rule 206(4)-4(b) thereunder or of a broker-dealer under
Section 15 of the Exchange Act, or for disqualification as an investment
adviser, employee, officer or director of an investment company under
Section 9 of the Investment Company Act, and, to AIM Equity's knowledge, there
is no proceeding or investigation that is reasonably likely to become the basis
for any such disqualification, denial, suspension or revocation.
Section 4.8. Brokers. No broker, finder or similar
intermediary has acted for or on behalf of AIM Equity in connection with this
Agreement or the transactions contemplated hereby, and no broker, finder, agent
or similar intermediary is entitled to any broker's, finder's or similar fee or
other commission in connection therewith based on any agreement, arrangement or
understanding with AIM Equity or any action taken by AIM Equity.
Section 4.9. Registration and Regulation. AIM Equity is
registered with the SEC under the Investment Company Act as an open-end,
management, series, investment company and the Portfolio has elected to qualify
as a regulated investment company under Section 851 of the Code. On the
Closing Date the Portfolio will be in compliance in all material respects with
all applicable laws, rules and regulations, including, without limitation, the
Investment Company Act, the Securities Act, the Exchange Act and all applicable
state securities laws. On the Closing Date the Portfolio will be in compliance
in all material respects with the applicable investment policies and
restrictions set forth in its registration statement currently in effect.
After the Closing Date the value of the net assets of the Portfolio will be
determined using portfolio valuation methods that comply in all material
respects with the requirements of the Investment Company Act.
Section 4.10. Registration of Portfolio Shares.
(a) The authorized capital stock of AIM Equity consists of
7,000,000,000 shares with a par value of $0.001 each.
(b) The Portfolio Shares of AIM Equity to be issued
pursuant to Section 2.7 shall on the Closing Date be duly registered under the
Securities Act by a Registration Statement on Form N-14 of AIM Equity then in
effect.
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(c) The Portfolio Shares to be issued pursuant to Section
2.7 are duly authorized and on the Closing Date will be validly issued and
fully paid and non-assessable and will conform in all substantial respects to
the description thereof contained in the Registration Statement on Form N-14
then in effect. At the time of the Reorganization, the Portfolio shall not
have outstanding any warrants, options, convertible securities or any other type
of right pursuant to which any Person could acquire Portfolio Shares, except for
the right of investors to acquire Portfolio Shares at the public offering price
in the normal course of its business as an open-end diversified management
investment company operating under the Investment Company Act.
(d) The combined proxy statement/prospectus (the
"Combined Proxy Statement/Prospectus") which forms a part of AIM Equity's
Registration Statement on Form N-14 shall be furnished to Baird Blue Chip and
BBC Shareholders entitled to vote at the BBC Shareholders Meeting. The
Combined Proxy Statement/Prospectus and related Statement of Additional
Information of the Portfolio, when they become effective, shall conform in all
material respects to the applicable requirements of the Securities Act and the
Investment Company Act and shall not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not materially misleading, provided, however, that no
representation or warranty is made with respect to written information provided
by Baird Blue Chip for inclusion in the Combined Prospectus/Proxy Statement.
(e) The Portfolio Shares which AIM Equity intends to
offer for sale to the public after the Closing Date shall be duly registered
under the Securities Act by the AEF Registration Statement then in effect.
Section 4.11. Representations Concerning the Reorganization.
(a) AIM Equity has no plan or intention to reacquire any
of the Portfolio Shares issued in the Reorganization, except to the extent that
the Portfolio is required by the Investment Company Act to redeem any of its
shares presented for redemption.
(b) The Portfolio has no plan or intention to sell or
otherwise dispose of any of the assets of Baird Blue Chip acquired in the
Reorganization, other than in the ordinary course of its business and to the
extent necessary to maintain its status as a "regulated investment company"
under the Code.
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(c) Following the Reorganization, the Portfolio will
continue the "historic business" of Baird Blue Chip (within the meaning of
Section 1.368-1(d) of the Income Tax Regulations under the Code) or use a
significant portion of Baird Blue Chip's historic assets in a business.
(d) Upon consummation of the Reorganization, the
investment portfolios of AIM Equity, in the aggregate, will not own ten percent
of more of the voting securities any issuer.
Section 4.12. Prospectus. The prospectus and statement of
additional information for Baird Blue Chip that will become effective on the
Closing Date will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided, however, that no representation or
warranty is made with respect to written information provided by Baird Blue
Chip for inclusion in such prospectus or statement of additional information,
or any supplement thereto.
ARTICLE V
COVENANTS
Section 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including
the Closing Date (or, if earlier, the date upon which this Agreement is
terminated pursuant to Article VII), Baird Blue Chip shall conduct its
businesses only in the ordinary course and substantially in accordance with
past practices, and shall use its reasonable best efforts to preserve intact
its business organization and material assets and maintain the rights,
franchises and business and customer relations necessary to conduct its
businesses in the ordinary course in all material respects. Without limiting
the generality of the foregoing, Baird Blue Chip shall not do any of the
following without the prior written consent of AIM Equity, which consent shall
not be unreasonably withheld:
(i) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock;
(ii) amend its articles of incorporation or by-laws;
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(iii) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization
or division thereof or any assets that are material, individually
or in the aggregate, to Baird Blue Chip taken as a whole, except
purchases of assets in the ordinary course of business consistent
with past practice, and except as permitted under Sections 5.9
and 5.10;
(iv) sell, lease or otherwise dispose of any of its
material properties or assets, or mortgage or otherwise encumber or
subject to any Lien any of its material properties or assets, other
than in the ordinary course of business;
(v) incur any indebtedness for borrowed money or guarantee
any indebtedness of another Person, issue or sell any debt securities
or warrants or other rights to acquire any debt securities of Baird
Blue Chip, guarantee any debt securities of another Person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another Person, or enter into any arrangement having the
economic effect of any of the foregoing;
(vi) settle or compromise any income tax liability or make
any material tax election;
(vii) pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than in the ordinary course of
business;
(viii) change its methods of accounting, except as required
by changes in generally accepted accounting principles as concurred in
by its independent auditors, or change its fiscal year;
(ix) make or agree to make any material severance,
termination, indemnification or similar payments except pursuant to
existing agreements; or
(x) adopt any Benefit Plan.
(b) From the date of this Agreement up to and including
the Closing Date (or, if earlier, the date upon which this Agreement is
terminated pursuant to Article VII), AIM Equity shall conduct the business of
the Portfolio only
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in the ordinary course and substantially in accordance with
past practices, and shall use its reasonable best efforts to preserve intact
its business organization and material assets and maintain the rights,
franchises and business and customer relations necessary to conduct the
business operations of the Portfolio in the ordinary course in all material
respects.
Section 5.2. Confidentiality and Announcements.
(a) As used herein, "Confidential Information" means all
information, whether oral, written or otherwise (including any information
furnished prior to the execution of this Agreement), furnished to AIM Equity,
or its directors, officers, partners, affiliates, employees, agents, advisors
or representatives (collectively "representatives") by Baird Blue Chip or its
representatives relating to Baird Blue Chip, and all reports, analyses,
compilations, studies and other materials prepared by AIM Equity or its
representatives (in whatever form maintained, whether documentary, computer
storage or otherwise) containing, reflecting or based upon, in whole or in
part, any such information or reflecting its review or view of, or interest in,
Baird Blue Chip, a possible transaction with Baird Blue Chip or the
Confidential Information. The term "Confidential Information" does not include
information which (i) is or becomes generally available to the public other
than as a result of disclosure by AIM Equity, its representatives or anyone to
whom AIM Equity or its representatives transmits any Confidential Information,
in breach of this Agreement or (ii) is or becomes known or available to AIM
Equity on a non-confidential basis from a source (other than Baird Blue Chip,
or its representatives) who, insofar as is known to AIM Equity after due
inquiry, is not prohibited from transmitting the information to AIM Equity or
its representatives by a contractual, legal, fiduciary or other obligation.
(b) Subject to Section 5.2(c) below, AIM Equity
and its representatives shall keep the Confidential Information confidential
and shall not, without prior written consent of Baird Blue Chip disclose, in
whole or in part, and will not use, Confidential Information, directly or
indirectly, for any purpose other than in connection with evaluating the
transaction contemplated by this Agreement. Moreover, AIM Equity shall
transmit Confidential Information to its representatives only if and to the
extent that such representatives need to know the Confidential Information for
the purpose of evaluating such transaction and, prior to being furnished any
Confidential Information, are informed by AIM Equity of the confidential nature
of the Confidential Information, are provided with a copy of the provisions of
this Section 5.2 and agree to be bound hereby. In any event, AIM Equity shall
be responsible for any actions by its representatives which are not in
accordance with the provisions hereof. AIM Equity agrees that neither AIM
Equity nor its representatives will make inquires of, or conduct any
discussions
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with, any representative of Baird Blue Chip or regarding the Confidential
Information other than with the permission of Marcus C. Low, Jr., Ronald J.
Kruszewski or Glen F. Hackmann.
(c) In the event that AIM Equity, its
representatives or anyone to whom AIM Equity or its representatives supply the
Confidential Information are requested or required to disclose any
Confidential Information, AIM Equity agrees (i) to immediately notify Baird
Blue Chip of the existence, terms and circumstances surrounding such a request,
(ii) to consult with Baird Blue Chip on the advisability of taking legally
available steps to resist or narrow the Confidential Information which, in the
opinion of its counsel, AIM Equity is legally compelled to disclose and (iii)
to cooperate with any action by Baird Blue Chip or to obtain an appropriate
protective order or other reliable assurance that confidential treatment will
be accorded the Confidential Information; provided, however, that this Section
5.2(c) shall not prohibit AIM Equity or its representatives from disclosing
Confidential Information that consists of its or their own work product to
persons that have a need to know such information in the ordinary course of
business.
(d) Upon termination of this Agreement pursuant
to Article VII, and promptly upon request from Baird Blue Chip thereafter, AIM
Equity shall redeliver to Baird Blue Chip or destroy all tangible Confidential
Information and any other tangible material containing, prepared on the basis
of, or reflecting any information in the Confidential Information (whether
prepared by Baird Blue Chip, its advisors or otherwise), and neither AIM Equity
nor its representatives will retain any copies, extracts or other reproductions
in whole or in part of such tangible material. For purposes of this Agreement,
"tangible" Confidential Information shall include, without limitation,
information contained in printed, magnetic or other tangible media, or in
information storage and retrieval systems. At the request of Baird Blue Chip,
compliance with the foregoing shall be certified in writing to Baird Blue Chip
by an authorized officer supervising the same.
(e) Notwithstanding the other provisions of this
Section 5.2, promptly following execution and delivery of this Agreement, Baird
Blue Chip and AIM Equity shall agree upon and release a mutually acceptable
press release and Baird Blue Chip shall give any and all notices required to be
given by law. Except as described in the preceding sentence and as required by
law, prior to the Closing Date, none of Baird Blue Chip, AIM Equity or the
parent or any affiliate of either will issue any press release or make any
other public statement with respect to this Agreement, without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld.
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(f) The provisions of this Section 5.2 shall
terminate on the closing of the Reorganization.
Section 5.3. Expenses. Baird Blue Chip and AIM Equity
shall each bear their respective direct and indirect expenses incurred in
connection with this Agreement, the Reorganization and the other transactions
contemplated hereby.
Section 5.4. Further Assurances. Each of the parties
hereto shall execute such documents and other papers and perform such further
acts as may be reasonably required to carry out the provisions hereof and the
transactions contemplated hereby. Each such party shall, on or prior to the
Closing Date, use its reasonable best efforts to fulfill or obtain the
fulfillment of the conditions precedent to the consummation of the
Reorganization, including the execution and delivery of any documents,
certificates, instruments or other papers that are reasonably required for the
consummation of the Reorganization.
Section 5.5. Notice of Events. AIM Equity shall give
prompt notice to Baird Blue Chip, and Baird Blue Chip shall give prompt notice
to AIM Equity, of (i) the occurrence or nonoccurrence of any event of which to
the knowledge of AIM Equity or to the knowledge of Baird Blue Chip, the
occurrence or non-occurrence of which would be likely to result in any of the
conditions specified in (x) in the case of AIM Equity, Sections 6.1 and 6.2 or
(y) in the case of Baird Blue Chip, Sections 6.2 and 6.3, not being satisfied
so as to permit the consummation of the Reorganization and (ii) any material
failure on its part, or on the part of the other party hereto of which it has
knowledge, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.5 shall not limit or
otherwise affect the remedies available hereunder to any party.
Section 5.6. Access to Information.
(a) Baird Blue Chip will, during regular business hours and
on reasonable prior notice, allow AIM Equity and its authorized representatives
reasonable access to employees, books and records of Baird Blue Chip; provided,
however, that any such access shall not significantly interfere with the
business or operations of Baird Blue Chip.
(b) Any information made available to or obtained by AIM
Equity or its authorized representatives pursuant to subsection (a) above, or
otherwise in
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connection with this Agreement, shall be subject to the confidentiality
provisions described in Section 5.2 above.
(c) AIM Equity will, during regular business hours and on
reasonable prior notice, allow Baird Blue Chip and its authorized
representatives reasonable access to the books and records of AIM Equity
pertaining to the assets of the Portfolio and to employees of AIM Equity with
knowledge thereof, provided, however, that any such access shall not
significantly interfere with the business or operations of AIM Equity.
Section 5.7. Consents, Approvals and Filings. Each of
Baird Blue Chip and AIM Equity shall make all necessary filings, as soon as
reasonably practicable, including, without limitation, those required under the
Securities Act, the Exchange Act, the Investment Company Act and the Advisers
Act, in order to facilitate prompt consummation of the Reorganization and the
other transactions contemplated by this Agreement. In addition, each of Baird
Blue Chip and AIM Equity shall use its reasonable best efforts, and shall
cooperate fully with each other (i) to comply as promptly as reasonably
practicable with all requirements of Governmental Authorities applicable to the
Reorganization and the other transactions contemplated herein and (ii) to
obtain as promptly as reasonably practicable all necessary permits, orders or
other consents of Governmental Authorities and consents of all third parties
necessary for the consummation of the Reorganization and the other transactions
contemplated herein. Each of Baird Blue Chip and AIM Equity shall use
reasonable efforts to provide such information and communications to
Governmental Authorities as such Governmental Authorities may request.
Section 5.8. Submission of Agreement to Shareholders.
Baird Blue Chip shall take all action necessary in accordance with applicable
law and its articles of incorporation and by-laws to convene the BBC
Shareholders Meeting. Baird Blue Chip shall, through its Board of Directors,
recommend to the BBC Shareholders approval of this Agreement and the other
transactions contemplated by this Agreement, except to the extent provided in
Section 5.10 hereof. Baird Blue Chip shall use its reasonable best efforts to
hold the BBC Shareholders Meeting as soon as practicable after the date hereof.
Section 5.9. Acquisition Proposals. Baird Blue Chip
shall not, nor shall it authorize any officer, director or employee of, or any
investment banker, attorney or other advisor or representative of Baird Blue
Chip to, directly or indirectly (i) solicit, initiate or encourage the
submission of any Acquisition Proposal or (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate
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<PAGE> 92
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal, and Baird Blue Chip shall
promptly terminate any such discussions with any Person that has expressed or
expresses an interest in acquiring Baird Blue Chip or negotiations pending at
the date of this Agreement provided, however, Baird Blue Chip or any
officer, director or employee of, or any investment banker, attorney or other
adviser or representative of Baird Blue Chip may, following the receipt of an
Acquisition Proposal that the Board of Directors of Baird Blue Chip determines
in good faith, after consultation with outside counsel, would permit the Board
of Directors to take any of the actions referred to in Section 5.10,
participate in negotiations regarding such Acquisition Proposal. Baird Blue
Chip shall promptly notify AIM Equity, orally and in writing, of the receipt by
it after the date hereof of any Acquisition Proposal or any inquiry from a
potential acquiror of Baird Blue Chip which could reasonably be expected to
lead to any Acquisition Proposal, the material terms and conditions of such
Acquisition Proposal or inquiry and the identity of the Person making any such
Acquisition Proposal or inquiry, except to the extent Baird Blue Chip's Board
of Directors concludes, after consultation with outside counsel, that the
disclosure of any such information would be a breach of a duty of
confidentiality imposed on Baird Blue Chip with respect to such information.
Subject to the foregoing, Baird Blue Chip shall keep AIM Equity informed of the
status and details of any such Acquisition Proposal or inquiry.
Section 5.10. Fiduciary Duties. The Board of Directors of
Baird Blue Chip shall not (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to AIM Equity, its approval or recommendation of
this Agreement or the Reorganization, (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal or (iii) authorize Baird Blue
Chip to enter into any agreement with respect to any Acquisition Proposal,
unless Baird Blue Chip receives an Acquisition Proposal and the Board of
Directors of Baird Blue Chip determines in good faith, after consultation with
outside counsel, that in order to comply with its fiduciary duties to the
shareholders of Baird Blue Chip under applicable law, the Board of Directors of
Baird Blue Chip should withdraw or modify its approval or recommendation of
this Agreement or the Reorganization, approve, recommend or enter into
negotiations concerning such Acquisition Proposal, or authorize Baird Blue Chip
to enter into an agreement with respect to such Acquisition Proposal or
terminate this Agreement. Nothing contained in this Section 5.10 shall
prohibit Baird Blue Chip from making any disclosure to the BBC Shareholders
which, in the good faith and reasonable judgment of the Board of Directors of
Baird Blue Chip based on the advice of outside counsel, is required under
applicable law. Notwithstanding any provision of this Agreement to the
contrary, any action by the Board of Directors of Baird Blue Chip permitted by
this Section 5.10 shall not constitute a breach of this Agreement by Baird Blue
Chip.
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Section 5.11. Section 15(f) of the 1940 Act.
(a) Each of AIM Equity and Baird Blue Chip shall use its
reasonable best efforts to assure compliance with the conditions of Section
15(f) of the Investment Company Act as it applies to the transactions
contemplated by this Agreement.
(a) AIM Equity shall for a period of not less than three
years after the Closing Date, use its reasonable best efforts to assure that no
more than 25% of the members of the board of directors AIM Equity shall be
"interested persons" (as defined in the Investment Company Act) of the
investment adviser of Baird Blue Chip or any entity that served as investment
advisor to Baird Blue Chip or any Person that before or after the Closing Date
was or is an Affiliated Person of any of the foregoing. Without limiting the
generality of the foregoing, AIM Equity will not take, recommend or endorse any
action that would cause more than 25% of the number of members of its board of
directors to be such "interested persons."
(b) AIM Equity represents and warrants that there is no
express or implied understanding, arrangement or intention on its part to
impose an "unfair burden" within the meaning of Section 15(f) of the Investment
Company Act on the Portfolio as a result of the transactions contemplated
hereby, and that for a period of not less than two years after the Closing
Date, it shall not take or recommend any act that would constitute an "unfair
burden" on the Portfolio.
Section 5.12. Sales Charges. Baird Blue Chip shall
deliver to AIM Equity on the Closing Date a certificate showing (a) the
Remaining Amount and Balance for Interest relating to Asset Based Sales
Charges, as such terms are used in NASD Notice to Members 93-12 at page 56, and
(b) the total sales charges, and the components thereof, paid by Baird Blue
Chip shareholders, collected by Baird Blue Chip or paid by Baird Blue Chip in
connection with sales of its shares since July 1, 1993.
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION
Section 6.1. Conditions Precedent of AIM Equity. The
obligation of AIM Equity to consummate the Reorganization is subject to the
satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived in writing by AIM Equity.
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<PAGE> 94
(a) The representations and warranties of Baird Blue Chip
set forth in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date with the same
effect as though all such representations and warranties had been made as of
the Closing Date.
(b) Baird Blue Chip shall have complied with and
satisfied in all material respects all agreements and all conditions set forth
herein on its part to be performed or satisfied at or prior to the Closing
Date.
(c) AIM Equity shall have received at the Closing Date
(i) a certificate, dated as of the Closing Date, from an officer of Baird Blue
Chip on behalf of Baird Blue Chip, in such individual's capacity as an officer
of Baird Blue Chip and not as an individual, to the effect that the conditions
specified in Section 6.1(a) and (b) have been satisfied and (ii) a certificate,
dated as of the Closing Date, from the Secretary or Assistant Secretary of
Baird Blue Chip certifying as to the accuracy and completeness of the attached
articles of incorporation and by-laws, and resolutions, consents and
authorizations with respect to the execution and delivery of this Agreement and
the transactions contemplated hereby.
(d) AIM Equity shall have received the signed opinion of
Quarles & Brady, counsel to Baird Blue Chip, or other counsel reasonably
acceptable to AIM Equity, in form and substance reasonably acceptable to
counsel for AIM Equity, as to the matters set forth in Schedule 6.1(d).
Section 6.2. Mutual Conditions. The obligation of Baird
Blue Chip and AIM Equity to consummate the Reorganization is subject to the
satisfaction, at or prior to the Closing Date, of all of the following further
conditions, any one or more may be waived in writing by Fund and AIM Equity,
but only if and to the extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing
Date with, and all consents, approvals, permits and authorizations required to
be obtained on or prior to the Closing Date from Governmental Authorities, in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated herein by Baird Blue Chip and AIM
Equity shall have been made or obtained, as the case may be; provided, however,
that such consents, approvals, permits and authorizations may be subject to
conditions that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
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<PAGE> 95
(b) This Agreement, the Reorganization and related
corporate matters shall have been approved and adopted at the BBC Shareholders
Meeting by the shareholders of Baird Blue Chip on the record date by the
Required BBC Shareholder Vote.
(c) The assets of Baird Blue Chip to be acquired by the
Portfolio shall constitute at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets of Baird
Blue Chip immediately prior to the Reorganization. For these purposes, assets
used by Baird Blue Chip to pay the expenses it incurs in connection with this
Agreement and the Reorganization and to effect all shareholder redemptions and
distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course Baird
Blue Chip's business as an open-end diversified management investment company)
after the date of this Agreement shall be included as assets of Baird Blue Chip
immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or
permanent injunction or other order issued by any Governmental Authority
preventing the consummation of the Reorganization on the Closing Date shall be
in effect; provided, however, that the party or parties invoking this condition
shall use reasonable efforts to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by AIM
Equity with respect to the Portfolio Shares to be issued to BBC Shareholders in
connection with the Reorganization shall have become effective under the
Securities Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(f) A post-effective amendment to the AEF Registration
Statement filed by AIM Equity to register Portfolio Shares to be offered to the
public shall have become effective under the Securities Act and no stop orders
suspending the effectiveness thereof shall have been issued and, to the best
knowledge of the parties hereto, no investigation or proceeding for that
purpose shall have been instituted or be pending, threatened or contemplated
under the Securities Act.
(g) Baird Blue Chip and AIM Equity shall have received on
or before the Closing Date an opinion of Ballard Spahr Andrews & Ingersoll in
form, scope
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<PAGE> 96
and substance satisfactory to Baird Blue Chip and AIM Equity, set
forth on Schedule 6.2(g).
(h) The transactions contemplated by that certain
Agreement and Plan of Reorganization dated December 20, 1995, between Baird
Capital Development Fund, Inc. and AIM Equity acting on behalf of AIM Capital
Development Fund, and that certain Agreement and Plan of Reorganization dated
December 20, 1995 between The Baird Funds, Inc., acting on behalf of Baird
Quality Bond Fund, and AIM Funds Group, acting on behalf of AIM Income Fund,
shall be consummated on the Closing Date.
(i) The dividend or dividends described in the last
sentence of Section 3.16(b) shall have been declared.
(j) A I M Advisors, Inc. ("AIM") shall have executed and
delivered to Baird Blue Chip a certificate to the effect that:
(i) its balance sheet as of December 31,
1994 has been prepared in accordance with generally accepted
accounting principles applied on a consistent basis and fairly
reflects the financial condition of AIM as of the date indicated;
since December 31, 1994 there has not been any change in AIM's
financial condition, assets, liabilities or business that would have a
material adverse effect upon its ability to provide investment
advisory services to the Portfolio and the other funds advised by AIM
(the "AIM Funds").
(ii) AIM is, and on the Closing Date shall be,
registered as an investment adviser under the Investment Advisers Act
and, registered as an investment adviser in all states where it is
required to be so registered.
(iii) AIM is in compliance in all material
respects with all laws, rules and regulations applicable to its
business of providing investment advisory services to the Portfolio
and the AIM Funds, including, without limitation, federal and state
securities laws.
(iv) Neither AIM nor any affiliated person of AIM
is ineligible to serve an employee, officer, director, member of
an advisory board, investment adviser, depositor or principal
underwriter of any investment company registered under the Investment
Company Act by reason of any conviction of a felony or misdemeanor,
described in Section 9(a)(1) of the Investment Company Act, and is not
subject to any order issued by the SEC under Section 9(b) of the
Investment Company Act. To the best of AIM's
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<PAGE> 97
knowledge, no facts exist with respect to AIM, or any
Affiliated Person of AIM, which would form a basis for any such
conviction or the issuance of any such order, judgment or decree.
(v) No litigation, proceeding or governmental
investigation or inquiry is pending or, to the best of AIM's
knowledge, threatened, against AIM that, if determined against AIM
would be reasonably likely to have a material adverse effect on the
Portfolio or a material adverse effect on AIM's ability to provide
investment advisory services to the Portfolio or any of the AIM Funds.
(k) The transactions contemplated by that certain
Acquisition Agreement dated December 20, 1995 between Robert W. Baird & Co.
Incorporated and A I M Advisors, Inc. shall be consummated on the Closing Date.
Section 6.3. Conditions Precedent of Baird Blue Chip. The
obligation of Baird Blue Chip to consummate the Reorganization is subject to
the satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived in writing by Baird Blue
Chip.
(a) The representations and warranties of AIM Equity on
behalf of the Portfolio set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date with the same effect as though all such representations and warranties had
been made as of the Closing Date.
(b) AIM Equity shall have complied with and satisfied in
all material respects all agreements and all conditions set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Baird Blue Chip shall have received on the Closing
Date (i) a certificate, dated as of the Closing Date, from an officer of AIM
Equity, in such individual's capacity as an officer of AIM Equity and not as an
individual, to the effect that the conditions specified in Section 6.3(a) and
(b) have been satisfied and (ii) a certificate, dated as of the Closing Date,
of AIM Equity, certifying as to the accuracy and completeness of the attached
articles of incorporation and by-laws, and resolutions, consents and
authorizations with respect to the execution and delivery of this Agreement and
the transactions contemplated hereby.
(d) Baird Blue Chip shall have received the signed
opinion of Ballard Spahr Andrews & Ingersoll, counsel to AIM Equity, or other
counsel reasonably
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<PAGE> 98
acceptable to Baird Blue Chip, in form and substance reasonably
acceptable to special counsel for Baird Blue Chip, as to the matters set forth
on Schedule 6.3(d).
ARTICLE VII
TERMINATION OF AGREEMENT
Section 7.1. Termination.
(a) This Agreement may be terminated on or prior to the
Closing Date as follows:
(i) by mutual written consent of Baird Blue Chip
and AIM Equity; and
(ii) at the election of Baird Blue Chip or AIM Equity:
(A) if the Closing Date shall not be on or before
June 30, 1996, or such later date as the
parties hereto may agree upon, unless the
failure to consummate the Reorganization is
the result of a willful and material breach
of this Agreement by the party seeking to
terminate this Agreement;
(B) if, upon a vote at BBC Shareholders Meeting
or any adjournment thereof, the Required BBC
Shareholder Vote shall not have been obtained
as contemplated by Section 5.8; or
(C) if any Governmental Authority shall have
issued an order, decree or ruling or taken
any other action permanently enjoining,
restraining or otherwise prohibiting the
Reorganization and such order, decree, ruling
or other action shall have become final and
nonappealable; or
(iii) by Baird Blue Chip in the event Baird Blue Chip
receives an Acquisition Proposal and the Board of Directors of Baird Blue Chip
determines in good faith, after consultation with outside counsel, that, in
order to comply with its fiduciary duties to the stockholders of Baird Blue
Chip under applicable law, the Board of Directors of Baird Blue Chip should
authorize Baird Blue Chip to terminate this Agreement; or
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<PAGE> 99
(iv) by AIM Equity 45 days following the date on which Baird
Blue Chip first actively participates in any discussions on negotiations
regarding, or furnishes to any Person any confidential information with respect
to, any Acquisition Proposal, unless prior to the expiration of such 45 day
period Baird Blue Chip notifies AIM Equity that such Acquisition Proposal has
been rejected and any such negotiations have been terminated.
(b) The termination of this Agreement shall be effectuated by
the delivery by the terminating party to the other party of a written notice of
such termination. If this Agreement so terminates, it shall become null and
void and have no further force or effect, except as provided in Section 7.2.
Section 7.2. Survival After Termination. If this
Agreement is terminated in accordance with Section 7.1 hereof and the
transactions contemplated hereby are not consummated, this Agreement shall
become void and of no further force and effect, except for the provisions of
Section 5.2 and Section 5.3.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Nonsurvival of Representations and
Warranties. Except as set forth below, none of the representations, warranties
or covenants in this Agreement or in any certificate or instrument delivered
pursuant to this Agreement shall survive the Closing Date and no party shall,
therefore, have any recourse therefor against any other party in connection
therewith. This Section 8.1 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Closing Date.
Section 8.2. Law Governing. This Agreement shall be
construed and interpreted according to the laws of the State of Maryland
applicable to contracts made and to be performed wholly within such state.
Section 8.3. Binding Effect, Persons Benefiting, No
Assignment. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and the respective successors and assigns of the parties and
such Persons. Nothing in this Agreement is intended or shall be construed to
confer upon any entity or Person other than the parties hereto and their
respective successors and permitted assigns any right, remedy or claim under or
by reason of this Agreement or any part hereof. Without the prior written
consent of the parties hereto, this Agreement may not be assigned by any of the
parties hereto.
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<PAGE> 100
Section 8.4. Obligation of AIM Equity Portfolio. Baird
Blue Chip and AIM Equity hereby acknowledge and agree that the Portfolio is a
separate investment portfolio of AIM Equity, that AIM Equity is executing this
Agreement on behalf of the Portfolio, and that any amounts payable by AIM
Equity under or in connection with this Agreement shall be payable solely from
the revenues and assets of the Portfolio.
Section 8.5. Amendments. This Agreement may not be
amended, altered or modified except by a written instrument executed by Baird
Blue Chip and AIM Equity.
Section 8.6. Enforcement. The parties agree irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States or any state having jurisdiction, in addition to any other remedy
to which they are entitled at law or in equity.
Section 8.7. Interpretation. When a reference is made in
this Agreement to a Section or Schedule, such reference shall be to a Section
of, or a Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". Each representation and warranty contained in Article III or IV
that relates to a general category of a subject matter shall be deemed
superseded by a specific representation and warranty relating to a subcategory
thereof to the extent of such specific representation or warranty.
Section 8.8. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original and each of which
shall constitute one and the same instrument.
Section 8.9. Entire Agreement; Schedules. This Agreement,
including the Schedules, certificates and lists referred to herein, and any
documents executed by the parties simultaneously herewith or pursuant thereto,
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and
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<PAGE> 101
understandings, written or oral, between the parties with respect to such
subject matter.
Section 8.10. Notices. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or by overnight courier, two days after
being sent by registered mail, return receipt requested, or when sent by
telecopier (with receipt confirmed), provided, in the case of a telecopied
notice, a copy is also sent by registered mail, return receipt requested, or by
courier, addressed as follows (or to such other address as a party may
designate by notice to the other):
(a) If to AIM Equity:
AIM Equity Funds, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
Attn: Carol F. Relihan, Esq.
Fax: (713) 993-9185
with a copy to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103-7599
Attn: William H. Rheiner, Esq.
Fax: (215) 864-8999
(b) If to Baird Blue Chip:
Baird Blue Chip Fund, Inc.
777 Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Glen F. Hackmann, Esq.
Fax: (414) 765-3662
with a copy to:
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Conrad G. Goodkind, Esq.
Fax: (414) 271-3552
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<PAGE> 102
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
BAIRD BLUE CHIP FUND, INC.
By: /s/ M. C. LOW, JR.
-----------------------------
AIM EQUITY FUNDS, INC., acting
on behalf of AIM Blue Chip Fund
By: /s/ ROBERT H. GRAHAM
-----------------------------
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<PAGE> 103
Schedule 3.12(a)
LIST OF CONTRACTS AND AGREEMENTS
1. Investment Advisory Agreement dated December 31, 1986 between Baird
Blue Chip Fund, Inc. ("BBC Fund") and Robert W. Baird & Co.
Incorporated ("Baird").
2. Administration Agreement dated December 19, 1988 between BBC Fund and
Fiduciary Management, Inc., together with a supplemental letter dated
December 19, 1988.
3. Distribution Plan of BBC Fund.
4. Distribution Agreement dated December 31, 1986 between BBC Fund and
Baird.
5. Distribution Assistance Agreement dated December 31, 1986 between BBC
Fund and Baird.
6. Custodian Agreement dated December 31, 1986 between BBC Fund and First
Wisconsin Trust Company (now known as Firstar Trust Company)
("Firstar").
7. Transfer Agent Agreement dated July 20, 1990 between BBC Fund and
Firstar.
8. License Agreement dated March 31, 1987 between BBC Fund and Baird.
9. Agreement dated September 14, 1994, as amended, among BBC Fund, The
Baird Funds, Inc. and Baird Capital Development Fund, Inc. regarding
allocation of fidelity bond coverage, pursuant to Rule 17g-1(f) under
the Investment Company Act of 1940.
10. $1,600,000 Fidelity Bond issued by Reliance Insurance Company.
11. Articles of Incorporation of BBC Fund.
12. Bylaws of BBC Fund.
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Schedule 6.1(d)
OPINION OF COUNSEL TO BAIRD BLUE CHIP
1. Baird Blue Chip is a corporation duly incorporated
and validly existing under the laws of the State of
Wisconsin.
2. Baird Blue Chip is an open-end management investment
company registered under the Investment Company Act
of 1940.
3. The execution, delivery and performance of the
Agreement by Baird Blue Chip have been duly
authorized and approved by all requisite corporate
action on the part of Baird Blue Chip. The Agreement
has been duly executed and delivered by Baird Blue
Chip and constitutes the valid and binding obligation
of Baird Blue Chip.
4. The BBC Shares outstanding on the date hereof have
been duly authorized and validly issued, are fully
paid and are non-assessable (subject to Wisconsin
Business Corporation Law Section 180.0622(2)(b)).
5. Baird Blue Chip is not required to submit any notice,
report or other filing with or obtain any
authorization consent or approval from any
governmental authority or self regulatory
organization prior to the consummation of the
transactions contemplated by the Agreement.
We confirm to you that to our knowledge after inquiry of each
lawyer who is the current primary contact for Baird Blue Chip or who has
devoted substantive attention on behalf of Baird Blue Chip during the preceding
twelve months and who is still currently employed by or is currently a member
of this firm, no litigation or governmental proceeding is pending or threatened
in writing against Baird Blue Chip (i) with respect to the Agreement or (ii)
which involves in excess of $500,000 in damages.
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Schedule 6.2(g)
TAX OPINIONS
(i) The transfer of the assets of Baird Blue Chip
to the Portfolio in exchange for the Portfolio Shares distributed
directly to the BBC Shareholders, as provided in the Agreement, will
constitute a "reorganization" within the meaning of Section 368(a) of
the Code and that Baird Blue Chip and AIM Equity will each be a "party
to a reorganization" within the meaning of 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section
361(c)(1) of the Code, no gain or loss will be recognized by Baird
Blue Chip as a result of such transaction.
(iii) In accordance with Section 1032 of the Code,
no gain or loss will be recognized by the Portfolio upon the receipt
of assets of Baird Blue Chip in exchange for Portfolio Shares issued
directly to the BBC Shareholders.
(iv) In accordance with Section 354(a)(1) of the
Code, no gain or loss will be recognized by BBC Shareholders on
issuance by AIM Equity of Portfolio Shares in exchange for their BBC
Shares.
(v) In accordance with Section 362(b) of the
Code, the basis to the Portfolio of the assets of Baird Blue Chip
transferred to it will be the same as the basis of such assets in the
hands of Baird Blue Chip immediately prior to the exchange.
(vi) In accordance with Section 358(a) of the
Code, a BBC Shareholder's basis for Portfolio Shares issued to such
BBC Shareholder pursuant to Section 2.7 of the Agreement ("Issued
Shares") will be the same as his basis for BBC Shares.
(vii) In accordance with Section 1223(1) of the
Code, a BBC Shareholder's holding period for Portfolio Shares will be
determined by including said BBC Shareholder's holding period for BBC
Shares exchanged therefor, provided that BBC Shareholder held such BBC
Shares as a capital asset.
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(viii) In accordance with Section 1223(2) of the
Code, the holding period with respect to the assets of Baird Blue
Chip transferred to the Portfolio will include the holding period
for such assets in the hands of Baird Blue Chip.
(ix) In accordance with Section 381(a)(2) of the
Code, the Portfolio will succeed to and take into account the items of
Baird Blue Chip described in Section 381(c) of the Code, subject to
the conditions and limitations specified in Sections 381 through 384
of the Code and the Internal Revenue Service regulations thereunder.
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Schedule 6.3(d)
OPINION OF COUNSEL TO AIM EQUITY
1. AIM Equity is a corporation duly incorporated and
validly existing under the laws of the State of
Maryland.
2. AIM Equity is an open-end, management investment
company registered under the Investment Company Act
of 1940.
3. The execution, delivery and performance of the
Agreement by AIM Equity have been duly authorized
and approved by all requisite corporate action on
the part of AIM Equity. The Agreement has been duly
executed and delivered by AIM Equity and constitutes
the valid and binding obligation of the Portfolio.
4. The Portfolio Shares outstanding on the date hereof
have been duly authorized and validly issued, are
fully paid and are non-assessable.
5. AIM Equity is not required to submit any notice,
report or other filing with or obtain any
authorization consent or approval from any
governmental authority or self regulatory
organization prior to the consummation of the
transactions contemplated by the Agreement.
We confirm to you that to our knowledge after inquiry of each
lawyer who is the current primary contact for AIM Equity or who has devoted
substantive attention on behalf of AIM Equity during the preceding twelve
months and who is still currently employed by or is currently a member of this
firm, no litigation or governmental proceeding is pending or threatened in
writing against the Portfolio (i) with respect to the Agreement or (ii) which
involves in excess of $500,000 in damages.
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STATEMENT OF
ADDITIONAL INFORMATION
RETAIL CLASSES OF
AIM BLUE CHIP FUND
(A SERIES PORTFOLIO OF
AIM EQUITY FUNDS, INC.)
11 GREENWAY PLAZA
SUITE 1919
HOUSTON, TX 77046-1173
(713) 626-1919
____________________
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
IT SHOULD BE READ IN CONJUNCTION WITH THE PROXY STATEMENT/PROSPECTUS
OF THE ABOVE-NAMED FUND, A COPY OF WHICH MAY BE OBTAINED
FREE OF CHARGE FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC., P.O. BOX 4739
HOUSTON, TX 77210-4739
OR BY CALLING (713) 626-1919 (HOUSTON RESIDENTS)
OR (800) 347-1919 (ALL OTHERS).
____________________
STATEMENT OF ADDITIONAL INFORMATION FEBRUARY 2, 1996
RELATING TO THE AIM BLUE CHIP FUND AND AIM CAPITAL DEVELOPMENT FUND PROSPECTUS
DATED FEBRUARY 2, 1996
<PAGE> 109
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GENERAL INFORMATION ABOUT THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company and its Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Total Return Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Yield Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Historical Portfolio Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
General Brokerage Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 28(e) Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Brokerage Commissions Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Rule 144A Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Risks as to Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Additional Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Investment Advisory, and Administrative Services Agreements . . . . . . . . . . . . . . . . . . . . . . . . 21
THE DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
HOW TO PURCHASE AND REDEEM SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
NET ASSET VALUE DETERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
i
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<TABLE>
<S> <C>
Reinvestment of Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Qualification as a Regulated Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Excise Tax on Regulated Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Fund Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Sale or Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Effect of Future Legislation; Local Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
MISCELLANEOUS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Shareholder Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Principal Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Description of Commercial Paper Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Description of Corporate Bond Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
ii
<PAGE> 111
INTRODUCTION
AIM Equity Funds, Inc. (the "Company") is a series mutual fund. The
rules and regulations of the United States Securities and Exchange Commission
(the "SEC") require all mutual funds to furnish prospective investors certain
information concerning the activities of the fund being considered for
investment. This information for Class A Shares of AIM Blue Chip Fund ("Blue
Chip" or the "Fund") is contained in a separate Proxy Statement/Prospectus dated
February 2, 1996. Additional copies of the Proxy Statement/Prospectus and this
Statement of Additional Information may be obtained without charge by writing
the principal distributor of the Fund shares, A I M Distributors, Inc. ("AIM
Distributors"), P.O. Box 4739, Houston, TX 77210-4739 or by calling (713)
626-1919. Investors must receive a Prospectus before they invest.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Fund. Some of
the information required to be in this Statement of Additional Information is
also included in the Proxy Statement/Prospectus; and, in order to avoid
repetition, reference will be made to sections of the Proxy
Statement/Prospectus. Additionally, the Proxy Statement/Prospectus and this
Statement of Additional Information omit certain information contained in the
Registration Statement filed with the SEC. Copies of the Registration
Statement, including items omitted from the Proxy Statement/Prospectus and this
Statement of Additional Information, may be obtained from the SEC by paying the
charges described under its rules and regulations.
Certain financial information for Baird Blue Chip is set forth below.
Capitalized terms not defined herein shall have the meanings ascribed to them
in the Proxy Statement/Prospectus.
This Statement of Additional Information is dated February 2, 1996.
GENERAL INFORMATION ABOUT THE FUND
THE COMPANY AND ITS SHARES
The Company was organized in 1988 as a Maryland corporation, and is
registered with the SEC as a diversified open-end series management investment
company. The Company currently consists of six separate portfolios: AIM
Aggressive Growth Fund ("Aggressive Growth"), AIM Blue Chip Fund ("Blue Chip"),
AIM Capital Development ("Capital Development"), AIM Charter Fund ("Charter"),
AIM Constellation Fund ("Constellation"), and AIM Weingarten Fund
("Weingarten") (each a "Portfolio" and collectively the "Portfolios"). Charter
and Weingarten each have three separate classes: Class A and Class B and an
Institutional Class. Constellation has two classes of shares: Class A and an
Institutional Class. Aggressive Growth, Blue Chip and Capital Development have
Class A shares only. Class A shares (sold with a front-end load) and Class B
shares (sold with a contingent deferred sales charge) of the Portfolios are
also referred to as the Retail Classes. Blue Chip intends to commence
operations upon the consummation of the Transaction. Capital Development also
intends to commence operations upon consummation of a reorganization with Baird
Capital Development Fund, Inc. in a transaction similar to the Transaction.
This Statement of Additional Information relates solely to the Class
A shares of Blue Chip.
The term "majority of the outstanding shares" of the Company, of a
particular Portfolio or of a particular class of a Portfolio means,
respectively, the vote of the lesser of (a) 67% or more of the shares of the
Company, such Portfolio or such class present at a meeting of the Company's
shareholders, if the
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<PAGE> 112
holders of more than 50% of the outstanding shares of the Company, such
Portfolio or such class are present or represented by proxy, or (b) more than
50% of the outstanding shares of the Company, such Portfolio or such class.
Shares of each class of each Portfolio have equal rights and
privileges. Each share of a particular class is entitled to one vote, to
participate equally in dividends and distributions declared by the Company's
Board of Directors with respect to the class of such Portfolio and, upon
liquidation of the Portfolio and to participate proportionately in the net
assets of the Portfolio allocable to such class remaining after satisfaction of
outstanding liabilities of the Portfolio allocable to such class. Portfolio
shares are fully paid, non-assessable and fully transferable when issued and
have no preemptive rights and have such conversion and exchange rights as set
forth in the Prospectus and this Statement of Additional Information.
Fractional shares have proportionately the same rights, including voting
rights, as are provided for a full share.
Shareholders of the Portfolios do not have cumulative voting rights,
and therefore the holders of more than 50% of the outstanding shares of all
Portfolios voting together for election of directors may elect all of the
members of the Board of Directors of the Company. In such event, the remaining
holders cannot elect any directors of the Company.
PERFORMANCE
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per share over the
period. Average annual returns are calculated by determining the growth or
decline in value of a hypothetical investment in the Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. While average annual returns are a convenient means
of comparing investment alternatives, investors should realize that the Fund's
performance is not constant over time, but changes from year to year, and that
average annual returns do not represent the actual year-to-year performance of
the Fund.
In addition to average annual returns, the Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for
a single investment, a series of investments, and/or a series of redemptions,
over any time period. Total returns may be broken down into their components
of income and capital (including capital gains and changes in share price) in
order to illustrate the relationship of these factors and their contributions
to total return. Total returns, yields, and other performance information may
be quoted numerically or in a table, graph or similar illustration. Total
returns may be quoted with or without taking the Fund's maximum sales charge
into account. Excluding sales charges from a total return calculation produces
a higher total return figure.
YIELD QUOTATIONS
The standard formula for calculating yield, as described in the
Prospectus, is as follows:
6
YIELD = 2[((a-b)/(c x d) + 1) -1]
2
<PAGE> 113
Where a = dividends and interest earned during a stated 30 day period. For
purposes of this calculation, dividends are accrued rather than
recorded on the ex-dividend date. Interest earned under this
formula must generally be calculated based on the yield to maturity
of each obligation (or, if more appropriate, based on yield to call
date).
b = expense accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during the period.
d = the maximum offering price per share on the last day of the period.
HISTORICAL PORTFOLIO RESULTS
The Fund's performance may be compared in advertising to the
performance of other mutual funds in general, or of particular types of mutual
funds, especially those with similar objectives. Such performance data may be
prepared by Lipper Analytical Services, Inc. and other independent services
which monitor the performance of mutual funds. The Fund may also advertise
mutual fund performance rankings which have been assigned to the Fund by such
monitoring services.
The Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the Consumer Price Index ("CPI"),
the Standard & Poor's ("S&P") 500 Stock Index, and fixed-price investments such
as bank certificates of deposit and/or savings accounts.
In addition, the Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events.
The Fund's advertising may from time to time include discussions of
general economic conditions and interest rates. The Fund's advertising may
also include references to the use of the Fund as part of an individual's
overall retirement investment program.
From time to time, Fund's sales literature and/or advertisements may
disclose (i) top holdings included in the Fund's portfolio, (ii) certain
selling group members and/or (iii) certain institutional shareholders.
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<PAGE> 114
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. These
topics include, but are not limited to, literature addressing general
information about mutual funds, variable annuities, dollar-cost averaging,
stocks, bonds, money markets, certificates of deposit, retirement, retirement
plans, asset allocation, tax-free investing, college planning and inflation.
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Directors of the
Company, A I M Advisors, Inc. ("AIM") is responsible for decisions to buy and
sell securities for the Fund, for the selection of broker-dealers, for the
execution of the Fund's investment portfolio transactions, and for the
allocation of brokerage fees in connection with such transactions. AIM's
primary consideration in effecting a security transaction is to obtain the best
net price and the most favorable execution of the order. While AIM generally
seeks reasonably competitive commission rates, the Fund does not necessarily
pay the lowest commission or spread available.
A portion of the securities in which the Fund invests are traded in
over-the-counter markets, and in such transactions, the Fund deals directly
with the dealers who make markets in the securities involved, except in those
circumstances where better prices and executions are available elsewhere.
Portfolio
4
<PAGE> 115
transactions placed through dealers serving as primary market makers are
effected at net prices, generally without commissions as such, but which
include compensation in the form of mark up or mark down.
AIM may from time to time determine target levels of commission
business for AIM to transact with various brokers on behalf of its clients
(including the Fund) over a certain time period. The target levels will be
determined based upon the following factors, among others: (a) the execution
services by the broker; (b) the research services provided by the broker; and
(c) the broker's attitude toward and interest in mutual funds in general and in
the Fund and other mutual fund advised by AIM or A I M Capital Management, Inc.
("AIM Capital") in particular. No specific formula will be used in connection
with any of the foregoing considerations in determining the target levels.
However, if a broker has indicated a certain level of desired commissions in
return for certain research services provided by the broker, this factor will
be taken into consideration by AIM. Subject to the overall objective of
obtaining best price and execution for the Fund, AIM may also consider sales of
shares of the Fund and of the other mutual fund managed or advised by AIM and
AIM Capital as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund. AIM will seek, whenever possible, to recapture for
the benefit of the Fund any commission, fee, brokerage or similar payment paid
by Fund on portfolio transactions. Normally, the only fees which may be
recaptured are the soliciting dealer fees on the tender of an account's
portfolio securities in a tender or exchange offer.
The Fund is not under any obligation to deal with any broker or group
of brokers in the execution of transactions in portfolio securities. Brokers
who provide supplemental investment research to AIM and AIM Capital may receive
orders for transactions by the Fund. Information so received will be in
addition to and not in lieu of the services required to be performed by AIM
under its agreement with the Fund and the expenses of AIM will not necessarily
be reduced as a result of the receipt of such supplemental information.
Certain research services furnished by broker-dealers may be useful to AIM in
connection with its services to other advisory clients, including the
investment companies which it advises. Also, the Fund may pay a higher price
for securities or higher commissions in recognition of research services
furnished by broker-dealers.
Provisions of the Investment Company Act of 1940, as amended (the
"1940 Act"), and rules and regulations thereunder have been construed to
prohibit the Company from purchasing securities or instruments from, or selling
securities or instruments to, any holder of 5% or more of the voting securities
of any investment company managed or advised by AIM. The Company has obtained
an order of exemption from the SEC which permits the Company to engage in
certain transactions with such 5% holder, if the Company complies with
conditions and procedures designed to ensure that such transactions are
executed at fair market value and present no conflicts of interest.
AIM and its affiliates manage several other investment accounts, some
of which may have investment objectives similar to those of the Fund. It is
possible that, at times, identical securities will be appropriate for investment
by the Fund and by other portfolios of AEF or such investment accounts. The
position of each account, however, in the securities of the same issue may vary
and the length of time that each account may choose to hold its investment in
the securities of the same issue may likewise vary. The timing and amount of
purchase by each account will be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund and one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the Fund and such
accounts in a manner deemed equitable by AIM. AIM may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution. Simultaneous
transactions could, however, adversely affect the ability of the Fund to obtain
or dispose of the full amount of a security which it seeks to purchase or sell.
Under the 1940 Act, persons affiliated with the Company are prohibited
from dealing with the Fund as principal in any purchase or sale of securities
unless an exemptive order allowing such
5
<PAGE> 116
transactions is obtained from the SEC. The Board of Directors has adopted
procedures pursuant to Rule 17a-7 under the 1940 Act relating to portfolio
transactions among the Fund and other accounts advised by AIM or AIM Capital
and the Fund may from time to time enter into transactions in accordance with
such Rule and procedures.
From time to time, an identical security may be sold by an AIM Fund or
another investment account advised by AIM or AIM Capital and simultaneously
purchased by another investment account advised by AIM or AIM Capital when such
transactions comply with applicable rules and regulations and are deemed
consistent with the investment objective(s) and policies of the investment
accounts involved. Procedures pursuant to Rule 17a-7 under the 1940 Act
regarding transactions between investment accounts advised by AIM or AIM Capital
have been adopted by the Board of Directors/Trustees of the various AIM Funds
including the Company. Although such transactions may result in custodian, tax
or other related expenses, no brokerage commissions or other direct transaction
costs are generated by transactions among the investment accounts advised by AIM
or AIM Capital.
In some cases the procedure for allocating portfolio transactions
among the various investment accounts advised by AIM and AIM Capital could have
an adverse effect on the price or amount of securities available to the Fund.
In making such allocations, the main factors considered by AIM are the
respective investment objectives and policies of its advisory clients, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the judgments of the persons responsible for recommending
the investment.
SECTION 28(e) STANDARDS
Under Section 28(e) of the Securities Exchange Act of 1934, AIM shall
not be "deemed to have acted unlawfully or to have breached its fiduciary duty"
solely because under certain circumstances it has caused the account to pay a
higher commission than the lowest available. To obtain the benefit of Section
28(e), AIM must make a good faith determination that the commissions paid are
"reasonable in relation to the value of the brokerage and research services
provided . . . viewed in terms of either that particular transaction or [its]
overall responsibilities with respect to the accounts as to which [it]
exercises investment discretion," and that the services provided by a broker
provide AIM with lawful and appropriate assistance in the performance of their
investment decision-making responsibilities. Accordingly, the price to the
Fund in any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered.
Broker-dealers utilized by AIM may furnish statistical, research and
other information or services which are deemed by AIM to be beneficial to the
Fund's investment program. Research services received from brokers supplement
AIM's own research (and the research of sub-advisors to other clients of AIM),
and may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
political developments; portfolio management strategies; performance
information on securities and information concerning prices of securities; and
information supplied by specialized services to AIM and to the Company's
directors with respect to the performance, investment activities and fees and
expenses of other mutual funds. Such information may be communicated
electronically, orally or in written form. Research services may also include
the providing of equipment used to communicate research information, the
arranging of meetings with management of companies and the providing of access
to consultants who supply research information.
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<PAGE> 117
The outside research assistance is useful to AIM since the brokers
utilized by AIM as a group tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, this research provides
AIM with a diverse perspective on financial markets. Research services which
are provided to AIM by brokers are available for the benefit of all accounts
managed or advised by AIM or by sub-advisors to other accounts managed or
advised by AIM. In some cases, the research services are available only from
the broker providing such services. In other cases, the research services may
be obtainable from alternative sources in return for cash payments. AIM is of
the opinion that because the broker research supplements, rather than replaces,
its research, the receipt of such research does not tend to decrease its
expenses, but tends to improve the quality of its investment advice. However,
to the extent that AIM would have purchased any such research services had such
services not been provided by brokers, the expenses of such services to AIM
could be considered to have been reduced accordingly. Certain research
services furnished by broker-dealers may be useful to AIM with clients other
than the Fund. Similarly, any research services received by AIM through the
placement of portfolio transactions of other clients may be of value to AIM in
fulfilling its obligation to the Fund. AIM is of the opinion that this
material is beneficial in supplementing AIM's research and analysis; and,
therefore, it may benefit the Fund by improving the quality of the investment
advice. The advisory fees paid by the Fund are not reduced because AIM receive
such services. Some broker-dealers may indicate that the provision of research
services is dependent upon the generation of certain specified levels of
commissions and underwriting concessions by AIM's clients, including the Fund.
PORTFOLIO TURNOVER
The estimated portfolio turnover rate of the Fund is stated in the
Proxy Statement/Prospectus under the heading "Comparison of Investment
Objectives and Policies - Additional Investment Policies of Baird Blue Chip."
Higher portfolio turnover increases transaction costs to the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion of investment policies supplements the
discussion of the investment objective and policies set forth in the Proxy
Statement/Prospectus under the heading "Comparison of Investment Objectives and
Policies."
The Fund may invest, for temporary or defensive purposes, all or
substantially all of its assets in investment grade (high quality) corporate
bonds, commercial paper, or U.S. Government obligations. In addition, a
portion of the Fund's assets may be held, from time to time, in cash,
repurchase agreements or other debt securities when such positions are deemed
advisable in light of economic or market conditions. For a description of the
various rating categories of corporate bonds and commercial paper in which the
Fund may invest, see the Appendix to this Statement of Additional Information.
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COMMON STOCKS - The Fund will invest in common stocks. Common stocks
represent the residual ownership interest in the issuer and are entitled to the
income and increase in the value of the assets and business of the entity after
all of its obligations and preferred stocks are satisfied. Common stocks
generally have voting rights. Common stocks fluctuate in price in response to
many factors including historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
PREFERRED STOCKS - The Fund may invest in preferred stocks. Preferred
stock has a preference over common stock in liquidation (and generally
dividends as well) but is subordinated to the liabilities of the issuer in all
respects. As a general rule the market value of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk, while the market price of convertible preferred
stock generally also reflects some element of conversion value. Because
preferred stock is junior to debt securities and other obligations of the
issuer, deterioration in the credit quality of the issuer will cause greater
changes in the value of a preferred stock than in a more senior debt security
with similar stated yield characteristics. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional
or mandatory redemption provisions.
CONVERTIBLE SECURITIES - The Fund may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to non-convertible income securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable non-convertible securities. Convertible
securities may be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument.
CORPORATE DEBT SECURITIES - The Fund may invest in corporate debt
securities. Corporations issue debt securities of various types, including
bonds and debentures (which are long-term), notes (which may be short- or long-
term), certificates of deposit (unsecured borrowings by banks), bankers
acceptances (indirectly secured borrowings to facilitate commercial
transactions) and commercial paper (short-term unsecured notes). These
securities typically provide for periodic payments of interest, at a rate which
may be fixed or adjustable, with payment of principal upon maturity and are
generally not secured by assets of the issuer or otherwise guaranteed. The
values of fixed rate income securities tend to vary inversely with changes in
interest rates, with longer-term securities generally being more volatile than
shorter-term securities. Corporate securities frequently are subject to call
provisions that entitle the issuer to repurchase such securities at a
predetermined price prior to their stated maturity. In the event that a
security is called during a period of declining interest rates, the Fund may be
required to reinvest the proceeds in securities having a lower yield. In
addition, in the event that a security was purchased at a premium over the call
price, the Fund will experience a capital loss if the security is called.
Adjustable rate corporate debt securities may have interest rate caps and
floors as well as other features similar to those of mortgage-backed securities
discussed below.
The Fund will not invest in non-convertible corporate debt securities
rated below investment grade by S&P and Moody's or in unrated non-convertible
corporate debt securities believed by the Fund's investment adviser to be below
investment grade quality. Securities rated in the four highest long-term rating
categories by S&P and Moody's are considered to be "investment grade." S&P's
fourth highest long-term rating category is "BBB", with BBB being the lowest
investment grade rating. Moody's fourth highest long-term rating
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category is "Baa", with Baa3 being the lowest investment grade rating.
Publications of S&P indicate that it assigns securities to the "BBB" rating
category when such securities are "regarded as having an adequate capacity to
pay interest and repay principal. Such securities normally exhibit adequate
protection parameters, but adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay," whereas
securities rated AAA by S&P are regarded as having "capacity to pay interest
and repay principal that is extremely strong." Publications of Moody's
indicate that it assigns securities to the "Baa rating category when such
securities 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," whereas securities rated Aaa by Moody's "are judged
to be of the best quality" and "carry the smallest degree of investment risk."
U.S. GOVERNMENT SECURITIES - The Fund may invest in securities issued
or guaranteed by the United States government or its agencies or
instrumentalities. These include Treasury securities (bills, notes, bonds and
other debt securities) which differ only in their interest rates, maturities
and times of issuance. U.S. government agency and instrumentality securities
include securities which are supported by the full faith and credit of the
U.S., securities that are supported by the right of the agency to borrow from
the U.S. Treasury, securities that are supported by the discretionary authority
of the U.S. government to purchase certain obligations of the agency or
instrumentality and securities that are supported only by the credit of such
agencies. While the U.S. government may provide financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it always will do so. The U.S. government, its agencies and
instrumentalities do not guarantee the market value of their securities and
consequently the values of such securities fluctuate.
ZERO COUPON, DEEP DISCOUNT AND PAYMENT-IN-KIND SECURITIES - The Fund
may invest in "zero coupon" and other deep discount securities of governmental
or private issuers. Zero coupon securities generally pay no cash interest (or
dividends in the case of preferred stock) to their holders prior to maturity.
The Fund may invest in payment-in-kind securities, which allow the issuer, at
its option, to make current interest payments on such securities either in cash
or in additional securities. Accordingly, such securities usually are issued
and traded at a deep discount from their face or par value and generally are
subject to greater fluctuations of market value in response to changing
interest rates than securities of comparable maturities and credit quality that
pay cash interest (or dividends in the case of preferred stock) on a current
basis.
Although the Fund will receive no payments on its zero coupon
securities, and may receive no cash payments on its payment-in-kind securities,
prior to their maturity or disposition, it will be required for federal income
tax purposes generally to include in its dividends each year an amount equal to
the annual income that accrues on its zero coupon securities and any non-cash
"interest" it receives on its payment-in-kind securities. Such dividends will
be paid from the cash assets of the Fund, from borrowings or by liquidation of
portfolio securities, if necessary, at a time that the Fund otherwise would not
have done so. To the extent the proceeds from any such dispositions are used
by the Fund to pay distributions, the Fund will not be able to purchase
additional income-producing securities with such proceeds, and as a result its
current income ultimately may be reduced.
ADJUSTABLE AND FLOATING RATE SECURITIES - The Fund may invest in
adjustable and floating rate securities. Adjustable and floating rate
securities are securities having interest rates or dividends which are adjusted
or reset at periodic intervals ranging, in general, from one day to several
years, based on a spread over or under a specific interest rate or interest
rate index or on the results of periodic auctions. Adjustable and floating
rate securities allow the Fund to participate in increases in interest rates
through periodic upward adjustments of the coupon-rates of such securities,
resulting in higher yields. During periods of declining interest rates,
however, coupon rates may readjust downward resulting in lower yields.
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Adjustments in coupon rates on such securities may, however, lag changes in
market rates of interest. Adjustable and floating rate securities may be
subject to caps above which their interest rates may not be adjusted and floors
below which their interest rates may not be adjusted.
OTHER DEBT OBLIGATIONS - Bank Obligations - Certificates of deposit
are certificates representing the obligation of a bank to repay funds deposited
with it for a specified period of time. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits
are non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Time deposits which may be held by
the Fund might not benefit from insurance from the Bank Insurance Fund or the
Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation.
Commercial Paper - Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs and includes
commercial paper master notes (which are demand instruments with variable
coupon rates). Commercial paper purchased by the Fund will consist of direct
obligations issued by domestic entities and will be rated in one of the two
highest rating categories by a nationally recognized rating organization or
will be unrated but determined by the Fund's investment adviser to be of
comparable credit quality.*
SHORT SALES AND HEDGING OPERATIONS. The Fund may engage in short
sales transactions. The Fund will not make short sales of securities or
maintain a short position unless at all times when a short position is open,
the Fund owns an equal amount of such securities or securities convertible into
or exchangeable, without payment of any further consideration, for securities
of the same issue as, and equal in amount to, the securities sold short. This
is a technique known as selling short "against the box."
In no event may more than 10% of the value of the Fund's net assets be
deposited or pledged as collateral for such sales at any time.
FOREIGN SECURITIES
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The Fund may invest up to 25% of its total assets in foreign
securities. For purposes of computing such limitation, American Depository
Receipts ("ADRs"), European Depository Receipts (EDRs") and other securities
representing underlying securities of foreign issuers are treated as foreign
securities. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a United States bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar ownership arrangement.
Generally, ADRs, in registered form, are designed for use in the United States
securities markets, and EDRs, in bearer form, are designed for use in European
securities markets. ADRs and EDRs may be listed on stock exchanges, or traded
in OTC markets in the United States or Europe, as the case may be. ADRs, like
other securities traded in the United States, will be subject to negotiated
commission rates. Investments by the Fund in securities of foreign
corporations may involve considerations and risks that are different in certain
respects from an investment in securities of U.S. companies. Such risks
include possible imposition of withholding taxes on interest or dividends,
possible adoption of foreign governmental restrictions on repatriation of
income or capital invested, or other adverse political or economic
developments. Additionally, it may be more difficult to enforce the rights of
a security holder against a foreign corporation, and information about the
operations of foreign corporations may be more difficult to obtain and
evaluate.
RULE 144A SECURITIES
The Fund may purchase securities which, while privately placed, are
eligible for purchase and sale pursuant to Rule 144A under the Securities Act
of 1933 (the "1933 Act"). This Rule permits certain qualified institutional
buyers, such as the Fund, to trade in privately placed securities even though
such securities are not registered under the 1933 Act. AIM, under the
supervision of the Company's Board of Directors, will consider whether
securities purchased under Rule 144A are illiquid and thus subject to the
Fund's restriction of investing no more than 15% of its net assets in illiquid
securities. Determination of whether a Rule 144A security is liquid or not is a
question of fact. In making this determination AIM will consider the trading
markets for the specific security taking into account the unregistered nature
of a Rule 144A security. In addition, AIM could consider the (i) frequency of
trades and quotes, (ii) number of dealers and potential purchasers, (iii)
dealer undertakings to make a market, and (iv) nature of the security and of
market place trades (for example, the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer). The liquidity
of Rule 144A securities will also be monitored by AIM and, if as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Fund's holdings of illiquid securities will be reviewed to
determine what, if any, action is required to assure that the Fund does not
invest more than 15% of its net assets in illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount of the
Fund's investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. At the present time, it is not possible
to predict with certainty how the market for Rule 144A securities will develop.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Fund may make
secured loans of portfolio securities amounting to not more than 33 1/3% of its
total assets. Securities loans are made to banks, brokers and other financial
institutions pursuant to agreements requiring that the loans be continuously
secured by collateral at least equal at all times to the value of the
securities lent marked to market on a daily basis. The collateral received will
consist of cash, U.S. Government securities, letters of credit or such other
collateral as may be permitted under the Fund's investment program. While the
securities are being lent, the Fund will continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities, as well as
interest on the investment of the collateral or a fee from the borrower. The
Fund has a right to call each loan and obtain the securities on five business
days' notice or, in connection with securities trading on foreign markets,
within such longer period of time which coincides with the normal settlement
period for purchases and sales of such securities in such foreign markets. The
Fund
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will not have the right to vote securities while they are being lent, but it
will call a loan in anticipation of any important vote. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delay in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral should the borrower
fail financially. Loans will only be made to persons deemed by AIM to be of
good standing and will not be made unless, in the judgment of AIM, the
consideration to be earned from such loans would justify the risk.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement
is an instrument under which a Fund acquires ownership of a debt security and
the seller (usually a broker or bank) agrees, at the time of the sale, to
repurchase the obligation at a mutually agreed upon time and price, thereby
determining the yield during the Fund's holding period. In the event of
bankruptcy or other default of a seller of a repurchase agreement, the Fund may
experience both delays in liquidating the underlying securities and losses,
including: (a) a possible decline in the value of the underlying security
during the period in which the Fund seeks to enforce its rights thereto; (b) a
possible subnormal level of income and lack of access to income during this
period; and (c) expenses of enforcing its rights. A repurchase agreement is
collateralized by the security acquired by the Fund and its value is marked to
market daily in order to minimize the Fund's risk. Repurchase agreements
usually are for short periods, such as one or two days, but may be entered into
for longer periods of time.
WARRANTS
The Fund may, from time to time, invest in warrants. Warrants are, in
effect, longer-term call options. They give the holder the right to purchase a
given number of shares of a particular company at specified prices within
certain periods of time. The purchaser of a warrant expects that the market
price of the security will exceed the purchase price of the warrant plus the
exercise price of the warrant, thus giving him a profit. Of course, since the
market price may never exceed the exercise price before the expiration date of
the warrant, the purchaser of the warrant risks the loss of the entire purchase
price of the warrant. Warrants generally trade in the open market and may be
sold rather than exercised. Warrants are sometimes sold in unit form with
other securities of an issuer. Units of warrants and common stock may be
employed in financing young, unseasoned companies. The purchase price of a
warrant varies with the exercise price of a warrant, the current market value
of the underlying security, the life of the warrant and various other
investment factors. The investment in warrants by the Fund, valued at the
lower of cost or market, may not exceed 5% of the value of its net assets and
not more than 2% of such value may be warrants which are not listed on the New
York or American Stock Exchanges.
OPTIONS
The Fund is authorized to write (sell) covered call options on the
securities in which it may invest and to enter into closing purchase
transactions with respect to such options. Writing a call option obligates the
Fund to sell or deliver the option's underlying security, in return for the
strike price, upon exercise of the option. By writing a call option, the Fund
receives an option premium from the purchaser of the call option. Writing
covered call options is generally a profitable strategy if prices remain the
same or fall. Through receipt of the option premium, the Fund would seek to
mitigate the effects of a price decline. By writing covered call options,
however, the Fund gives up the opportunity, while the option is in effect, to
profit from any price increase in the underlying security above the option
exercise price. In addition, the Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects
a closing purchase transaction.
The Fund may purchase and sell covered put options, and may engage in
strategies employing combinations of put and covered call options. A put
purchased by the Fund constitutes a hedge against
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a decline in the price of a security owned by the Fund. It may be sold at a
profit or loss depending upon changes in the price of the underlying security.
It may be exercised at a profit provided that the amount of the decline in the
price of the underlying security below the exercise price during the option
period exceeds the option premium, or it may expire without value. A call
constitutes a hedge against an increase in the price of a security which the
Fund has sold short, it may be sold at a profit or loss depending upon changes
in the price of the underlying security, it may be exercised at a profit
provided that the amount of the increase in the price of the underlying
security over the exercise price during the option period exceeds the option
premium, or it may expire without value. The maximum loss exposure involved in
the purchase of an option is the cost of the option contract.
FUTURES CONTRACTS
The Fund may purchase futures contracts. In cases of purchases of
futures contracts, an amount of cash and cash equivalents, equal to the market
value of the futures contracts (less any related margin deposits), will be
segregated by the Funds' custodian to collateralize the position and ensure
that the use of such futures contracts is unleveraged. Unlike when the Fund
purchases or sells a security, no price is paid or received by the Fund upon
the purchase or sale of a futures contract. Initially, the Fund will be
required to deposit with its custodian for the account of the broker a stated
amount, as called for by the particular contract, of cash or U.S. Treasury
bills. This amount is known as "initial margin." The nature of initial margin
in futures transactions is different from that of margin in securities
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin
is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract assuming
all contractual obligations have been satisfied. Subsequent payments, called
"variation margin," to and from the broker will be made on a daily basis as the
price of the futures contract fluctuates making the long and short positions in
the futures contract more or less valuable, a process known as
"marking-to-market." For example, when the Fund has purchased a stock index
futures contract and the price of the underlying stock index has risen, that
position will have increased in value and the Fund will receive from the broker
a variation margin payment with respect to that increase in value. Conversely,
where the Fund has purchased a stock index futures contract and the price of
the underlying stock index has declined, that position would be less valuable
and the Fund would be required to make a variation margin payment to the
broker. Variation margin payments would be made in a similar fashion when the
Fund has purchased an interest rate futures contract. At any time prior to
expiration of the futures contract, the Fund may elect to close the position by
taking an opposite position which will operate to terminate the Fund's position
in the futures contract. A final determination of variation margin is then
made, additional cash is required to be paid by or released to the Fund and the
Fund realizes a loss or gain.
A description of the various types of futures contract that may be
utilized by the Funds is as follows:
Stock Index Futures Contracts
A stock index assigns relative values to the common stocks included in
the index and the index fluctuates with changes in the market values of the
common stocks so included. A stock index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the close of the last trading day of the contract and the price
at which the futures contract is originally struck. No physical delivery of
the underlying stocks in the index is made. Currently, stock index futures
contracts can be purchased or sold primarily with respect to broad based stock
indices such as the S&P's 500 Stock Index, the New York Stock Exchange
Composite Index, the American Stock Exchange Major Market Index, the NASDAQ --
100 Stock Index and the Value Line Stock Index. The stock indices listed above
consist of a spectrum of stocks not limited to any one industry such as utility
stocks. Utility stocks, at
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most, would be expected to comprise a minority of the stocks comprising the
portfolio of the index. The Funds will only enter into stock index futures
contracts as a hedge against changes resulting from market conditions in the
values of the securities held or which it intends to purchase. When the Fund
anticipates a significant market or market sector advance, the purchase of a
stock index futures contract affords a hedge against not participating in such
advance. Conversely, in anticipation of or in a general market or market
sector decline that adversely affects the market values of the Fund's portfolio
of securities, the Fund may sell stock index futures contracts.
Foreign Currency Futures Contracts
Futures contracts may also be used to hedge the risk of changes in the
exchange rate of foreign currencies.
RISKS AS TO FUTURES CONTRACTS
There are several risks in connection with the use of futures
contracts as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of hedging instruments and movements
in the price of the stock, debt security or foreign currency which are the
subject of the hedge. If the price of a hedging instrument moves less than the
price of the stock, debt security or foreign currency which is the subject of
the hedge, the hedge will not be fully effective. If the price of a hedging
instrument moves more than the price of the stock, debt security or foreign
currency, the Fund will experience either a loss or gain on the hedging
instrument which will not be completely offset by movements in the price of the
stock, debt security or foreign currency which is the subject of the hedge.
Successful use of hedging instruments by the Fund is also subject to
AIM's ability to predict correctly movements in the direction of the stock
market, of interest rates or of foreign exchange rates. Because of possible
price distortions in the futures markets and because of the imperfect
correlation between movements in the prices of hedging instruments and the
investments being hedged, even a correct forecast by AIM of general market
trends may not result in a completely successful hedging transaction.
It is also possible that where the Fund has sold futures contracts to
hedge its portfolio against a decline in the market, the market may advance and
the value of stocks or debt securities held in its portfolio may decline. If
this occurred, the Fund would lose money on the futures contracts and also
experience a decline in the value of its portfolio securities. Similar risks
exist with respect to foreign currency hedges.
Positions in futures contracts may be closed out only on an exchange
on which such contracts are traded. Although the Fund intends to purchase or
sell futures contracts only on exchanges or boards of trade where there appears
to be an active market, there is no assurance that a liquid market on an
exchange or a board of trade will exist for any particular contract at any
particular time. If there is not a liquid market, it may not be possible to
close a futures position at such time. In the event of adverse price movements
under those circumstances, the Fund would continue to be required to make daily
cash payments of maintenance margin on its futures positions. The extent to
which the Fund may engage in futures contracts will be limited by Code
requirements for qualification as a regulated investment company and the Fund's
intent to continue to qualify as such. The result of a hedging program cannot
be foreseen and may cause the Fund to suffer losses which it would not
otherwise sustain.
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The investment policies stated above are not fundamental policies of
the Fund and may be changed by the Board of Directors of the Company without
shareholder approval. Shareholders will be notified before any material change
in the investment policies stated above become effective.
INVESTMENT RESTRICTIONS
The following additional fundamental policies and investment
restrictions have been adopted by the Fund as indicated and, except as noted,
such policies cannot be changed without the approval of a majority of the
outstanding voting securities of the Fund, as defined in the 1940 Act.
The Fund may not:
(a) issue bonds, debentures or senior equity securities;
(b) concentrate its investments; that is, invest more than 25% of the
value of its assets in issuers which conduct their business operations in the
same industry;
(c) invest in real estate, except that this restriction does not
preclude investments in real estate investment trusts;
(d) write, purchase, or sell puts, calls, straddles, spreads or
combinations thereof (other than covered put and call options), or deal in
commodities (the Fund does not consider investments in financial futures to be
investments in commodities);
(e) make loans, except that the purchase of a portion of an issue of
publicly distributed bonds, debentures or other debt securities, or purchasing
short-term obligations, is not considered to be a loan for purposes of this
restriction, provided that the Fund may lend its portfolio securities provided
the value of such loaned securities does not exceed 33 1/3% of its total
assets;
(f) purchase securities on margin, except that the Fund may obtain such
short term credits as may be necessary for the clearance of purchases or sales
of securities, or sell short (except against the box and collateralized by not
more than 10% of its net assets);
(g) borrow money or pledge its assets except that, as a temporary
measure for extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow from banks (including the Fund's custodian bank)
amounts of up to 10% of the value of its total assets, and may pledge amounts
of up to 20% of its total assets to secure such borrowings; or
(h) act as an underwriter of securities of other issuers.
In addition, the Fund may not (a) purchase warrants, valued at the lower of
cost or market, in excess of 5% of the value of the Fund's net assets, and no
more than 2% of such value may be warrants which are not listed on the New York
or American Stock Exchanges; (b) purchase or retain the securities of any
issuer, if the officers and directors of the Company, its advisors or
distributor who own individually more than 1/2 of 1% of the securities of such
issuer, together own more than 5% of the securities of such issuer; (c) with
respect to 75% of the Fund's total assets, invest more than 5% of the total
assets of the Fund (valued at market) in securities of any one issuer (other
than obligations of the U.S. Government and its instrumentalities) or purchase
more than 10% of the outstanding securities of any one issuer or more than 10%
of any class of securities of an issuer; (d) deal in forward contracts; (e)
invest in interests in oil, gas or other mineral exploration or development
programs; or (f) invest in securities of companies which have a record of less
than three years of continuous operation if such purchase at the time thereof
would cause more than 5% of the total assets of the Fund to be invested in the
securities of such
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companies (with such period of three years to include the operation of any
predecessor company or companies, partnership or individual enterprise if the
company whose securities are proposed for investment by the Fund has come into
existence as the result of a merger, consolidation, reorganization or purchase
of substantially all of the assets of such predecessor company or companies,
partnership or individual enterprise). These additional restrictions are not
fundamental, and may be changed by the Board of Directors of the Company
without shareholder approval.
To permit the sale of shares of the Fund in Texas, investments by the
Fund's in warrants, valued at the lower of cost or market, may not exceed 5% of
the value of the Fund's net assets. Included within that amount, but not to
exceed 2% of the Fund's net assets, may be warrants which are not listed on the
New York or American Stock Exchanges. This restriction is not a fundamental
policy.
The Fund will comply with Texas Rule 123.2(6), and follow SEC guidelines,
that provide that loans of the Fund's securities will be fully collateralized.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction.
ADDITIONAL RESTRICTIONS
In order to permit the sale of the Fund's shares in certain states, the
Fund may from time to time make commitments more restrictive than the
restrictions described herein. These restrictions are not matters of
fundamental policy, and should the Fund determine that any such commitment is
no longer in the best interests of the Fund and its shareholders, it will
revoke the commitment by terminating sales of its shares in the states
involved.
In order to comply with an undertaking to the State of Texas, the Fund has
agreed that any restriction on investments in "oil, gas and other mineral
exploration or development programs" shall include mineral leases and any
restriction on investments in "real estate or other interests in real estate"
shall include real estate limited partnerships.
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal occupations
during the last five years are set forth below. Unless otherwise indicated,
the address of each director and officer is 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046-1173. All of the Company's executive officers hold
similar offices with some or all of the other AIM Funds.
*CHARLES T. BAUER, Director and Chairman (76)
Director, Chairman and Chief Executive Officer, A I M Management Group Inc.;
Chairman of the Board of Directors, A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc., A I M Fund Services, Inc., A I M
Global Associates, Inc., A I M Global Holdings, Inc., A I M Institutional Fund
Services, Inc. and Fund Management Company; and Director, AIM Global Advisors
Limited, A I M Global Management Company Limited and AIM Global Ventures Co.
BRUCE L. CROCKETT, Director (51)
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Director, President and Chief Executive Officer, COMSAT Corporation
(Includes COMSAT World Systems, COMSAT Mobile Communications, COMSAT Video
Enterprises, COMSAT RSI and COMSAT International Ventures). Previously,
President and Chief Operating Officer, COMSAT Corporation; President, World
Systems Division, COMSAT Corporation; and Chairman, Board of Governors of
INTELSAT; (each of the COMSAT companies listed above is an international
communication, information and entertainment-distribution services company).
________________________
* A director who is an "interested person," of the Company and A I M
Advisors, Inc. as defined in the 1940 Act.
16
<PAGE> 127
OWEN DALY II, Director (71)
Six Blythewood Road
Baltimore, MD 21210
Director, Cortland Trust Inc. (investment company). Formerly, Director,
CF & I Steel Corp., Monumental Life Insurance Company and Monumental General
Insurance Company; and Chairman of the Board of Equitable Bancorporation.
*CARL FRISCHLING, Director (58)
919 Third Avenue
New York, NY 10022
Partner, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel (law firm).
Formerly, Partner, Reid & Priest (law firm); and, prior thereto, Partner,
Spengler Carlson Gubar Brodsky & Frischling (law firm).
**ROBERT H. GRAHAM, Director and President (49)
Director, President and Chief Operating Officer, A I M Management Group
Inc.; Director and President, A I M Advisors. Inc.; Director and Senior Vice
President, A I M Capital Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc., A I M Global Associates, Inc., A I M Global Holdings,
Inc., AIM Global Ventures Co., A I M Institutional Fund Services, Inc. and
Fund Management Company; and Senior Vice President, AIM Global Advisors
Limited.
JOHN F. KROEGER, Director (71)
24875 Swan Road - Martingham
Box 464
St. Michaels, MD 21663
Director, Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag Investors
Equity Partners Fund, Inc., Total Return U.S. Treasury Fund, Inc., Flag
Investors Intermediate Term Income Fund, Inc., Managed Municipal Fund, Inc.,
Flag Investors Value Builder Fund, Inc., Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities Fund, Inc.,
Alex. Brown Cash Reserve Fund, Inc. and North American Government Bond Fund,
Inc. (investment companies). Formerly, Consultant, Wendell & Stockel
Associates, Inc. (consulting firm).
LEWIS F. PENNOCK, Director (53)
8955 Katy Freeway, Suite 204
Houston, TX 77024
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Director (72)
183 River Drive
Tequesta, FL 33469
Formerly, Executive Vice President and Chief Financial Officer, Bell
Atlantic Management Services, Inc. (provider of centralized management services
to telephone companies); Executive Vice President, Bell Atlantic
________________________
* A director who is an "interested person" of the Company as defined in the
1940 Act.
** A director who is an "interested person," of the Company and A I M
Advisors, Inc. as defined in the 1940 Act.
17
<PAGE> 128
Corporation (parent of seven telephone companies); and Vice President and Chief
Financial Officer, Bell Telephone Company of Pennsylvania and Diamond State
Telephone Company.
LOUIS S. SKLAR, Director (56)
Transco Tower, 50th Floor
2800 Post Oak Blvd.
Houston, TX 77056
Executive Vice President, Development and Operations, Hines Interests
Limited Partnership (real estate development).
***JOHN J. ARTHUR, Senior Vice President and Treasurer (51)
Senior Vice President and Treasurer, A I M Advisors, Inc.; Vice President
and Treasurer, A I M Management Group Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services, Inc., A I M Institutional Fund
Services, Inc. and Fund Management Company; and Vice President, AIM Global
Advisors Limited, A I M Global Associates, Inc., A I M Global Holdings, Inc.
and AIM Global Ventures Co.
GARY T. CRUM, Senior Vice President (48)
Director and President, A I M Capital Management, Inc.; Director and Senior
Vice President, A I M Management Group Inc., A I M Advisors, Inc., A I M Global
Associates, Inc., A I M Global Holdings, Inc., and AIM Global Ventures Co.;
Director, A I M Distributors, Inc.; and Senior Vice President, AIM Global
Advisors Limited.
JONATHAN C. SCHOOLAR, Senior Vice President (33)
Director and Senior Vice President, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
***CAROL F. RELIHAN, Vice President and Secretary (41)
Senior Vice President, General Counsel and Secretary, A I M Advisors, Inc.;
Vice President, General Counsel and Secretary, A I M Management Group Inc.;
Vice President and General Counsel, Fund Management Company; Vice President
and Secretary, A I M Global Associates, Inc. and A I M Global Holdings, Inc.;
Vice President and Assistant Secretary, AIM Global Advisors Limited and AIM
Global Ventures Co.; Vice President, A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc. and A I M Institutional Fund
Services, Inc.
DANA R. SUTTON, Vice President and Assistant Treasurer (36)
Vice President and Fund Controller, A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund Management Company.
MELVILLE B. COX, Vice President (52)
Vice President, A I M Advisors, Inc., A I M Capital Management, Inc., A I M
Fund Services, Inc. and A I M Institutional Fund Services, Inc.; and Assistant
Vice President, A I M Distributors, Inc. and Fund Management Company.
Formerly, Vice President, Charles Schwab & Co., Inc.; Assistant Secretary,
Charles Schwab Family of Funds and Schwab Investments; Chief Compliance
Officer, Charles Schwab Investment Management, Inc.; and Vice President,
Integrated Resources Life Insurance Co. and Capitol Life Insurance Co.
________________________
*** Mr. Arthur and Ms. Relihan are married to each other.
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<PAGE> 129
The standing committees of the Board of Directors are the Audit Committee,
the Investments Committee and the Nominating and Compensation Committee.
The members of the Audit Committee are Messrs. Daly, Kroeger (Chairman),
Pennock and Robinson. The Audit Committee is responsible for meeting with the
Company's auditors to review audit procedures and results and to consider any
matters arising from an audit to be brought to the attention of the directors
as a whole with respect to the Company's fund accounting or its internal
accounting controls, and considering such matters as may from time to time be
set forth in a charter adopted by the Board of Directors and such committee.
The members of the Investments Committee are Messrs. Bauer, Crockett, Daly
(Chairman), Kroeger and Pennock. The Investment Committee is responsible for
reviewing portfolio compliance, brokerage allocation, portfolio investment
pricing issues, interim dividend and distribution issues, and considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such committee.
The members of the Nominating and Compensation Committee are Messrs.
Crockett, Daly, Kroeger, Pennock (Chairman) and Sklar. The Nominating and
Compensation Committee is responsible for considering and nominating
individuals to stand for election as directors who are not interested persons
as long as the Company maintains a distribution plan pursuant to Rule 12b-1
under the 1940 Act, reviewing from time to time the compensation payable to the
disinterested directors, and considering such matters as may from time to time
be set forth in a charter adopted by the Board of Directors and such committee.
Remuneration of Directors
Each director is reimbursed for expenses incurred in connection with each
meeting of the Board of Directors or any Committee attended. The Directors of
the Company who do not serve as officers of the Company are compensated for
their services according to a fee schedule which recognizes the fact that they
also serve as directors or trustees of certain other investment companies
advised or managed by AIM. Each such director receives a fee, allocated among
the AIM Funds for which he serves as a director or trustee, which consists of
an annual retainer component and a meeting fee component.
19
<PAGE> 130
Set forth below is information regarding compensation paid or accrued for
each director of the Company:
<TABLE>
<CAPTION>
RETIREMENT
AGGREGATE BENEFITS
COMPENSATION ACCRUED TOTAL
FROM THE BY ALL AIM COMPENSATION
DIRECTOR COMPANY(1) FUNDS(2) FROM ALL AIM FUNDS(3)
-------- ---------- -------- ---------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
Bruce L. Crockett 13,461 3,655 57,750
Owen Daly II 14,385 18,662 58,125
Carl Frischling 13,938 11,323 57,250
Robert H. Graham 0 0 0
John F. Kroeger 14,807 22,313 58,125
Lewis F. Pennock 13,476 5,067 58,125
Ian Robinson 13,373 15,381 56,750
Louis S. Sklar 14,003 6,632 57,250
</TABLE>
- - ----------------
(1) The total amount of compensation deferred by all Directors of the Company
during the fiscal year ended October 31, 1995, including interest earned
thereon, was $53,856.
(2) During the fiscal year ended October 31, 1995, the total amount of
expenses allocated to the Company in respect of such retirement benefits was
$31,585. Data reflects compensation estimated for the calendar year ended
December 31, 1995.
(3) Messrs. Bauer, Daly, Graham, Kroeger and Pennock each serve as Director
or Trustee of a total of 11 AIM Funds. Messrs. Crockett, Frischling, Robinson
and Sklar each serves as a Director or Trustee of a total of 10 AIM Funds.
Data reflects compensation estimated for the calendar year ended December 31,
1995.
20
<PAGE> 131
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not an employee of any
of the AIM Funds, A I M Management Group Inc. or any of their affiliates) may
be entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "AIM
Funds"). Each eligible director is entitled to receive an annual benefit from
the AIM Funds commencing on the first day of the calendar quarter coincident
with or following his date of retirement equal to 75% of the retainer paid or
accrued by the AIM Funds for such director during the twelve-month period
immediately preceding the director's retirement (including amounts deferred
under a separate agreement between the AIM Funds and the director) for the
number of such director's years of service (not in excess of 10 years of
service) completed with respect to any of the AIM Funds. Such benefit is
payable to each eligible director in quarterly installments. If an eligible
director dies after attaining the normal retirement date but before receipt of
any benefits under the Plan commences, the director's surviving spouse (if any)
shall receive a quarterly survivor's benefit equal to 50% of the amount payable
to the deceased director for no more than ten years beginning the first day of
the calendar quarter following the date of the director's death. Payments
under the Plan are not secured or funded by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming various compensation
and years of service classifications. The estimated credited years of service
for Messrs. Crockett, Daly, Frischling, Kroeger, Pennock, Robinson and Sklar
are 8, 9, 18, 18, 14, 8 and 6 years, respectively.
<TABLE>
<CAPTION>
Annual Compensation
Paid By All AIM Funds
$60,000 $65,000
<S> <C> <C>
Number of 10 $45,000 $48,750
Years of 9 $40,500 $43,875
Service With 8 $36,000 $39,000
the AIM Funds 7 $31,500 $34,125
6 $27,000 $29,250
5 $22,500 $24,375
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors may elect to defer receipt of up to 100% of
their compensation payable by the Company, and such amounts are placed into a
deferral account. Currently, the deferring directors may select various AIM
Funds in which all or part of his deferral account shall be deemed to be
invested. Distributions from the deferring directors' deferral accounts will
be paid in cash, in generally equal quarterly installments over a period of ten
years beginning on the date the deferring director's retirement benefits
commence under the Plan. The Company's Board of Directors, in its sole
discretion, may accelerate or extend the distribution of such deferral accounts
after the deferring director's termination of service as a director of the
Company. If a deferring director dies prior to the distribution of amounts in
his deferral account, the balance of the deferral account will be distributed
to his designated
21
<PAGE> 132
beneficiary in a single lump sum payment as soon as practicable after such
deferring director's death. The Agreements are not funded and, with respect to
the payments of amounts held in the deferral accounts, the deferring directors
have the status of unsecured creditors of the Company and of each other AIM
Fund from which they are deferring compensation.
The Company paid the law firm of Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel $6,853, $13,238, $4,657 and $14,394 in legal fees for services
provided to Charter, Weingarten, Aggressive Growth and Constellation,
respectively, during the fiscal year ended October 31, 1995 Mr. Carl
Frischling, a director of the Company, is partner in such firm.
INVESTMENT ADVISORY, AND ADMINISTRATIVE SERVICES AGREEMENTS
AIM is a wholly owned subsidiary of A I M Management Group Inc. ("AIM
Management"), 11 Greenway Plaza, Suite 1919, Houston, Texas 77046. AIM
Management is a holding company that has been engaged in the financial services
business since 1976. Certain of the directors and officers of AIM are also
executive officers of the Company and their affiliations are shown under
"Directors and Officers".
AIM was organized in 1976, and advises or manages 40 investment company
portfolios. As of December 1, 1995, the total assets of the investment
company portfolios advised or managed by AIM and its affiliates were
approximately $41.2 billion.
22
<PAGE> 133
AIM and the Company have adopted a Code of Ethics (the "Code of Ethics")
which requires investment personnel (a) to pre-clear all personal securities
transactions, (b) to file reports regarding such transactions, and (c) to
refrain from personally engaging in (i) short-term trading of a security, (ii)
transactions involving a security within seven days of an AIM Fund transaction
involving the same security, and (iii) transactions involving securities being
considered for investment by an AIM Fund. The Code also prohibits investment
personnel from purchasing securities in an initial public offering. Personal
trading reports are reviewed periodically by AIM, and the Board of Directors
reviews annually such reports (including information on any substantial
violations of the Code of Ethics). Violations of the Code of Ethics may result
in censure, monetary penalties, suspension or termination of employment.
The Funds have entered into a Master Investment Advisory Agreement dated as
of October 18, 1993, as amended (the "Master Advisory Agreement") and a Master
Administrative Services Agreement dated as of October 18, 1993, as amended (the
"Master Administrative Services Agreement") with AIM. Each of such Agreements
become effective with respect to the Fund upon consummation of the Transaction.
The Master Advisory Agreement provides that the Fund will pay or cause to
be paid all expenses of the Fund not assumed by AIM Capital, including, without
limitation: brokerage commissions, taxes, legal, auditing or governmental
fees, the cost of preparing share certificates, custodian, transfer and
shareholder service agent costs, expenses of issue, sale, redemption, and
repurchase of shares, expenses of registering and qualifying shares for sale,
expenses relating to directors and shareholder meetings, the cost of preparing
and distributing reports and notices to shareholders, the fees and other
expenses incurred by the Company on behalf of the Fund in connection with
membership in investment company organizations, the cost of printing copies of
prospectuses and statements of additional information distributed to the Fund's
shareholders and all other charges and costs of the Fund's operations unless
otherwise explicitly provided.
The Master Advisory Agreement provides that if, for any fiscal year, the
total of all ordinary business expenses of the Fund, including all investment
advisory fees, but excluding brokerage commissions and fees, taxes, interest
and extraordinary expenses, such as litigation, exceed the applicable expense
limitations imposed by state securities regulations in any state in which such
Fund's shares are qualified for sale, as such limitations may be raised or
lowered from time to time, the aggregate of all such investment advisory fees
with respect to such Fund shall be reduced by the amount of such excess. The
amount of any such reduction to be borne by AIM shall be deducted from the
monthly investment advisory fees otherwise payable to AIM with respect to such
Fund during such fiscal year. If required pursuant to such state securities
regulations, AIM will reimburse each Fund, no later than the last day of the
first month of the next succeeding fiscal year, for any such annual operating
expenses (after reduction of all investment advisory fees in excess of such
limitation).
The Master Advisory Agreement will become effective with respect to the
Fund upon consummation of the Transaction and will continue in effect until
June 30, 1996 and from year to year thereafter only if such continuance is
specifically approved at least annually by (i) the Company's Board of Directors
or the vote of a "majority of the outstanding voting securities" of the Fund (as
defined in the 1940 Act) and (ii) the affirmative vote of a majority of the
directors who are not parties to the agreements or "interested persons" of any
such party (the "Non-Interested Directors") by votes cast in person at a meeting
called for such purpose. The Master Advisory Agreement provides that the Fund
or AIM may terminate such agreement on sixty (60) days' written notice without
penalty. The Master Advisory Agreement terminates automatically in the event of
its assignment.
The Master Administrative Services Agreement provides that AIM may perform
or arrange for the performance of certain accounting and, shareholder services
and other administrative services to the Fund which are not required to be
performed by AIM under the Master Advisory Agreement. For such services,
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<PAGE> 134
AIM would be entitled to receive from the Fund reimbursement of its costs or
such reasonable compensation as may be approved by the Company's Board of
Directors. The Master Administrative Services Agreement will become effective
with respect to the Fund upon consummation of the Transaction and will continue
in effect until June 30, 1996 and from year to year thereafter only if such
continuance is specifically approved at least annually by (i) the Company's
Board of Directors or the vote of a "majority of the outstanding voting
securities" of the Fund (as defined in the 1940 Act) and (ii) the affirmative
vote of a majority of the Non-Interested Directors by votes cast in person at a
meeting called for such purpose.
In addition, the Transfer Agency and Service agreement for the Fund provides
that A I M Fund Services, Inc. ("AFS"), a registered transfer agent and
wholly-owned subsidiary of AIM, will perform certain shareholder services for
the Fund for a fee per account serviced. The Transfer Agency and Service
Agreement provides that AFS will receive a per account fee plus out-of-pocket
expenses to process orders for purchases, redemptions and exchanges of shares,
prepare and transmit payments for dividends and distributions declared by the
Fund, maintain shareholder accounts and provide shareholders with information
regarding the Fund and its accounts. The Transfer Agency and Service Agreement
will become effective with respect to the Fund upon consummation of the
Transaction.
THE DISTRIBUTION PLAN
THE CLASS A PLAN. The Company has adopted a Master Distribution Plan
pursuant to Rule 12b-1 under the 1940 Act relating to the Class A shares of the
Fund (the "Class A Plan"). The Class A Plan provides that the Class A shares
of the Fund pay 0.35% per annum of its daily average net assets as compensation
to AIM Distributors for the purpose of financing any activity which is
primarily intended to result in the sale of Class A shares. Activities
appropriate for financing under the Class A Plan include, but are not limited
to, the following: printing of prospectuses and statements of additional
information and reports for other than existing shareholders; overhead;
preparation and distribution of advertising material and sales literature;
expenses of organizing and conducting sales seminars; supplemental payments to
dealers and other institutions such as asset-based sales charges or as payments
of service fees under shareholder service arrangements; and costs of
administering the Class A Plan.
Pursuant to an incentive program, AIM Distributors may enter into
agreements ("Shareholder Service Agreements") with investment dealers selected
from time to time by AIM Distributors for the provision of distribution
assistance in connection with the sale of the Fund's shares to such dealers'
customers, and for the provision of continuing personal shareholder services to
customers who may from time to time directly or beneficially own shares of the
Fund. The distribution assistance and continuing personal shareholder services
to be rendered by dealers under the Shareholder Service Agreements may include,
but shall not be limited to, the following: distributing sales literature;
answering routine customer inquiries concerning the Fund; assisting customers
in changing dividend options, account designations and addresses, and in
enrolling in any of several special investment plans offered in connection with
the purchase of the Fund's shares; assisting in the establishment and
maintenance of customer accounts and records and in the processing of purchase
and redemption transactions; investing dividends and any capital gains
distributions automatically in the Fund's shares; and providing such other
information and services as the Funds or the customer may reasonably request.
Under the Plan, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plan to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding the Fund
and the Company; performing sub-accounting; establishing and maintaining
shareholder accounts and records; processing customer purchase and redemption
transactions; providing periodic statements showing a shareholder's account
balance and the integration of such statements with those of other transactions
and balances in the shareholder's other
24
<PAGE> 135
accounts serviced by the bank; forwarding applicable prospectuses, proxy
statements, reports and notices to bank clients who hold shares of the Fund;
and such other administrative services as the Fund reasonably may request, to
the extent permitted by applicable statute, rule or regulation. Similar
agreements may be permitted under the Plan for institutions which provide
recordkeeping for and administrative services to 401(k) plans.
Financial intermediaries and any other person entitled to receive
compensation for selling shares of the Fund may receive different compensation
for selling shares of one particular class over another.
Under a Shareholder Service Agreement, the Fund agrees to pay periodically
fees to selected dealers and other institutions who render the foregoing
services to their customers. The fees payable under a Shareholder Service
Agreement generally will be calculated at the end of each payment period for
each business day of the Fund during such period at the annual rate of 0.25% of
the average daily net asset value of the Fund's shares purchased or acquired
through exchange. Fees calculated in this manner shall be paid only to those
selected dealers or other institutions who are dealers or institutions of
record at the close of business on the last business day of the applicable
payment period for the account in which the Fund's shares are held.
The Plan is subject to any applicable limitations imposed from time to time
by rules of the National Association of Securities Dealers, Inc.
AIM Distributors does not act as principal, but rather as agent for the
Fund, in making dealer incentive and shareholder servicing payments under the
Plans. These payments are an obligation of the Fund and not of AIM
Distributors.
The Plan requires AIM Distributors to provide the Board of Directors at
least quarterly with a written report of the amounts expended pursuant to the
Plan and the purposes for which such expenditures were made. The Board of
Directors reviews these reports in connection with their decisions with respect
to the Plans.
As required by Rule 12b-1, the Plan and related forms of Shareholder
Service Agreements were approved by the Board of Directors, including a
majority of the directors who are not "interested persons" (as defined in the
1940 Act) of the Company and who have no direct or indirect financial interest
in the operation of the Plan or in any agreements related to the Plan
("Qualified Directors"). In approving the Plan in accordance with the
requirements of Rule 12b-1, the directors considered various factors and
determined that there is a reasonable likelihood that the Plan would benefit
the Fund and its shareholders.
The Plan does not obligate the Fund to reimburse AIM Distributors for the
actual expenses AIM Distributors may incur in fulfilling its obligations under
the Plan. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Fund will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less
than the fee it receives, AIM Distributors will retain the full amount of the
fee.
Unless the Plan is terminated earlier in accordance with its terms, it
shall continue as long as such continuance is specifically approved at least
annually by the Board of Directors, including a majority of the Qualified
Directors.
The Plan may be terminated by the vote of a majority of the Qualified
Directors, or, with respect to a particular class, by the vote of a majority of
the outstanding voting securities of that class.
Any change in the Plan that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
it may be amended by the directors, including a majority of the Qualified
Directors, by votes cast in person at a meeting called for the purpose of
voting upon such
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<PAGE> 136
amendment. As long as the Plan is in effect, the selection or nomination of
the Qualified Directors is committed to the discretion of the Qualified
Directors.
THE DISTRIBUTOR
Information concerning AIM Distributors and the continuous offering of the
Fund's shares is set forth in the Investor's Guide to The AIM Family of
Funds(R) which is attached as an Appendix to the Proxy Statement/Prospectus.
A Master Distribution Agreement with AIM Distributors relating to the Class A
shares of the Funds was approved by the Board of Directors on December 5, 1995
and will become effective with respect to the Fund upon consummation of the
Transaction. Such Master Distribution Agreements are hereinafter referred to
as the "Distribution Agreement."
The Distribution Agreement provides that AIM Distributors will bear the
expenses of printing from the final proof and distributing prospectuses and
statements of additional information of the Fund relating to public offerings
made by AIM Distributors pursuant to the Distribution Agreement (other than
those prospectuses and statements of additional information distributed to
existing shareholders of the Fund), and any promotional or sales literature
used by AIM Distributors or furnished by AIM Distributors to dealers in
connection with the public offering of the Fund's shares, including expenses of
advertising in connection with such public offerings. AIM Distributors has not
undertaken to sell any specified number of shares of the Funds.
The Company (on behalf of its of the Fund) or AIM Distributors may
terminate the Distribution Agreement on sixty (60) days' written notice without
penalty. The Distribution Agreement will terminate automatically in the event
of its assignment.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of the Fund may be
purchased appears in the Investor's Guide to The AIM Family of Funds(R) which is
attached as an Appendix to the Proxy Statement/Prospectus under the caption "How
to Purchase Shares."
The sales charge normally deducted on purchases of Class A shares of the
Fund is used to compensate AIM Distributors and participating dealers for their
expenses incurred in connection with the distribution of such shares. Since
there is little expense associated with unsolicited orders placed directly with
AIM Distributors by persons, who because of their relationship with the Fund or
with AIM and its affiliates, are familiar with the Fund, or whose programs for
purchase involve little expense (e.g., because of the size of the transaction
and shareholder records required), AIM Distributors believes that it is
appropriate and in the Fund's best interests that such persons be permitted to
purchase Class A shares of the Fund through AIM Distributors without payment of
a sales charge. The persons who may purchase Class A shares of the Fund
without a sales charge are shown in the Prospectus.
Complete information concerning the method of exchanging shares of the Fund
for shares of the other mutual funds managed or advised by AIM is set forth in
the Investor's Guide to The AIM Family of Funds(R) which is attached as an
Appendix to the Proxy Statement/Prospectus under the caption "Exchange
Privilege."
Information concerning redemption of the Fund's shares is set forth in the
Prospectus under the caption "How to Redeem Shares." In addition to the Fund's
obligation to redeem shares, AIM Distributors may also repurchase shares as an
accommodation to shareholders. To effect a repurchase, those dealers who have
executed Selected Dealer Agreements with AIM Distributors must phone orders to
the order desk of the Fund telephone: (713) 626-1919 (Houston) or (800)
347-1919 (all others) and guarantee delivery of all required documents in good
order. A repurchase is effected at the net asset value of the Fund next
determined after such order is received. Such arrangement is subject to timely
receipt by A I M Fund Services, Inc. of all required documents in good order.
If such documents are not received within a reasonable time after the order is
placed, the order is subject to cancellation. While there is no
26
<PAGE> 137
charge imposed by the Fund or by AIM Distributors (other than any applicable
CDSC) when shares are redeemed or repurchased, dealers may charge a fair
service fee for handling the transaction.
The right of redemption may be suspended or the date of payment postponed
when (a) trading on the New York Stock Exchange ("NYSE") is restricted, as
determined by applicable rules and regulations of the SEC, (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings,
(c) the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposition of portfolio securities or the
valuation of the net assets of the Fund not reasonably practicable.
NET ASSET VALUE DETERMINATION
In accordance with the current rules and regulations of the SEC, the net
asset value of a share of each Fund is determined once daily as of 4:00 p.m.
Eastern Time on each business day of the Fund. In the event the New York Stock
Exchange closes early (i.e. before 4:00 p.m. Eastern Time) on a particular day,
the net asset value of a Fund share is determined as of the close of the New
York Stock Exchange on such day. For purposes of determining net asset value
per share, futures and option contract closing prices which are available
fifteen (15) minutes after the close of trading of the NYSE will generally be
used. The net asset value per share of the Fund is determined by subtracting
the liabilities (e.g., the expenses) of the Fund from the assets of the Fund and
dividing the result by the total number of shares outstanding of the Fund.
Determination of each Fund's net asset value per share is made in accordance
with generally accepted accounting principles.
Except as provided in the next sentence, a security listed or traded on an
exchange is valued at its last sales price on the exchange where the security
is principally traded or, lacking any sales on a particular day, the security
is valued at the mean between the closing bid and asked prices on that day.
Exchange listed convertible bonds are valued based at the mean between the
closing bid and asked prices obtained from a broker-dealer. Each security
traded in the over-the-counter market (but not including securities reported on
the NASDAQ National Market system) is valued at the mean between the last bid
and asked prices based upon quotes furnished by market makers for such
securities. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date; securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Company's officers
in a manner specifically authorized by the Board of Directors of the Company.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost, which approximates market value. (See also "How to Purchase
Shares," "How to Redeem Shares" and "Determination of Net Asset Value" in the
Prospectus.)
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the New York Stock Exchange.
The values of such securities used in computing the net asset value of a Fund's
shares are determined as of such times. Foreign currency exchange rates are
also generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
the New York Stock Exchange which will not be reflected in the computation of
the Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith by or under the supervision of the
Board of Directors.
Fund securities primarily traded in foreign markets may be traded in such
markets on days which are not business days of the Fund. Because the net asset
value per share of the Fund is determined only on business days of the Fund,
the net asset value per share of a Fund may be significantly affected on days
when an investor can not exchange or redeem shares of the Fund.
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DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions are automatically
reinvested in additional shares of the same class of the Fund unless the
shareholder has requested in writing to receive such dividends and
distributions in cash or that they be invested in shares of another AIM Fund,
subject to the terms and conditions set forth in the Investor's Guide of
The AIM Family of Funds(R) attached as an Appendix to the Proxy
Statement/Prospectus under the caption "Special Plans - Automatic Dividend
Investment Plan." If a shareholder's account does not have any shares in it
on a dividend or capital gains distribution payment date, the dividend or
distribution will be paid in cash whether or not the shareholder has elected
to have such dividends or distributions reinvested.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and their shareholders that are not described in
the Proxy Statement/Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Proxy Statement/Prospectus is not intended as a
substitute for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As
a regulated investment company, the Fund is not subject to federal income tax
on the portion of its net investment income (i.e., taxable interest, dividends
and other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities)
and other income (including, but not limited to, gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (b) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less
than three months (the "Short-Short Gain Test"). However, foreign currency
gains, including those derived from options, futures and forward contracts,
will not be characterized as Short-Short Gain if they are directly related to
the regulated investment company's principal business of investing in stock or
securities (or options or futures thereon). Because of the Short-Short Gain
Test, the Fund may have to limit the sale of appreciated securities that it has
held for less than three months. However, the Short-Short Gain Test will not
prevent the Fund from disposing of investments at a loss, since the recognition
of a loss before the expiration of the three-month holding period is
disregarded. Interest (including original issue discount) received by the Fund
at maturity or upon the disposition of a security held for less than three
months will not be treated as gross income derived from the sale or other
disposition of a security within the meaning of the Short-Short Gain Test.
However, any other income that is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of
securities for this purpose.
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In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract or of foreign currency itself, will generally
be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (a) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (b) the asset is otherwise held by the Fund as part of a "straddle" or
(c) the asset is stock and the Fund grants certain call options with respect
thereto. However, for purposes of the Short-Short Gain Test, the holding
period of the asset disposed of is reduced only in the case described in clause
(a) above. In addition, the Fund may be required to defer the recognition of a
loss on the disposition of an asset held as part of a straddle to the extent of
any unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the Fund will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the
Fund may be limited in its ability to write options which expire within three
months and to enter into closing transactions at a gain within three months of
the writing of options.
Transactions that may be engaged in by certain of the Funds (such as
futures contracts and options on stock indexes and futures contracts) will be
subject to special tax treatment as "Section 1256 contracts." Section 1256
contracts are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date.
The net amount of such gain or loss for the entire taxable year from
transactions involving Section 1256 contracts (including gain or loss arising
as a consequence of the year-end deemed sale of Section 1256 contracts) is
treated as 60% long-term capital gain or loss and 40% short-term capital gain
or loss. The Fund may elect not to have this special tax treatment apply to
Section 1256 contracts that are part of a "mixed straddle" with other
investments of the Fund that are not Section 1256 contracts. The Internal
Revenue Service has held in several private rulings that gains arising from
Section 1256 contracts will be treated for purposes of the Short-Short Gain
Test as being derived from securities held for not less than three months if
the gains arise as a result of a constructive sale under Code Section 1256.
In addition to satisfying the requirement described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the
Fund's taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which
the companies, and securities of other issuers, the Fund has not invested more
than 5% of the value of the Fund's total assets in securities of such issuer
and as to which the Fund does not hold more than 10% of the outstanding voting
securities of such issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies),
or in two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses.**
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction
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for distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated
earnings and profits. Such distributions generally will be eligible for the
dividends received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or,
at the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable
year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall (a)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (b) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for federal
income tax purposes, but they will qualify for the 70% dividends received
deduction for corporations only to the extent discussed below.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares. Conversely, if the Fund elects to retain its net capital
gain, the Fund will be taxed thereon (except to the extent of any available
capital loss carry forwards) at the 35% corporate tax rate. If the Fund elects
to retain its net capital gain, it is expected that the Fund also will elect to
have shareholders treated as if each received a distribution of its pro rata
share of such gain, with the result that each shareholder will be required to
report its pro rata share of such gain on its tax return as long-term capital
gain, will receive a refundable tax credit for its share of tax paid by the
Fund on the gain, and will increase the tax basis for its shares by an amount
equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable year
will qualify for the 70% dividends received deduction generally available to
corporations (other than corporations, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by the Fund will not be treated as a qualifying dividend
(a) if it has been received with respect to any share of stock that the Fund
has held for less than 46 days (91 days in the case of certain preferred
stock), excluding for this purpose under the rules of
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<PAGE> 141
Code Section 246(c)(3) and (4) (i) any day more than 45 days (or 90 days in the
case of certain preferred stock) after the date on which the stock becomes
ex-dividend and (ii) any period during which the Fund has an option to sell, is
under a contractual obligation to sell, has made and not closed a short sale
of, has granted certain options to buy or has otherwise diminished its risk of
loss by holding other positions with respect to, such (or substantially
identical) stock; (b) to the extent that the Fund is under an obligation
(pursuant to a short sale or otherwise) to make related payments with respect
to positions in substantially similar or related property; or (c) to the extent
the stock on which the dividend is paid is treated as debt-financed under the
rules of Code Section 246A. Moreover, the dividends received deduction for a
corporate shareholder may be disallowed or reduced (a) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the Fund or (b) by application of Code Section 246(b) which in
general limits the dividends received deduction to 70% of the shareholder's
taxable income (determined without regard to the dividends received deduction
and certain other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum rate of 28% for
non-corporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. In addition, under the Superfund Amendments and Reauthorization Act of
1986, a tax is imposed for taxable years beginning after 1986 and before 1996
at the rate of 0.12% on the excess of a corporate taxpayer's AMTI (determined
without regard to the deduction for this tax and the AMT net operating loss
deduction) over $2 million. The corporate dividends received deduction is not
itself an item of tax preference that must be added back to taxable income or
is otherwise disallowed in determining a corporation's AMTI. However,
corporate shareholders will generally be required to take the full amount of
any dividend received from the Fund into account (without a dividend received
deduction) in determining their adjusted current earnings, which are used in
computing an additional corporate preference item (i.e., 75% of the excess of a
corporate taxpayer's adjusted current earnings over its AMTI (determined
without regard to this item and the AMTI net operating loss deduction)) that is
includable in AMTI.
Investment income that may be received by certain of the Funds from sources
within foreign countries may be subject to foreign taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle any such Funds to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be
invested in various countries is not known.
Distributions by the Fund that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of the Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions
of such amounts will be taxable to the shareholder in the manner described
above, although such distributions economically constitute a return of capital
to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
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The Funds will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (a) who has
provided either an incorrect tax identification number or no number at all; (b)
who is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of interest or dividend income properly; or (c)
who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient."
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code
Section 246(c)(3) and (4) (discussed above in connection with the dividends
received deduction for corporations) generally will apply in determining the
holding period of shares. Long-term capital gains of non-corporate taxpayers
are currently taxed at a maximum rate 11.6% lower than the maximum rate
applicable to ordinary income. Capital losses in any year are deductible only
to the extent of capital gains plus, in the case of a non-corporate taxpayer,
$3,000 of ordinary income.
If a shareholder (a) incurs a sales load in acquiring shares of the Fund,
(b) disposes of such shares less then 91 days after they are acquired and (c)
subsequently acquires shares of the Fund or another Fund at a reduced sales
load pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the shares disposed of, but shall be treated as
incurred on the acquisition of the shares subsequently acquired.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the
Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder. If the income from the Fund is not effectively connected
with a U.S. trade or business carried on by a foreign shareholder, dividends
and distributions (other than capital gain dividends) will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount
of the dividend. Such a foreign shareholder would generally be exempt from
U.S. federal income tax on gains realized on the sale of shares of the Fund,
capital gain dividends and amounts retained by the Fund that are designated as
undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign non-corporate shareholders, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
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The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Fund, including the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the
date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends and capital
gain dividends from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Fund.
MISCELLANEOUS INFORMATION
SHAREHOLDER INQUIRIES
The Transfer Agent may impose certain copying charges for requests for
copies of shareholder account statements and other historical account
information older than the current year and the immediately preceding year.
AUDIT REPORTS
The Board of Directors will issue semi-annual reports of the transactions
of the Fund to the shareholders. Financial statements, audited by independent
auditors, will be issued annually.
LEGAL MATTERS
Legal matters for the Company have been passed upon by Ballard Spahr
Andrews & Ingersoll, Philadelphia, Pennsylvania.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Custodian"), 225 Franklin Street,
Boston, Massachusetts 02110, is custodian of all securities and cash of the
Fund. The custodian attends to the collection of principal and income, pays
and collects all monies for securities bought and sold by the Fund and performs
certain other ministerial duties. A I M Fund Services, Inc. (the "Transfer
Agent"), acts as transfer and dividend disbursing agent for the Fund. These
services do not include any supervisory function over management or provide any
protection against any possible depreciation of assets. The Fund pays the
Custodian and the Transfer Agent such compensation as may be agreed upon from
time to time.
Texas Commerce Bank National Association, P. O. Box 2558, Houston, Texas
77252-8084, serves as Sub-Custodian for retail purchases of the AIM Fund.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has entered
into an agreement with the Company (and certain other AIM Fund), the Transfer
Agent and Financial Data Services, Inc.,
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<PAGE> 144
pursuant to which MLPF&S has agreed to perform certain shareholder
sub-accounting services for its customers who beneficially own shares of the
Fund.
PRINCIPAL HOLDERS OF SECURITIES
AIM provided the initial capitalization of the Fund, which was nominal, and
as of December 29, 1995, it owned all of the outstanding shares of stock of the
Fund. Upon consummation of the Transaction, it is anticipated that AIM will own
less than 1% of the stock of the Fund, if any.
OTHER INFORMATION
The Proxy Statement/Prospectus and this Statement of Additional Information
omit certain information contained in the Registration Statement which the
Company has filed with the SEC under the Securities Act of 1933 and reference is
hereby made to the Registration Statement for further information with respect
to the Fund and the securities offered hereby. The Registration Statement is
available for inspection by the public at the SEC in Washington, D.C.
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APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
Commercial paper rated by Standard & Poor's Corporation has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at
least two additional channels of borrowing. Basic earnings and cash flow have
an upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well-established, and the issuer has a strong position
within the industry. The reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors
determines whether the issuer's Commercial Paper is rated A-1 or A-2. A-1
indicates the degree of safety regarding time of payment is very strong. A-2
indicates that the capacity for timely payment is strong, but that the relative
degree of safety is not as overwhelming as for issues designated A-1.
MOODY'S
Prime-1 and Prime-2 are the two highest commercial paper ratings assigned
by Moody's Investors Service, Inc. Among the factors considered by Moody's in
assigning ratings are the following: (a) evaluation of the management of the
issuer; (b) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (c)
evaluation of the issuer's products in relation to competition and customer
acceptance; (d) liquidity; (e) amount and quality of long-term debt; (f) trend
of earnings over a period of ten years; (g) financial strength of a parent
company and the relationships which exist with the issuer; and (h) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated Prime-1 or Prime-2.
DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
MOODY'S
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as "high-grade bonds." They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.
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FINANCIAL STATEMENTS
Financial Data
Set forth below is certain audited financial information for Baird
Blue Chip as, at and for the year ended September 30, 1995.
Pro Forma Effects of the Transaction
For the reasons set forth herein, no pro forma financial statements are
provided. Pro forma financial statements would combine the historical financial
position and results of operations had the Transaction occurred at the beginning
of the fiscal period. Under the terms of the Agreement, substantially all of
the assets of Baird Blue Chip will be transferred to AIM Blue Chip, a shell
portfolio consisting of zero assets. As a result, the assets of Baird Blue
Chip will represent 100% of the assets of the combined entity.
The pro forma effect of this combination had the Transaction occurred
September 30, 1994, would be an increase in the advisory and distribution fees
and a reduction of administrative fees. See "Synopsis - Comparison of AIM
Blue Chip and Baird Blue Chip" in the Proxy Statement/Prospectus. However,
under the terms of the Transaction, AIM will waive fees to the extent they
exceed the expense level of Baird Blue Chip for the year ended September
30, 1995, and therefore there would be no net effect on the results of
operations and no adjustments to the financial position on pro forma financial
statements. The audited financial information presented for Baird Blue Chip
as, at and for the year ended September 30, 1995, adequately reflect the
results of the business combination.
FS - 1
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BAIRD
BLUE CHIP FUND
ANNUAL REPORT
SEPTEMBER 30, 1995
(Baird Logo)
REPORT OF INDEPENDENT ACCOUNTANTS
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
(Price Waterhouse LLP Logo)
To the Shareholders and Board of Directors
of Baird Blue Chip Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Baird Blue Chip Fund, Inc. (the ''Fund'') at September 30, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the eight years in the period then ended and for the period from December
31, 1986 (commencement of operations) to September 30, 1987, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 1995 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
October 25, 1995
FS-2
<PAGE> 148
BAIRD BLUE CHIP FUND, INC.
STATEMENT OF NET ASSETS
September 30, 1995
COMMON STOCKS 95.3% (a)<F2>
<TABLE>
<CAPTION>
Shares Cost Quoted Market Value
---- -------------------
<S> <C> <C> <C>
AEROSPACE - 2.4%
24,800 Boeing Co. $ 1,271,755 $ 1,692,600
BEVERAGES/SOFT DRINKS - 2.5 %
26,400 The Coca-Cola Company 343,329 1,821,600
BUSINESS SERVICES & SUPPLIES - 8.6 %
35,100 Alco Standard Corp. 1,498,946 2,974,725
26,900 Manpower Inc. 721,458 780,100
60,900 Olsten Corp. 1,580,814 2,367,487
---------- -----------
3,801,218 6,122,312
CHEMICALS - 5.0%
21,400 Air Products and Chemicals, Inc. 1,200,112 1,115,475
17,400 E.I du Pont de Nemours & Co. 832,590 1,196,250
26,300 PPG Industries, Inc. 823,428 1,222,950
---------- ------------
2,856,130 3,534,675
CONGLOMERATES - 2.0%
24,900 Minnesota Mining & Manufacturing Co. 785,859 1,406,850
Cosmetics - 4.3%
28,000 Gillette Company
1,023,260 1,333,500
36,000 International Flavors & Fragrances Inc. 718,925 1,737,000
----------- ------------
1,742,185 3,070,500
DRUGS & HOSPITAL SUPPLIES - 11.6%
59,700 Abbott Laboratories 1,453,398 2,544,713
27,600 Johnson & Johnson 667,080 2,045,850
34,600 Medtronic, Inc. 1,290,234 1,859,750
32,500 Merck & Co., Inc. 588,354 1,820,000
----------- ------------
3,999,066 8,270,313
ELECTRICAL CONNECTORS - 6.0%
52,000 AMP Inc. 1,245,008 2,002,000
68,906 Molex Inc. Cl A 1,682,980 2,308,351
---------- ------------
2,927,988 4,310,351
ELECTRICAL EQUIPMENT - 7.2%
33,300 Emerson Electric Co. 1,640,866 2,380,950
43,200 General Electric Co. (U.S.) 1,067,310 2,754,000
---------- ------------
2,708,176 5,134,950
ELECTRONICS - 5.1%
47,500 Motorola, Inc. 991,194 3,627,812
ENTERTAINMENT & RESTAURANTS - 3.3%
62,400 McDonald's Corp. 937,180 2,386,800
FINANCIAL SERVICES - 3.0%
12,200 MGIC Investment Corp. 366,134 698,450
35,700 State Street Boston Corp. 1,299,900 1,428,000
---------- ------------
1,666,034 2,126,450
FOOD MERCHANDISING - 1.5%
32,100 Albertson's, Inc. 790,061 1,095,412
FOODS - 2.4%
58,000 Sara Lee Corp. 628,716 1,725,500
HOUSEHOLD PRODUCTS - 3.6%
33,100 Procter & Gamble Co. 1,523,512 2,548,700
</TABLE>
FS-3
<PAGE> 149
<TABLE>
<CAPTION>
Shares Cost Quoted Market Value
---- -------------------
<S> <C> <C> <C>
INDUSTRIAL EQUIPMENT - 1.6%
18,500 W. W. Grainger, Inc. 496,671 1,116,937
INFORMATION PROCESSING - 2.9%
22,800 Microsoft Corp.*<F1> 907,725 2,063,400
INSURANCE - 5.0%
25,200 American International Group, Inc. 1,044,299 2,142,000
14,700 The Chubb Corp. 1,187,095 1,411,200
------------ ------------
2,231,394 3,553,200
MERCHANDISING - 5.2%
32,100 Nordstrom, Inc. 1,163,625 1,340,175
25,000 Viking Office Products, Inc.*<F1> 672,625 1,043,750
52,900 Wal-Mart Stores, Inc. 671,807 1,315,888
------------ ------------
2,508,057 3,699,813
OIL/INTERNATIONAL - 3.2%
18,800 Royal Dutch Petroleum Co. ADR 1,377,105 2,307,700
OIL/SERVICE - 3.1%
34,300 Schlumberger Ltd. 2,090,805 2,238,075
POLLUTION CONTROL - 1.7%
43,900 WMX Technologies, Inc. 1,113,143 1,251,150
PUBLISHING & PRINTING - 4.1%
19,000 Gannett Co., Inc. 847,820 1,037,875
35,300 Reuters Holdings PLC ADR 1,313,898 1,866,488
------------ ------------
2,161,718 2,904,363
------------ ------------
Total common stocks 39,859,021 68,009,463
SHORT-TERM INVESTMENTS 4.6% (a)<F2>
VARIABLE RATE DEMAND NOTES
$ 80,000 General Mills, Inc. 80,000 80,000
300,000 Pitney Bowes Credit Corp. 300,000 300,000
502,608 Southwestern Bell Telephone Co. 502,608 502,608
685,000 Warner-Lambert Company 685,000 685,000
1,700,000 Wisconsin Electric Power Co. 1,700,000 1,700,000
------------ ------------
Total short-term investments 3,267,608 3,267,608
------------ ------------
Total investments $ 43,126,629 71,277,071
============ ============
Cash and receivables,
less liabilities - 0.1% (a)<F2> 47,009
------------
NET ASSETS $ 71,324,080
============
Net Asset Value Per Share
($0.01 par value 20,000,000 shares authorized), redemption price
($71,324,080 divided by 2,993,421 shares outstanding) $ 23.83
============
Maximum Offering Price Per Share
(net asset value plus 6.10% of the net asset value or 5.75% of
the offering price calculated as $23.83 x 100 divided by 94.25 $ 25.28
============
</TABLE>
*<F1>Non-income producing security.
(a)<F2>Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral
part of this statement.
FS-4
<PAGE> 150
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1995
<TABLE>
<S> <C>
INCOME:
Dividends $ 1,165,107
Interest 102,008
-----------
Total income 1,267,115
-----------
EXPENSES:
Management fee 469,802
Distributor fees 170,044
Transfer agent fees 49,665
Administrative services 46,743
Printing and postage expense 31,125
Professional fees 24,512
Custodian fees 14,448
Registration fees 13,650
Other expenses 12,030
-----------
Total expenses 832,019
-----------
NET INVESTMENT INCOME 435,096
-----------
NET REALIZED GAIN ON INVESTMENTS 3,508,717
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 11,889,076
-----------
NET GAIN ON INVESTMENTS 15,397,793
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $15,832,889
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
FS-5
<PAGE> 151
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 435,096 $ 475,657
Net realized gain on investments 3,508,717 2,189,350
Net increase in unrealized appreciation on investments 11,889,076 1,901,828
----------- ------------
Net increase in net assets resulting from operations 15,832,889 4,566,835
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.1165 and $0.2075 per share, respectively) (358,084) (701,264)
Distributions from net realized gains
($0.4637 and $0.8528 per share, respectively) (1,424,952) (2,880,754)
----------- ------------
Total distributions (1,783,036)**<F4> (3,582,018)*<F3>
----------- ------------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(235,753 and 293,425 shares, respectively)
4,808,974 5,456,430
Net asset value of shares issued in
distributions (43,313 and 87,934 shares, respectively) 809,149 1,614,066
Cost of shares redeemed (414,147 and
700,661 shares, respectively) (8,458,795) (13,052,831)
----------- ------------
Net decrease in net assets derived from Fund share activities (2,840,672) (5,982,335)
----------- ------------
TOTAL INCREASE (DECREASE) 11,209,181 (4,997,518)
NET ASSETS AT THE BEGINNING OF THE YEAR 60,114,899 65,112,417
----------- ------------
NET ASSETS AT THE END OF THE YEAR
(including undistributed net investment income
of $403,996 and $340,558, respectively) $71,324,080 $ 60,114,899
=========== ============
</TABLE>
*<F3>Total distributions include $800,986 of ordinary income, of which 100% is
eligible for the corporate dividends received deduction.
**<F4>Total distributions include $404,637 of ordinary income, of which 100%
is eligible for the corporate dividends received deduction.
The accompanying notes to financial statements are an integral part of this
statement.
FS-6
<PAGE> 152
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each period)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987+<F8>
------ ------ ------ ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period $19.22 $18.89 $18.24 $16.77 $13.60 $13.82 $11.48 $13.10 $10.00
Income from investment
operations:
Net investment income 0.14 0.15 0.19 0.20 0.23 0.25 0.24 0.12 0.01
Net realized and
unrealized gains
(losses) on
investments 5.05 1.24 0.63 1.48 3.19 (0.20) 2.25 (1.68) 3.09
Total from investment
operations 5.19 1.39 0.82 1.68 3.42 0.05 2.49 (1.56) 3.10
Less distributions:
Dividends from net
investment income (0.12) (0.21) (0.17) (0.21) (0.25) (0.27) (0.15) (0.02) -
Distributions
from net realized gains (0.46) (0.85) - - - - - (0.04) -
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from distributions (0.58) (1.06) (0.17) (0.21) (0.25) (0.27) (0.15) (0.06) -
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period $23.83 $19.22 $18.89 $18.24 $16.77 $13.60 $13.82 $11.4 $13.10
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN***<F7> 27.8% 7.7% 4.5% 10.1% 25.5% 0.3% 22.0% (11.8%) 13.5%*<F5>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (in 000's $) 71,324 60,115 65,112 61,601 46,958 31,706 21,170 18,681 16,917
Ratio of expenses to
average net assets**<F6> 1.3% 1.4% 1.3% 1.4% 1.5% 1.6% 1.7% 2.2% 2.6%*<F5>
Ratio of net
investment income
to average net assets 0.7% 0.8% 1.0% 1.2% 1.6% 2.0% 1.9% 3.3% 0.2%*<F5>
Portfolio turnover rate 16.7% 12.7% 24.9% 5.4% 8.8% 12.2% 14.8% 14.8% 9.0%
</TABLE>
+<F8>For the period from December 31, 1986 (commencement of operations) to
September 30, 1987.
*<F5>Annualized.
**<F6>Includes a maximum .75% distribution fee from December 31, 1986 through
September 30, 1988 and a maximum .45% distribution fee beginning October 1,
1988.
***<F7>Total return does not include the sales load.
The accompanying notes to financial statements are an integral part of this
statement.
FS-7
<PAGE> 153
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of
significant accounting policies of the Baird Blue Chip Fund, Inc.
(the ''Fund''), which is registered under the Investment Company Act of 1940.
The Fund was incorporated under the laws of Wisconsin on October 16, 1986.
(a) Each security, excluding short-term investments, is valued at the
last sale price reported by the principal security exchange on which the
issue is traded, or if no sale is reported, the latest bid price. Securities
which are traded over-the-counter are valued at the latest bid price.
Securities for which quotations are not readily available are valued at fair
value as determined by the investment adviser under the supervision of the
Board of Directors. Short-term investments are valued at amortized cost
which approximates quoted market value. Investment transactions are recorded
no later than the first business day after the trade date.
(b) Net realized gains and losses on common stock are computed on the
basis of the cost of specific certificates.
(c) Provision has not been made for Federal income taxes since the Fund
has elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies.
(d) Dividend income is recorded on the ex-dividend date. Interest income
is recorded on the accrual basis.
(e) The Fund has investments in short-term variable rate demand notes,
which are unsecured instruments. The Fund may be susceptible to credit risk
with respect to these notes to the extent the issuer defaults on its payment
obligation. The Fund's policy is to monitor the creditworthiness of the
issuer and does not anticipate nonperformance by these counterparties.
(f) Generally accepted accounting principles require that permanent
financial reporting and tax differences be reclassified to capital stock.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES - The Fund has a management agreement with Robert W. Baird & Co.
Incorporated (''RWB''), with whom certain officers and directors of the Fund
are affiliated, to serve as investment adviser and manager. Under the terms of
the agreement, the Fund will pay RWB a monthly management fee at the annual
rate of 0.74% of the daily net assets of the Fund.
The Fund has adopted a Distribution Plan (the ''Plan''), pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Plan provides that the Fund may
incur certain costs which may not exceed the lesser of a monthly amount equal to
0.45% per year of the Fund's daily net assets or the actual distribution costs
incurred by RWB during the year. Amounts paid under the Plan are paid monthly
to RWB for any activities or expenses primarily intended to result in the sale
of shares of the Fund.
FS-8
<PAGE> 154
During the year ended September 30, 1995, the Fund was advised that RWB received
$126,853 from investors representing commissions on sales of Fund shares and no
brokerage fees on the execution of purchases and sales of portfolio securities
were paid by the Fund to RWB.
(3) DISTRIBUTION TO SHAREHOLDERS - Net investment income and net realized
gains are distributed to shareholders. On October 25, 1995, a dividend from net
investment income of $403,996 ($0.1352 per share) was declared. In addition, the
Fund distributed $516,885 ($0.1730 per share) from net short-term realized
capital gains and $2,893,705 from net long-term realized capital gains ($0.9684
per share). The distributions will be paid on October 26, 1995, to shareholders
of record on October 24, 1995. The percentage of ordinary income which is
eligible for the corporate dividends received deduction for this income
distribution is 100%.
(4) INVESTMENT TRANSACTIONS - For the year ended September 30, 1995, purchases
and proceeds of sales of investment securities (excluding short-term
investments) were $10,287,754 and $15,546,942, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - As of September 30, 1995,
liabilities of the Fund included the following:
Payable to shareholders for redemptions.................. $62,101
Payable to RWB for management fees and
distribution fees..................................... 58,836
Other liabilities........................................ 25,434
(6) SOURCES OF NET ASSETS - As of September 30, 1995, the sources of net
assets were as follows:
Fund shares issued and outstanding .................. $39,359,052
Net unrealized appreciation on investments .......... 28,150,442
Accumulated net realized gains on investments ....... 3,410,590
Undistributed net investment income ................. 403,996
-----------
$71,324,080
===========
Aggregate net unrealized appreciation as of September 30, 1995, consisted of the
following:
Aggregate gross unrealized appreciation ............. $28,235,079
Aggregate gross unrealized depreciation ............. (84,637)
-----------
Net unrealized appreciation.......................... $28,150,442
===========
BAIRD
BLUE CHIP FUND
ANNUAL REPORT
SEPTEMBER 30, 1995
[Baird Logo]
[Baird Logo]
A NORTHWESTERN
MUTUAL COMPANY
Robert W. Baird & Co. Incorporated
777 E. Wisconsin Avenue, Milwaukee WI 53202
Phone 414 765-3500 - Toll Free 1-800-RW-BAIRD
Copyright 1995 Robert W. Baird & Co. Incorporated
FS-9
<PAGE> 155
AIM EQUITY FUNDS, INC.
REGISTRATION STATEMENT ON FORM N-14
PART C
ITEM 15: Indemnification
Maryland law permits the Charter of a Maryland corporation to
provide for the indemnification of officers and directors. AEF's Charter
provides that directors and officers of AEF shall not be liable to AEF or its
shareholders for damages for any act or omission or any conduct whatsoever in
their capacity as directors or officers, except for liability to the
corporation or shareholders due to willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of their
office. AEF's Charter provides for the indemnification of directors and
officers to the fullest extent of Maryland law. Maryland law provides that a
corporation may indemnify any director made a party to any proceeding by reason
of service in that capacity unless it is established that: (1) the act or
omission of the director was material to the matter giving rise to the
proceeding and (a) was committed in bad faith, or (b) was the result of active
and deliberate dishonesty; or (2) the director actually received an improper
personal benefit in money, property or services; or (3) in the case of any
criminal proceeding, the director had reasonable cause to believe the act or
omission was unlawful. Maryland law provides for the indemnification of
officers to the same extent as director's.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereby, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy and will be governed by the
final adjudication of such issue.
The Registrant has obtained insurance coverage for its officers and
directors under a joint Mutual Fund and Investment Advisory Professional
Directors and Officers Liability Policy, issued by ICI Mutual Insurance
Company, with a $15,000,000 limit of liability.
1
<PAGE> 156
ITEM 16: Exhibits
(1) (a) - Form of Articles Supplementary as filed with the State of
Maryland on December 29, 1995 was filed electronically as an
Exhibit to Post-Effective Amendment No. 47 on December 29,
1995 and is hereby incorporated by reference.
(b) - Articles Supplementary, as filed with the State of Maryland
on June 5, 1995 was filed electronically as an Exhibit to
Post-Effective Amendment No. 47 on December 29, 1995 and is
hereby incorporated by reference.
(c) - Articles of Amendment, as filed with the State of Maryland
on June 5, 1995, was filed electronically as an Exhibit to
Post-Effective Amendment No. 47 on December 29, 1995, and
is hereby incorporated by reference.
(d) - Articles Supplementary, as filed with the State of Maryland
on October 8, 1993, was filed as an Exhibit to
Post-Effective Amendment No. 43 on February 28, 1994 and
was filed electronically as an Exhibit to Post-Effective
Amendment No. 47 on December 29, 1995 and is hereby
incorporated by reference.
(e) - Articles Supplementary, as filed with the State of Maryland
on December 23, 1991, was filed as an Exhibit to
Post-Effective Amendment No. 40 on February 26, 1992, and
was filed electronically as an Exhibit to Post-Effective
Amendment No. 47 on December 29, 1995 and is hereby
incorporated by reference.
(f) - Articles Supplementary, as filed with the State of Maryland
on March 27, 1991, was filed as an Exhibit to
Post-Effective Amendment No. 40 on February 26, 1992 and
was filed electronically as an Exhibit to Post-Effective
Amendment No. 47 on December 29, 1995 and is hereby
incorporated by reference.
(g) - Articles of Incorporation of Registrant, as filed with the
State of Maryland on May 20, 1988, were filed as an
Exhibit to Post-Effective Amendment No. 34 on June 13, 1988
and were filed electronically as an Exhibit to
Post-Effective Amendment No. 47 on December 29, 1995 and are
hereby incorporated by reference.
(2) (a) - Second Amendment, dated September 28, 1994, to Amended and
Restated By-Laws was filed as an Exhibit to Post-Effective
Amendment No. 44 on February 24, 1995, and is hereby
incorporated by reference.
(b) - First Amendment, dated April 22, 1991, to Amended and
Restated By-Laws was filed as an Exhibit to Post-Effective
Amendment No. 40 on February 26, 1992, and is hereby
incorporated by reference.
(c) - Amended and Restated By-Laws of the Registrant were filed as
an Exhibit to Post-Effective Amendment No. 37 on February
28, 1990, and are hereby incorporated by reference.
(3) - Voting Trust Agreements - None.
(4) - Form of Agreement and Plan of Reorganization between
Registrant and Baird Blue Chip Fund, Inc. is included in
this Registration Statement as Appendix II to the Combined
Proxy Statement and Prospectus.
2
<PAGE> 157
(5) (a) - Form of specimen certificate of shares of the Registrant's
AIM Blue Chip Fund is hereby filed electronically.
(b) - Forms of specimen certificates for shares of common stock of
Registrant's AIM Aggressive Growth Fund and the Retail
Classes were filed as an Exhibit to Post-Effective Amendment
No. 44 on February 24, 1995, and are hereby incorporated by
reference.
(c) - Forms of specimen certificates for shares of common stock of
Registrant's Institutional Classes were filed as an Exhibit
to Post-Effective Amendment No. 39 on March 1, 1991, and are
hereby incorporated by reference.
(6) (a) - (1) Form of Amendment No. 2 to the Master Investment
Advisory Agreement, dated October 18, 1993, between
Registrant and A I M Advisors, Inc., is hereby filed
electronically.
(2) Amendment No. 1, dated November 14, 1994, to the
Master Investment Advisory Agreement, dated October 18,
1993, between Registrant and A I M Advisors, Inc. was filed
as an Exhibit to Post-Effective Amendment No. 44 on
February 24, 1995 and was filed electronically as an Exhibit
to Post-Effective Amendment No. 47 on December 29, 1995 and
is hereby incorporated by reference.
(3) Master Investment Advisory Agreement, dated October 18,
1993, between Registrant and A I M Advisors, Inc., was filed
as an Exhibit to Post-Effective Amendment No. 43 on
February 28, 1994 and was filed electronically as an Exhibit
to Post-Effective Amendment No. 47 on December 29, 1995 and
is hereby incorporated by reference.
(b) (1) Master Sub-Advisory Agreement, dated October 18, 1993,
between Registrant, A I M Advisors, Inc. and A I M Capital
Management, Inc., was filed as an Exhibit to Post-Effective
Amendment No. 43 on February 28, 1994, and is hereby
incorporated by reference.
(7) (a) - Master Distribution Agreement, dated June 14, 1995, between
Registrant (on behalf of the Portfolio's Class B shares) and
A I M Distributors, Inc. was filed as an Exhibit to
Post-Effective Amendment No. 47 on December 29, 1995
electronically and is hereby incorporated by reference.
(b) - Master Distribution Agreement, dated October 18, 1993,
between Registrant and Fund Management Company, was filed as
an Exhibit to Post-Effective Amendment No. 43 on February
28, 1994, and is hereby incorporated by reference.
(c) - Form of Amendment No. 1 to the Master Distribution
Agreement, dated October 18, 1993, between Registrant and
A I M Distributors, Inc. is hereby filed electronically.
(d) - Master Distribution Agreement, dated October 18, 1993,
between Registrant and A I M Distributors, Inc. was filed as
an Exhibit to Post-Effective Amendment No. 43 on February
28, 1994 and was filed electronically as an Exhibit to
Post-Effective Amendment No. 47 on December 29, 1995 and is
hereby incorporated by reference.
3
<PAGE> 158
(8) (a) - Retirement Plan for Registrant's Non-Affiliated Directors
was filed as an Exhibit to Post-Effective Amendment No. 44
on February 24, 1995, and is hereby incorporated by
reference.
(b) - Form of Deferred Compensation Agreement for Registrant's
Non-Affiliated Directors was filed as an Exhibit to
Post-Effective Amendment No. 44 on February 24, 1995, and is
hereby incorporated by reference.
(9)(a) - (1) Amendment No. 2, dated September 19, 1995, to the
Custodian Contract, dated October 1, 1992, between
Registrant and State Street Bank and Trust Company was filed
electronically as an Exhibit to Post-Effective Amendment No.
47 and is hereby incorporated by reference.
(2) Amendment No. 1, dated October 15, 1993, to the
Custodian Contract, dated October 1, 1992, between
Registrant and State Street Bank and Trust Company was filed
electronically as an Exhibit to Post-Effective Amendment No.
47 on December 29, 1995 and is hereby incorporated by
reference.
(3) Custodian Contract, dated October 1, 1992, between
Registrant and State Street Bank and Trust Company, was
filed as an Exhibit to Post-Effective Amendment No. 41 on
February 26, 1993 and was filed electronically as an Exhibit
to Post-Effective Amendment No. 47 on December 29, 1995 and
is hereby incorporated by reference.
(b) - Subcustodian Agreement, dated September 9, 1994, between
Registrant, Texas Commerce Bank National Association, State
Street Bank and Trust Company and A I M Fund Services, Inc.,
was filed as an Exhibit to Post-Effective Amendment No. 44
on February 24, 1995, and is hereby incorporated by
reference.
(10)(a) - (1) Form of Amendment No. 1 to the Amended Master
Distribution Plan dated September 27, 1993, as amended, is
hereby filed electronically.
(2) Registrants Amended Master Distribution Plan for Retail
Classes and AIM Aggressive Growth Fund, dated September
27, 1993, as amended March 8, 1994 and September 10, 1994,
was filed as an Exhibit to Post-Effective Amendment No. 44
on February 24, 1995 and was filed electronically as an
Exhibit to Post-Effective Amendment No. 47 on December 29,
1995, and is hereby incorporated by reference.
(3) Registrant's Master Distribution Plan for the Class B
shares of AIM Charter Fund and AIM Weingarten Fund, dated
June 14, 1995 was filed electronically as an Exhibit to
Post-Effective Amendment No. 47 on December 29, 1995 and is
hereby incorporated by reference.
(b) - (1) Form of Shareholder Service Agreement to be used in
connection with Registrant's Master 12b-1 Plan is hereby
filed electronically.
(2) Form of Shareholder Service Agreement to be used in
connection with Registrant's Master 12b-1 Plan was filed as
an Exhibit to Post-Effective Amendment No. 47 on December
29, 1995 electronically, and is hereby incorporated by
reference.
(c) - (1) Form of Bank Shareholder Service Agreement to be used in
connection with Registrant's Master 12b-1 Plan is hereby
filed electronically.
4
<PAGE> 159
(2) Form of Bank Shareholder Service Agreement to be used in
connection with Registrant's 12b-1 Plan was filed
electronically as an Exhibit to Post-Effective Amendment No.
47 on December 29, 1995 and is hereby incorporated by
reference.
(d) - Form of Variable Group Annuity Contractholder Service
Agreement to be used in connection with Registrant's Master
12b-1 Plan was filed electronically as an Exhibit to
Post-Effective Amendment No. 47 on December 29, 1995 and is
hereby incorporated by reference.
(e) - (1) Form of Service Agreement for Certain Retirement Plans
for Retail Classes to be used in connection with
Registrant's Master 12b-1 Plan is hereby filed
electronically.
(2) Form of Service Agreement for Certain Retirement Plans
(for Retail Classes) to be used in connection with
Registrant's Master 12b-1 Plan was filed electronically as
an Exhibit to Post-Effective Amendment No. 47 on December
29, 1995 and is hereby incorporated by reference.
(3) Form of Service Agreement for Certain Retirement Plans
(for Institutional Classes) to be used in connection with
Registrant's Master 12b-1 Plan was filed electronically as
an Exhibit to Post-Effective Amendment No. 47 on December
29, 1995 and is hereby incorporated by reference.
(f) - (1) Forms of Bank Trust Department Agreements to be used in
connection with Registrant's Master 12b-1 Plan is hereby
filed electronically.
(2) Forms of Bank Trust Department Agreements to be used in
connection with Registrant's Master 12b-1 Plan was filed
electronically as an Exhibit to Post-Effective Amendment No.
47 on December 29, 1995 and is hereby incorporated by
reference.
(11) - Opinion of Ballard Spahr Andrews & Ingersoll and consent to
its use is hereby filed electronically.
(12) - Opinion of Ballard Spahr Andrews & Ingersoll and consent to
its use is hereby filed electronically.
(13)(a) - (1) Transfer Agency and Service Agreement, dated July 1,
1995, between Registrant and A I M Institutional Fund
Services, Inc. was filed electronically as an Exhibit to
Post-Effective Amendment No. 47 on December 29, 1995 and is
hereby incorporated by reference.
(2) Transfer Agency and Service Agreement, dated November 1,
1994, between Registrant and A I M Fund Services, Inc. was
filed as an Exhibit to Post-Effective Amendment No. 44 on
February 24, 1995, and is hereby incorporated by reference.
(b) - (1) Remote Access and Related Services Agreement, dated
December 23, 1994, between Registrant and The Shareholder
Services Group, Inc. was filed as an Exhibit to
Post-Effective Amendment No. 44 on February 24, 1995, and is
hereby incorporated by reference.
(2) Shareholder Sub-Accounting Services Agreement between
the Registrant, The Shareholder Services Group, Inc.,
Financial Data Services Inc. and Merrill Lynch, Pierce,
5
<PAGE> 160
Fenner & Smith Inc., dated July 1, 1990, was filed as an
Exhibit to Post-Effective Amendment No. 40 on February 26,
1992, and is hereby incorporated by reference.
(c) - (1) Agreement and Plan of Merger, dated September 30, 1988,
was filed as an Exhibit to Post-Effective Amendment No. 35
on September 30, 1988, and is hereby incorporated by
reference.
(2) Articles of Merger, dated September 30, 1988, was filed
as an Exhibit to Post-Effective Amendment No. 35 on
September 30, 1988, and is hereby incorporated by reference.
(d) - (1) Form of Amendment No. 1 to the Master Administrative
Services Agreement, dated October 18, 1993, between
Registrant and A I M Advisors, Inc. is hereby filed
electronically.
(2) Master Administrative Services Agreement, dated October
18, 1993, between Registrant and A I M Advisors, Inc., was
filed as an Exhibit to Post-Effective Amendment No. 43 on
February 28, 1994 and was filed electronically as an Exhibit
to Post-Effective Amendment No. 47 on December 29, 1995.
(e) - Form of Agreement and Plan of Reorganization between
Registrant and Baird Capital Development Fund, Inc. is
hereby filed electronically.
(14) - (a) Consent of Price Waterhouse LLP is hereby filed
electronically.
- (b) Consents of Ballard Spahr Andrews & Ingersoll are
included in its opinions filed herewith
electronically.
(15) - Financial Statements - None.
(16) - Powers of attorney are filed with the signature page.
(17) - (a) Form of Proxy is hereby filed electronically.
- (b) Copy of Registrant's Declaration under Rule 24f-2 is
hereby filed electronically.
- (c) Baird Blue Chip's Prospectus dated January 31, 1995
is hereby filed electronically.
ITEM 17: Undertakings
(1) The undersigned registrant agrees that prior to any
public reoffering of the securities registered through the use of a prospectus
which is a part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the Securities
Act of 1933, the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings
6
<PAGE> 161
by persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned registrant agrees that every
prospectus that is filed under paragraph (1) above will be filed as a part of
an amendment to the registration statement and will not be used until the
amendment is effective, and that, in determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement for the securities offered therein, and the offering
of the securities at that time shall be deemed to be the initial bona fide
offering of them.
(3) The Registrant undertakes to furnish each person to
whom a Proxy Statement/Prospectus is delivered a copy of Baird Blue Chip's
latest annual report to shareholders, upon request and without charge.
7
<PAGE> 162
SIGNATURES
As required by the Securities Act of 1933, this Registration
Statement has been signed on behalf of the Registrant, in the City of Houston
and State of Texas, on the 29th day of December, 1995.
AIM EQUITY FUNDS, INC.
By: /s/ Robert H. Graham
-----------------------------------
Robert H. Graham
President and Director
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
Each person whose signature appears below in so signing also
makes, constitutes and appoints Robert H. Graham his true and lawful
attorney-in-fact, with full power of substitution, for him in any and all
capacities, to execute and cause to be filed with the Securities and Exchange
Commission any and all amendments and post-effective amendments to this
Registration Statement, with exhibits thereto and other documentation in
connection therewith, and hereby ratifies and confirms all that said
attorney-in-fact or his substitute or substitutes may do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles T. Bauer Chairman and Director December 29, 1995
- - -------------------------------
Charles T. Bauer
/s/ Robert H. Graham President and Director December 29, 1995
- - ------------------------------- (Principal Executive Officer)
Robert H. Graham
/s/ Bruce L. Crockett Director December 29, 1995
- - -------------------------------
Bruce L. Crockett
/s/ Owen Daly II Director December 29, 1995
- - -------------------------------
Owen Daly II
/s/ Carl Frischling Director December 29, 1995
- - --------------------------------
Carl Frischling
/s/ John F. Kroeger Director December 29, 1995
- - -------------------------------
John F. Kroeger
/s/ Lewis F. Pennock Director December 29, 1995
- - -------------------------------
Lewis F. Pennock
/s/ Ian W. Robinson Director December 29, 1995
- - ------------------------------
Ian W. Robinson
/s/ Louis S. Sklar Director December 29, 1995
- - -------------------------------
Louis S. Sklar
/s/ John J. Arthur Senior Vice President December 29, 1995
- - ------------------------------- and Treasurer
John J. Arthur (Principal Financial
and Accounting Officer)
</TABLE>
<PAGE> 163
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document
- - ----------- --------
<S> <C>
5 (a) - Form of specimen certificate of shares of the Registrant's
AIM Blue Chip Fund.
6 (a) - Form of Amendment No. 2 to the Master Investment Advisory
Agreement, dated October 18, 1993, between Registrant and
A I M Advisors, Inc.
7 (c) - Form of Amendment No. 1 to Master Distribution Agreement,
dated October 18, 1993, between Registrant and A I M
Distributors, Inc.
10 (a)(1) - Form of Amendment No. 1 to the Amended Master Distribution
Plan dated September 27, 1993, as amended.
10 (b)(1) - Form of Shareholder Service Agreement to be used in
connection with Registrant's Master 12b-1 Plan.
(c)(1) - Form of Bank Shareholder Service Agreement to be used in
connection with Registrant's Master 12b-1 Plan.
(e)(1) - Form of Service Agreement for Certain Retirement Plans (for
Retail Classes) to be used in connection with Registrant's
Master 12b-1 Plan.
(f)(1) - Forms of Bank Trust Department Agreements to be used in
connection with Registrant's Master 12b-1 Plan.
11 - Opinion of Ballard Spahr Andrews & Ingersoll and consent to
its use
12 - Opinion of Ballard Spahr Andrews & Ingersoll and consent to
its use
13 (d)(1) - Form of Amendment No. 1 to the Master Administrative
Services Agreement dated October 18, 1993, between
Registrant and A I M Advisors, Inc.
13 (e) - Form of Agreement and Plan of Reorganization between
Registrant and Baird Capital Development Fund, Inc.
14 (a) Consent of Price Waterhouse LLP.
17 - (a) Form of Proxy.
- (b) Copy of Registrant's Declaration under Rule 24f-2.
- (c) Baird Blue Chip's Prospectus dated January 31, 1995.
</TABLE>
<PAGE> 1
EXHIBIT 5(a)
NO. SHARES
-------------
AIM BLUE CHIP FUND
OF
AIM EQUITY FUNDS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
SEE REVERSE SIDE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT:
CUSIP
-----------------
is the holder of
FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE OF $.001 PER
SHARE
Shares of Common Stock of the above named Portfolio of AIM EQUITY FUNDS,
INC. are transferable on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this Certificate
properly endorsed. This certificate is not valid until countersigned by the
Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
[MARYLAND CORPORATE SEAL]
Dated Countersigned:
A I M FUND SERVICES, INC.
Transfer Agent
[SEAL] (Houston, Texas)
/s/ ROBERT H. GRAHAM )
President )
)
) FOR THE DIRECTORS
) By
/s/ CAROL F. RELIHAN ) -------------------------
Secretary ) Authorized Signature
<PAGE> 2
The Corporation will furnish to any stockholder upon request and without charge
a full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, terms and conditions of redemption of the stock or each class
which the Corporation is authorized to issue, differences in the relative rights
and preferences between the shares of each series to the extent they have been
set, and authority of the Board of Directors to set the relative rights and
preferences of each series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT- ____________ Custodian ___________ under Uniform Gifts
(Cust) (Minor)
to Minors Act _______________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________ hereby sell, assign and transfer
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
unto /____________________________________/ _________________________________
Please print or type name and address including zip code of assignee.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of common stock represented by the within certificate, and hereby irrevocably
constitute and appoint _________________________________________________________
______________________________________________________________________ attorney
to transfer the said shares on the books of the within mentioned Corporation
with full power of substitution in the premises.
Dated ______________________________________
____________________________________________
Signature guaranteed: ______________________
Acceptable guarantors include banks, brokers-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the
Securities and Exchange Commission, and further provided that such guarantor
institution is listed in one of the reference guides contained in the Transfer
Agent's current Signature Guarantee Standards and Procedures, such as certain
domestic banks, credit unions, securities dealers, or securities exchanges. The
Transfer Agent will also accept signatures with either: (1) a signature
guaranteed with a medallion stamp of the STAMP Program, or (2) a signature
guaranteed with a medallion stamp of the New York Stock Exchange Medallion
Signature Program, provided that in either event, the amount of the transaction
involved does not exceed the surety coverage amount indicated on the medallion.
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE> 1
EXHIBIT 6(a)
AMENDMENT NO. 2
TO
MASTER INVESTMENT ADVISORY AGREEMENT
This Amendment dated as of ________________________________, 1995,
amends the Master Investment Advisory Agreement (the "Agreement"), dated
October 18, 1993, between AIM Equity Funds, Inc., a Maryland corporation, and
A I M Advisors, Inc., a Delaware corporation.
W I T N E S S E T H:
WHEREAS, the parties desire to amend the Agreement to add two new
portfolios, the AIM Blue Chip Fund and the AIM Capital Development Fund;
NOW, THEREFORE, the parties agree as follows;
1. The section in Appendix A to the Agreement is hereby amended to
add the following:
The investment advisory fee for the AIM Blue Chip Fund and the AIM
Capital Development Fund shall be an annual fee of 0.75% of net assets, payable
monthly.
2. In all other respects, the Agreement is hereby confirmed and
remains in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective officers on the date first written above.
AIM EQUITY FUNDS, INC.
Attest: ____________________________ By: ________________________________
Assistant Secretary President
(SEAL)
A I M ADVISORS, INC.
Attest: ____________________________ By: ________________________________
Assistant Secretary President
(SEAL)
<PAGE> 1
EXHIBIT 7(c)
AMENDMENT NO. 1
TO
MASTER DISTRIBUTION AGREEMENT
BETWEEN
AIM EQUITY FUNDS, INC.
(RETAIL CLASSES)
AND
A I M DISTRIBUTORS, INC.
The Master Distribution Agreement (the "Agreement"), dated October 18,
1993, by and between AIM Equity Funds, Inc., a Maryland corporation, and A I M
Distributors, Inc., a Delaware corporation, is hereby amended as follows:
Appendix A of the Agreement is hereby deleted in its entirety and
replaced with the following:
"APPENDIX A TO
MASTER DISTRIBUTION AGREEMENT OF
AIM EQUITY FUNDS, INC.
AIM Charter Fund
Retail Class
AIM Constellation Fund
Retail Class
AIM Weingarten Fund
Retail Class
AIM Aggressive Growth Fund
AIM Blue Chip Fund
AIM Capital Development Fund"
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Dated: _____________________________, 1995
AIM EQUITY FUNDS, INC.
Attest: ____________________________ By: ________________________________
Assistant Secretary President
(SEAL)
A I M DISTRIBUTORS, INC.
Attest: ____________________________ By: ________________________________
Assistant Secretary President
(SEAL)
<PAGE> 1
EXHIBIT 10(a)(1)
AMENDMENT NO. 1
TO
AMENDED MASTER DISTRIBUTION PLAN
OF
AIM EQUITY FUNDS, INC.
(Retail Classes, Front-End Sales Charge)
The Amended Master Distribution Plan of AIM Equity Funds, Inc., (the
"Plan"), dated September 27, 1993,is hereby amended as follows:
Appendix A of the Plan is hereby deleted in its entirety and
replaced with the following:
"APPENDIX A TO
MASTER DISTRIBUTION PLAN
OF
AIM EQUITY FUNDS, INC.
DISTRIBUTION FEE
The Fund shall pay the Distributor as full compensation for all
services rendered and all facilities furnished under the Distribution Plan for
each Portfolio as designated below, a Distribution Fee* determined by applying
the annual rate set forth below as to each Portfolio (or Retail Class thereof)
to the average daily net assets of the Portfolio (or Retail Class thereof) for
the plan year, computed in a manner used for the determination of the offering
price of shares of the Portfolio (or Retail Class).
PORTFOLIO ANNUAL RATE
--------- -----------
AIM Aggressive Growth Fund 0.25%
AIM Charter Fund (Retail Class) 0.30%
AIM Constellation Fund (Retail Class) 0.30%
AIM Weingarten Fund (Retail Class) 0.30%
AIM Blue Chip Fund 0.35%
AIM Capital Development Fund 0.35%
_____________________________________
* The Distribution Fee is payable apart from the sales charge, if any,
as stated in the current prospectus for the applicable Class and the
applicable Portfolio. The amount of the Distribution Fee is subject
to any applicable limitations imposed from time to time by applicable
Rules of the National Association of Securities Dealers, Inc."
1
<PAGE> 2
All other terms and provisions of the Plan not amended herein
shall remain in full force and effect.
Dated: ____________________________, 1995
AIM EQUITY FUNDS, INC.
Attest: ___________________________ By: _______________________________
Assistant Secretary President
2
<PAGE> 1
EXHIBIT 10(b)(1)
SHAREHOLDER SERVICE AGREEMENT
[LOGO APPEARS HERE] FOR SALE OF SHARES
A I M Distributors, Inc. OF THE AIM MUTUAL FUNDS
This Shareholder Service Agreement (the "Agreement") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act") by each
of the AIM-managed mutual funds (or designated classes of such funds) listed on
Schedule A to this Agreement (the "Funds"), under a Distribution Plan (the
"Plan") adopted pursuant to said Rule. This Agreement, being made between A I M
Distributors, Inc. ("Distributors"), solely as agent for the Funds, and the
undersigned authorized dealer, defines the services to be provided by the
authorized dealer for which it is to receive payments pursuant to the Plan
adopted by each of the Funds. The Plan and the Agreement have been approved by
a majority of the directors of each of the Funds, including a majority of the
directors who are not interested persons of such Funds, and who have no direct
or indirect financial interest in the operation of the Plan or related
agreements (the "Dis-interested Directors"), by votes cast in person at a
meeting called for the purpose of voting on the Plan. Such approval included a
determination that in the exercise of their reasonable business judgement and
in light of their fiduciary duties, there is a reasonable likelihood that the
Plan will benefit such Fund and its shareholders. The Plan has also been
approved by a vote of at least a majority of each of such Funds' (or applicable
class of such Funds) outstanding securities, as defined in the 1940 Act.
1 To the extent that you provide distribution-related continuing personal
shareholder services to customers who may, from time to time, directly or
beneficially own shares of the Funds, including but not limited to,
distributing sales literature, answering routine customer inquiries
regarding the Funds, assisting customers in changing dividend options,
accounting designation and addresses, and in enrolling into any of several
special investment plans offered in connection with the purchase of the
Fund's shares, assisting in the establishment and maintenance of customer
accounts and records and in the processing of purchase and redemption
transactions, investing dividends and capital gains distributions
automatically in shares and providing such other services as the Funds or
the customer may reasonably request, we, solely as agent for the Funds,
shall pay you a fee periodically or arrange for such fee to be paid to you.
2 The fee paid with respect to each Fund will be calculated at the end of each
payment period (as indicated in Schedule A) for each business day of the
Fund during such payment period at the annual rate set forth in Schedule A
as applied to the average net asset value of the shares of such Fund
purchased or acquired through exchange on or after the Plan Calculation
Date shown for such Fund on Schedule A. Fees calculated in this manner
shall be paid to you only if your firm is the dealer of record at the close
of business on the last business day of the applicable payment period, for
the account in which such shares are held (the "Subject Shares"). In cases
where Distributors has advanced payment to you of the first year's fee for
shares sold at net asset value and subject to contingent deferred sales
charge, no additional payments will be made to you during the first year
the Subject Shares are held.
3 The total of the fees calculated for all of the Funds listed on Schedule A
for any period with respect to which calculations are made shall be paid
to you within 45 days after the close of such period.
4 We reserve the right to withhold payment with respect to the Subject Shares
purchased by you and redeemed or repurchased by the Fund or by us as Agent
within seven (7) business days after the date of our confirmation of such
purchase. We reserve the right at any time to impose minimum fee payment
requirements before any periodic payments will be made to you hereunder.
5 This Agreement does not require any broker-dealer to provide transfer
agency and recordkeeping related services as nominee for its customers.
6 You shall furnish us and the Funds with such information as shall
reasonably be requested either by the directors of the Funds or by us with
respect to the fees paid to you pursuant to this Agreement.
7 We shall furnish the directors of the Funds, for their review on a
quarterly basis, a written report of the amounts expended under the Plan by
us and the purposes for which such expenditures were made.
<PAGE> 2
8 Neither you nor any of your employees or agents are authorized to make any
representation concerning shares of the Funds except those contained in
the then current Prospectus for the Funds, and you shall have no authority
to act as agent for the Funds or for Distributors.
9 We may enter into other similar Shareholder Service Agreements with any
other person without your consent.
10 This Agreement and Schedule A may be amended at any time without your
consent by Distributors mailing a copy of an amendment to you at the address
set forth below. Such amendment shall become effective on the date
specified in such amendment unless you elect to terminate this Agreement
within thirty (30) days of your receipt of such amendment.
11 This Agreement may be terminated with respect to any Fund at any time
without payment of any penalty by the vote of a majority of the directors
of such Fund who are Dis-interested Directors or by a vote of a majority of
the Fund's outstanding shares, on sixty (60) days' written notice. It will
be terminated by any act which terminates either the Fund's Distribution
Agreement with us, the Selected Dealer Agreement between your firm and us
or the Fund's Distribution Plan, and in any event, it shall terminate
automatically in the event of its assignment as that term is defined in the
1940 Act.
12 The provisions of the Distribution Agreement between any Fund and us,
insofar as they relate to the Plan, are incorporated herein by reference.
This Agreement shall become effective upon execution and delivery hereof
and shall continue in full force and effect as long as the continuance of
the Plan and this related Agreement are approved at least annually by a
vote of the directors, including a majority of the Dis-interested
Directors, cast in person at a meeting called for the purpose of voting
thereon. All communications to us should be sent to the address of
Distributors as shown at the bottom of this Agreement. Any notice to you
shall be duly given if mailed or telegraphed to you at the address
specified by you below.
13 You represent that you provide to your customers who own shares of the
Funds personal services as defined from time to time in applicable
regulations of the National Association of Securities Dealers, Inc., and
that you will continue to accept payments under this Agreement only so long
as you provide such services.
14 This Agreement shall be construed in accordance with the laws of the State
of Texas.
A I M DISTRIBUTORS, INC.
/S/ MICHAEL J. CEMO
Date:________________ By: X____________________________________________
The undersigned agrees to abide by the foregoing terms and conditions.
Date:________________ By: X____________________________________________
Signature
____________________________________________
Print Name Title
____________________________________________
Dealer's Name
____________________________________________
Address
____________________________________________
City State Zip
Please sign both copies and return one copy of
each to:
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
<PAGE> 3
SCHEDULE "A"
[LOGO APPEARS HERE] SHAREHOLDER SERVICE AGREEMENT
A I M Distributors, Inc.
<TABLE>
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- - -------------------------------------------------------------------------------------
<S> <C> <C>
AIM Aggressive Growth Fund A Shares 0.25 July 1, 1992
AIM Balanced Fund A Shares 0.25 October 18, 1993
AIM Balanced Fund B Shares 0.25 October 18, 1993
AIM Blue Chip Fund 0.25 March 29, 1996
AIM Capital Development Fund 0.25 March 29, 1996
AIM Charter Fund A Shares 0.25 November 18, 1986
AIM Charter Fund B Shares 0.25 June 15, 1995
AIM Constellation Fund A Shares 0.25 September 9, 1986
AIM Global Aggressive Growth Fund A Shares 0.50 September 15, 1994
AIM Global Aggressive Growth Fund B Shares 0.25 September 15, 1994
AIM Global Growth Fund A Shares 0.50 September 15, 1994
AIM Global Growth Fund B Shares 0.25 September 15, 1994
AIM Global Income Fund A Shares 0.25 September 15, 1994
AIM Global Income Fund B Shares 0.25 September 15, 1994
AIM Intermediate Government Fund A Shares 0.25 July 1, 1992
AIM Intermediate Government Fund B Shares 0.25 September 1, 1993
AIM Growth Fund A Shares 0.25 July 1, 1992
AIM Growth Fund B Shares 0.25 September 1, 1993
AIM High Yield Fund A Shares 0.25 July 1, 1992
AIM High Yield Fund B Shares 0.25 September 1, 1993
AIM Income Fund A Shares 0.25 July 1, 1992
AIM Income Fund B Shares 0.25 September 1, 1993
AIM International Equity Fund A Shares 0.25 May 21, 1992
AIM International Equity Fund B Shares 0.25 September 15, 1994
AIM Limited Maturity Treasury Shares 0.15 December 2, 1987
AIM Money Market Fund A Shares 0.25 October 18, 1993
AIM Money Market Fund B Shares 0.25 October 18, 1993
AIM Money Market Fund C Shares 0.25 October 18, 1993
AIM Municipal Bond Fund A Shares 0.25 July 1, 1992
AIM Municipal Bond Fund B Shares 0.25 September 1, 1993
AIM Tax-Exempt Bond Fund of Connecticut 0.25 July 1, 1992
AIM Tax-Exempt Cash Fund 0.10 July 1, 1992
AIM Global Utilities Fund A Shares 0.25 July 1, 1992
AIM Global Utilities Fund B Shares 0.25 September 1, 1993
AIM Value Fund A Shares 0.25 July 1, 1992
AIM Value Fund B Shares 0.25 October 18, 1993
AIM Weingarten Fund A Shares 0.25 September 9, 1986
AIM Weingarten Fund B Shares 0.25 June 15, 1995
</TABLE>
*Frequency of Payments: Quarterly, B share payments begin after an initial
12 month holding period.
Minimum Payments: $50 (with respect to all funds in the aggregate.)
No payment pursuant to this Schedule is payable to a dealer, bank or other
service provider for the first year with respect to sales of $1 million or
more, at no load, in cases where A I M Distributors, Inc. has advanced the
service fee to the dealer, bank or other service provider.
<PAGE> 1
EXHIBIT 10(c)(1)
[LOGO APPEARS HERE] BANK SHAREHOLDER
A I M Distributors, Inc. SERVICE AGREEMENT
We desire to enter into an Agreement with A I M Distributors, Inc. (the
"Company") acting as agent for the "AIM Funds", for servicing of our agency
clients who are shareholders of, and the administration of such shareholder
accounts in the shares of the AIM Funds (hereinafter referred to as the
"Shares"). Subject to the Company's acceptance of this Agreement, the terms and
conditions of this Agreement shall be as follows:
1 We shall provide continuing personal shareholder and administration
services for holders of the Shares who are also our clients. Such services
to our clients may include, without limitation, some or all of the
following: answering shareholder inquiries regarding the Shares and the AIM
Funds; performing subaccounting; establishing and maintaining shareholder
accounts and records; processing and bunching customer purchase and
redemption transactions; providing periodic statements showing a
shareholder's account balance and the integration of such statements with
those of other transactions and balances in the shareholder's other
accounts serviced by us; forwarding applicable AIM Funds prospectuses, proxy
statements, reports and notices to our clients who are holders of Shares;
and such other administrative services as you reasonably may request, to
the extent we are permitted by applicable statute, rule or regulations to
provide such services. We represent that we shall accept fees hereunder
only so long as we continue to provide personal shareholder services to our
clients.
2 Shares purchased by us as agents for our clients will be registered (choose
one) (in our name or in the name of our nominee) (in the names of our
clients). The client will be the beneficial owner of the Shares purchased
and held by us in accordance with the client's instructions and the client
may exercise all applicable rights of a holder of such Shares. We agree to
transmit to the AIM Funds' transfer agent in a timely manner, all purchase
orders and redemption requests of our clients and to forward to each
client any proxy statements, periodic shareholder reports and other
communications received from the Company by us on behalf of our clients.
The Company agrees to pay all out-of-pocket expenses actually incurred by
us in connection with the transfer by us of such proxy statements and
reports to our clients as required by applicable law or regulation. We
agree to transfer record ownership of a client's Shares to the client
promptly upon the request of a client. In addition, record ownership will
be promptly transferred to the client in the event that the person or
entity ceases to be our client.
3 Within five (5) business days of placing a purchase order we agree to send
(i) a cashiers check to the Company, or (ii) a wire transfer to the AIM
Funds' transfer agent, in an amount equal to the amount of all purchase
orders placed by us on behalf of our clients and accepted by the Company.
4 We agree to make available to the Company, upon the Company's request, such
information relating to our clients who are beneficial owners of Shares and
their transactions in such Shares as may be required by applicable laws and
regulations or as may be reasonably requested by the Company. The names of
our customers shall remain our sole property and shall not be used by the
Company for any other purpose except as needed for servicing and
information mailings in the normal course of business to holders of the
Shares.
5 We shall provide such facilities and personnel (which may be all or any
part of the facilities currently used in our business, or all or any
personnel employed by us) as may be necessary or beneficial in carrying out
the purposes of this Agreement.
6 Except as may be provided in a separate written agreement between the
Company and us, neither we nor any of our employees or agents are
authorized to assist in distribution of any of the AIM Funds' shares except
those contained in the then current Prospectus applicable to the Shares;
and we shall have no authority to act as agent for the Company or the AIM
Funds. Neither the AIM Funds, A I M Advisors, Inc. nor A I M Distributors,
Inc. will be a party, nor will they be represented as a party, to any
agreement that we may enter into with our clients.
<PAGE> 2
7 In consideration of the services and facilities described herein, we shall
receive from the Company on behalf of the AIM Funds an annual service fee,
payable at such intervals as may be set forth in Schedule A hereto, of a
percentage of the aggregate average net asset value of the Shares owned
beneficially by our clients during each payment period, as set forth in
Schedule A hereto. We understand that this Agreement and the payment of
such service fees has been authorized and approved by the Boards of
Directors/Trustees of the AIM Funds, and is subject to limitations imposed
by the National Association of Securities Dealers, Inc. In cases where the
Company has advanced payments to us of the first year's fee for shares sold
with a contingent deferred sales charge, no payments will be made to us
during the first year the subject Shares are held.
8 The AIM Funds reserve the right, at their discretion and without notice, to
suspend the sale of any Shares or withdraw the sale of Shares.
9 We understand that the Company reserves the right to amend this Agreement
or Schedule A hereto at any time without our consent by mailing a copy of
an amendment to us at the address set forth below. Such amendment shall
become effective on the date specified in such amendment unless we elect to
terminate this Agreement within thirty (30) days of our receipt of such
amendment.
10 This Agreement may be terminated at any time by the Company on not less
than 15 days' written notice to us at our principal place of business. We,
on 15 days' written notice addressed to the Company at its principal place
of business, may terminate this Agreement, said termination to become
effective on the date of mailing notice to us of such termination. The
Company's failure to terminate for any cause shall not constitute a waiver
of the Company's right to terminate at a later date for any such cause.
This Agreement shall terminate automatically in the event of its assigment,
the term "assignment" for this purpose having the meaning defined in
Section 2(a)(4) of the Investment Company Act of 1940, as amended.
11 All communications to the Company shall be sent to it at Eleven Greenway
Plaza, Suite 1919, Houston, Texas, 77046-1173. Any notice to us shall be
duly given if mailed or telegraphed to us at this address shown on this
Agreement.
12 This Agreement shall become effective as of the date when it is executed
and dated below by the Company. This Agreement and all rights and
obligations of the parties hereunder shall be governed by and construed
under the laws of the State of Texas.
A I M DISTRIBUTORS, INC.
/S/ MICHAEL J. CEMO
Date:________________ By: X____________________________________________
The undersigned agrees to abide by the foregoing terms and conditions.
Date:________________ By: X____________________________________________
Signature
____________________________________________
Print Name Title
____________________________________________
Dealer's Name
____________________________________________
Address
____________________________________________
City State Zip
Please sign both copies and return one copy of
each to:
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
<PAGE> 3
SCHEDULE "A" TO BANK
[AIM LOGO APPEARS HERE] SHAREHOLDER SERVICE AGREEMENT
A I M Distributors, Inc.
<TABLE>
<CAPTION>
Fund Fee Rate* Plan Calculation Date
- - -------------------------------------------------------------------------------------
<S> <C> <C>
AIM Aggressive Growth Fund A Shares 0.25 July 1, 1992
AIM Balanced Fund A Shares 0.25 October 18, 1993
AIM Balanced Fund B Shares 0.25 October 18, 1993
AIM Blue Chip Fund 0.25 March 29, 1996
AIM Capital Development Fund 0.25 March 29, 1996
AIM Charter Fund A Shares 0.25 November 18, 1986
AIM Charter Fund B Shares 0.25 June 15, 1995
AIM Constellation Fund A Shares 0.25 September 9, 1986
AIM Global Aggressive Growth Fund A Shares 0.50 September 15, 1994
AIM Global Aggressive Growth Fund B Shares 0.25 September 15, 1994
AIM Global Growth Fund A Shares 0.50 September 15, 1994
AIM Global Growth Fund B Shares 0.25 September 15, 1994
AIM Global Income Fund A Shares 0.25 September 15, 1994
AIM Global Income Fund B Shares 0.25 September 15, 1994
AIM Intermediate Government Fund A Shares 0.25 July 1, 1992
AIM Intermediate Government Fund B Shares 0.25 September 1, 1993
AIM Growth Fund A Shares 0.25 July 1, 1992
AIM Growth Fund B Shares 0.25 September 1, 1993
AIM High Yield Fund A Shares 0.25 July 1, 1992
AIM High Yield Fund B Shares 0.25 September 1, 1993
AIM Income Fund A Shares 0.25 July 1, 1992
AIM Income Fund B Shares 0.25 September 1, 1993
AIM International Equity Fund A Shares 0.25 May 21, 1992
AIM International Equity Fund B Shares 0.25 September 15, 1994
AIM Limited Maturity Treasury Shares 0.15 December 2, 1987
AIM Money Market Fund A Shares 0.25 October 18, 1993
AIM Money Market Fund B Shares 0.25 October 18, 1993
AIM Money Market Fund C Shares 0.25 October 18, 1993
AIM Municipal Bond Fund A Shares 0.25 July 1, 1992
AIM Municipal Bond Fund B Shares 0.25 September 1, 1993
AIM Tax-Exempt Bond Fund of Connecticut 0.25 July 1, 1992
AIM Tax-Exempt Cash Fund 0.10 July 1, 1992
AIM Global Utilities Fund A Shares 0.25 July 1, 1992
AIM Global Utilities Fund B Shares 0.25 September 1, 1993
AIM Value Fund A Shares 0.25 July 1, 1992
AIM Value Fund B Shares 0.25 October 18, 1993
AIM Weingarten Fund A Shares 0.25 September 9, 1986
AIM Weingarten Fund B Shares 0.25 June 15, 1995
</TABLE>
*Frequency of Payments: Quarterly, B share payments begin after an initial
12 month holding period.
Minimum Payments: $50 (with respect to all funds in the aggregate.)
No payment pursuant to this Schedule is payable to a dealer, bank or other
service provider for the first year with respect to sales of $1 million or
more, at no load, in cases where A I M Distributors, Inc. has advanced the
service fee to the dealer, bank or other service provider.
<PAGE> 1
EXHIBIT 10(e)(1)
SERVICE AGREEMENT FOR
CERTAIN RETIREMENT PLANS
(THE AIM FAMILY OF FUNDS(R))
This Agreement is entered into as of the_____ of __________________,
199___, between _________________________________________________________ (the
"Plan Provider") and A I M Distributors, Inc. (the "Distributor").
RECITAL
-------
Plan Provider acts as a trustee and/or servicing agent for defined
contribution plans and/or deferred compensation plans (the "Plans") and invests
and reinvests such Plans' assets as specified by an investment adviser, sponsor
or administrative committee of the Plan (a "Plan Representative") generally
upon the direction of Plan beneficiaries (the "Participants").
Plan Provider and Distributor desire to facilitate the purchase and
redemption of shares (the "Shares") of the funds listed on Exhibit A hereto
(the "Fund" or "Funds"), registered investment companies distributed by
Distributor, on behalf of the Plans, through one or more accounts (not to
exceed one per Plan) in each Fund (individually an "Account" and collectively
the "Accounts"), subject to the terms and conditions of this Agreement.
Distributor shall, on behalf of the Funds, pay to Plan Provider a fee in
accordance with Exhibit A hereto.
AGREEMENT
---------
1. PRICING INFORMATION
Each Fund or its designee will furnish Plan Provider on each business
day that the New York Stock Exchange is open for business ("Business
Day"), with (i) net asset value information as of the close of trading
(currently 4:15 p.m. Eastern Time) on the New York Stock Exchange or
as at such later times at which a Fund's net asset value is calculated
as specified in such Fund's prospectus ("Close of Trading"), (ii)
dividend and capital gains information as it becomes available, and
(iii) in the case of income Funds, the daily accrual or interest rate
factor (mil rate). The Funds shall use their best efforts to provide
such information to Plan Provider by 6:00 p.m. Central Time on the
same Business Day.
2. ORDERS AND SETTLEMENT
Plan Provider will calculate order allocations among designated
investment media and transmit to Distributor orders to purchase or
redeem Shares for specified Accounts. Plan Provider agrees that
orders for net purchases or net redemptions of Shares derived from
instructions received in proper form by Plan Provider from Plan
Representatives prior to the Close of Trading on any given Business
Day will be processed that same evening and transmitted to Distributor
or its designee by 9:00 a.m. Central Time on the following Business
Day. Plan Provider agrees that payment for net purchases of Shares
attributable to all orders executed for the Accounts on a given
Business Day will be wired by Plan Provider or its designee no later
than 3:00 p.m. Central Time to a custodial account designated by
Distributor. Distributor agrees that payment for net redemptions of
Shares attributable to all orders executed for the Accounts on a given
Business Day will be wired
<PAGE> 2
by Distributor on the next Business Day after such redemption orders
are transmitted to Distributor or its designee no later than the close
of business on the next Business Day to an account designated by Plan
Provider.
Subject to Plan Provider's compliance with the foregoing, Plan
Provider will be considered agent for the Funds and the Business Day
on which instructions are received in proper form by Plan Provider
from Participants or Plan Representatives by the Close of Trading will
be the date as of which Shares will be purchased and redeemed as a
result of such instructions. Plan Provider will time and date stamp
instructions received from Participants or Plan Representatives and
will make such instructions and other records relating to the services
performed hereunder (the "Services") available for audit by
Distributor's auditors upon request. Instructions received in proper
form by Plan Provider from Participants or Plan Representatives after
the Close of Trading on any given Business Day shall be treated as if
received on the next following Business Day. Dividends and capital
gains distributions will be automatically reinvested on payable date
at net asset value in accordance with each Fund's then current
prospectus.
3. PARTICIPANT RECORD KEEPING
Record keeping and other services to Plan Participants shall be the
responsibility of the record keeper for the Plans and shall not be the
responsibility of the Distributor or its transfer agent. Distributor
will recognize each Plan as a single shareholder and as an unallocated
account in the Funds, and will not maintain separate accounts for Plan
participants.
4. ACCOUNT INFORMATION
Distributor will provide Plan Provider (a) daily confirmations of
Account activity within five Business Days after each day on which a
purchase or redemption of Shares is effected for the particular
Account, (b) if requested by Plan Provider, quarterly statements
detailing activity in each Account within fifteen Business Days after
the end of each quarter, and (c) such other reports as may be
reasonably requested by Plan Provider.
5. MAINTENANCE OF RECORDS
Each party shall maintain and preserve all records as required by law
to be maintained and preserved in connection with providing the
Services and in making Shares available to the Plans. Upon the
request of Distributor, the Plan Provider shall provide copies of all
records relating to the Funds as may reasonably be requested to enable
the Funds or their representatives to comply with any request of a
governmental body or self-regulatory organization.
6. COMPLIANCE WITH LAWS
At all times Plan Provider shall comply with all laws, rules and
regulations applicable to it by virtue of entering into this
Agreement, including but not limited to those applicable to a transfer
agent under the Federal securities laws, including, without
limitation, all prospectus delivery requirements. The parties agree
that Plan Provider may satisfy prospectus delivery
-2-
<PAGE> 3
requirements by sub-contracting with Plan Representatives. At all
times, Distributor and the Funds shall comply with all laws, rules and
regulations applicable to them by virtue of entering into this
Agreement. The Plan Provider and Plan Representatives, and not the
Distributor shall take such action as may be necessary so that the
transactions contemplated by this Service Agreement shall not be
"Prohibited Transactions" under section 406 of the Employee Retirement
Income Security Act of 1974, or section 4975 of the Internal Revenue
Code.
7. REPRESENTATIONS WITH RESPECT TO THE DISTRIBUTOR AND THE FUNDS
Plan Provider and its agents shall not make representations concerning
a Fund or Shares except those contained in the then current prospectus
of such Fund, in current sales literature furnished by Distributor to
Plan Provider, in publicly available databases, such as those
databases created by Standard & Poor's Corporation and Morningstar,
and in current sales literature created by Plan Provider and submitted
to and approved in writing by Distributor prior to its use.
8. EXPENSES
(a) Each party shall bear all expenses incidental to the
performance of its obligations under this Agreement.
(b) Each Fund shall pay the cost of registration of its shares
with the Securities and Exchange Commission and in states
where required. Each Fund shall distribute or cause to be
distributed to Plan Provider its proxy material, periodic Fund
reports to shareholders and other material as such Fund may
require to be sent to shareholders. The cost of preparing and
printing this material shall be paid by the applicable Fund or
Distributor, and the cost of distributing such items shall be
borne by Plan Provider or the Plan(s) Representatives.
9. RELATIONSHIP OF PARTIES
Except to the extent provided in Section 2, it is understood and
agreed that all Services performed hereunder by Plan Provider shall be
as an independent contractor and not as an employee or agent of
Distributor or any of the Funds, and none of the parties shall hold
itself out as an agent of any other party with the authority to bind
such party.
10. USE OF NAMES
Plan Provider and its affiliates will not, without the prior written
approval of Distributor, make public references to A I M Management
Group Inc. or any of its subsidiaries, or to the Funds. For purposes
of this provision, the public does not include Plan Providers'
representatives who are actively engaged in promoting the Funds. Any
brochure or other communication to the public that mentions the Funds
shall be submitted to the compliance officer of Distributor, or its
affiliates, for his written approval prior to use by Plan Provider or
its affiliates. Plan Provider shall provide copies to Distributor's
or its affiliates' compliance officer of any of Plan Provider's
regulatory filings that include any reference to A I M Management
Group Inc. or its subsidiaries or the Funds. If Plan Provider or its
affiliates
-3-
<PAGE> 4
should make unauthorized references or representations, Plan Provider
agrees to indemnify and hold harmless the Funds, A I M Management
Group Inc. and its subsidiaries from any claims, losses, expenses or
liability arising in any way out of or connected in any way with such
references or representations.
11. TERMINATION
(a) This Agreement may be terminated with respect to any Fund at
any time without payment of any penalty by the vote of a
majority of the directors of such Fund who are "disinterested
directors", as that term is defined in the Investment Company
Act of 1940, as amended (the "1940 Act"), or by a vote of a
majority of the Fund's outstanding shares, on sixty (60) days'
written notice. It will be terminated by any act which
terminates either the Fund's distribution agreement with the
Distributor, or any related agreement thereunder, and in any
event, it shall terminate automatically in the event of its
assignment as that term is defined in the 1940 Act.
(b) Either party may terminate this Agreement upon sixty (60)
days' prior written notice to the other party.
12. INDEMNIFICATION
(a) Plan Provider agrees to indemnify and hold harmless the
Distributor, its affiliates, the Funds, the Funds' investment
advisers, and each of their directors, officers, employees,
agents and each person, if any, who controls them within the
meaning of the Securities Act of 1933, as amended (the
"Securities Act"), (the "Distributor Indemnitees") against any
losses, claims, damages, liabilities or expenses to which a
Distributor Indemnitee may become subject insofar as those
losses, claims, damages, liabilities or expenses or actions in
respect thereof, arise out of or are based upon (i) Plan
Provider's negligence or willful misconduct in performing the
Services, (ii) any breach by Plan Provider of any material
provision of this Agreement, or (iii) any breach by Plan
Provider of a representation, warranty or covenant made in
this Agreement; and Plan Provider will reimburse the
Distributor Indemnitee for any legal or other expenses
reasonably incurred, as incurred, by them in connection with
investigating or defending such loss, claim or action. This
indemnity agreement will be in addition to any liability which
Plan Provider may otherwise have.
(b) Distributor agrees to indemnify and hold harmless Plan
Provider and its affiliates, and each of its directors,
officers, employees, agents and each person, if any, who
controls Plan Provider within the meaning of the Securities
Act (the "Plan Provider Indemnitees") against any losses,
claims, damages, liabilities or expenses to which a Plan
Provider Indemnitee may become subject insofar as such losses,
claims, damages, liabilities or expenses (or actions in
respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact
contained in the Registration Statement or Prospectus of a
Fund, or the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to
make statements therein not misleading, (ii) any breach by
Distributor of any material provision of this Agreement, (iii)
Distributor's negligence
-4-
<PAGE> 5
or willful misconduct in carrying out its duties and
responsibilities under this Agreement, or (iv) any breach by
Distributor of a representation, warranty or covenant made in
this Agreement; and Distributor will reimburse the Plan
Provider Indemnitees for any legal or other expenses
reasonably incurred, as incurred, by them, in connection with
investigating or defending any such loss, claim or action.
This indemnity agreement will be in addition to any liability
which Distributor may otherwise have.
(c) If any third party threatens to commence or commences any
action for which one party (the "Indemnifying Party") may be
required to indemnify another person hereunder (the
"Indemnified Party"), the Indemnified Party shall promptly
give notice thereof to the Indemnifying Party. The
Indemnifying Party shall be entitled, at its own expense and
without limiting its obligations to indemnify the Indemnified
Party, to assume control of the defense of such action with
counsel selected by the Indemnifying Party which counsel shall
be reasonably satisfactory to the Indemnified Party. If the
Indemnifying Party assumes the control of the defense, the
Indemnified Party may participate in the defense of such claim
at its own expense. Without the prior written consent of the
Indemnified Party, which consent shall not be withheld
unreasonably, the Indemnifying Party may not settle or
compromise the liability of the Indemnified Party in such
action or consent to or permit the entry of any judgment in
respect thereof unless in connection with such settlement,
compromise or consent each Indemnified Party receives from
such claimant an unconditional release from all liability in
respect of such claim.
13. NOTICE
Each notice required by this Agreement shall be given in writing and
delivered personally or mailed by certified mail or courier service to
the other party at the following address or such other address as each
party may give notice to the other.
If to Plan Provider, to:
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
If to Distributor or any Fund, to:
Michael J. Cemo, President
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
-5-
<PAGE> 6
and
J. Abbott Sprague, President
Fund Management Company
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
with a copy to the General Counsel of Distributor.
14. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Texas applicable to agreements fully
executed and to be performed therein.
15. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each party represents that it is free to enter into this Agreement and
that by doing so it will not breach or otherwise impair any other
agreement or understanding with any other person, corporation or other
entity. Plan Provider further represents, warrants, and covenants
that:
(a) it has full power and authority under applicable law, and has
taken all action necessary, to enter into and perform this
Agreement and the person executing this Agreement on its
behalf is duly authorized and empowered to execute and deliver
this Agreement;
(b) it is registered as a transfer agent pursuant to Section 17A
of the Securities Exchange Act of 1934, as amended (the "1934
Act"), or is exempt from such registration;
(c) the arrangements provided for in this Agreement will be
disclosed to the Plan Representatives;
(d) it is registered as a broker-dealer under the 1934 Act or any
applicable state securities laws, or, including as a result of
entering into and performing the services set forth in this
Agreement, is exempt from such registration; and
(e) this Agreement, when executed and delivered, shall constitute
the valid, legal and binding obligation of Plan Provider,
enforceable in accordance with its terms.
Distributor further represents, warrants and covenants, that:
(a) it has full power and authority under applicable law,
and has taken all action necessary, to enter into and
perform this Agreement and the person executing this
Agreement on its behalf is duly authorized and
empowered to execute and deliver this Agreement;
-6-
<PAGE> 7
(b) it is registered as a broker-dealer under the 1934
Act and any applicable state securities laws;
(c) the Funds' advisor(s) are registered as an investment
adviser under the Investment Advisers Act of 1940,
the Funds are registered as investment companies
under the Investment Company Act of 1940 and Fund
Shares are registered under the Securities Act of
1933; and
(d) this Agreement, when executed and delivered, shall
constitute the valid, legal and binding obligation of
Distributor, enforceable in accordance with its
terms.
16. COMPLETE AGREEMENT
This Agreement contains the full and complete understanding of the
parties and supersedes all prior representations, promises,
statements, arrangements, agreements, warranties and understandings
between the parties with respect to the subject matter hereof, whether
oral or written, express or implied.
17. MODIFICATION
This Agreement may be modified or amended, and the terms of this
Agreement may be waived, only by a writing signed by each of the
parties.
18. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same Agreement.
19. ASSIGNMENT
This Agreement shall not be assigned by a party hereto, without the
prior written consent of the other parties hereto, except that a party
may assign this Agreement to an affiliate having the same ultimate
ownership as the assigning party without such consent.
20. SURVIVAL
The provisions of Sections 5, 10, and 12 shall survive termination of
this Agreement.
-7-
<PAGE> 8
21. NON-EXCLUSIVITY
Each of the parties acknowledges and agrees that this Agreement and
the arrangement described herein are intended to be non-exclusive and
that each of the parties is free to enter into similar agreements and
arrangements with other entities.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by
their duly authorized officers as of this ______ day of ______________________,
19_____.
_____________________________________________
(PLAN PROVIDER)
By: _________________________________________
Print Name: _________________________________
Title: ______________________________________
A I M DISTRIBUTORS, INC.
(DISTRIBUTOR)
By: _________________________________________
Print Name: _________________________________
Title: ______________________________________
-8-
<PAGE> 9
EXHIBIT A
For the term of this Agreement, Distributor, or its affiliates, shall
pay Plan Provider the following amounts for each of the following Funds with
respect to the average daily net asset value of the Plans' balances for the
prior quarter:
<TABLE>
<CAPTION>
FUND ANNUAL FEE
- - ---- ----------
<S> <C>
AIM Equity Funds, Inc. (Class A Shares Only)
- - --------------------------------------------
AIM Aggressive Growth Fund* .25%
AIM Blue Chip Fund .25%
AIM Capital Development Fund .25%
AIM Charter Fund .25%
AIM Constellation Fund .25%
AIM Weingarten Fund .25%
AIM Funds Group (Class A Shares Only)
- - -------------------------------------
AIM Balanced Fund .25%
AIM Global Utilities Fund .25%
AIM Growth Fund .25%
AIM High Yield Fund .25%
AIM Income Fund .25%
AIM Intermediate Government Fund .25%
AIM Municipal Bond Fund .25%
AIM Value Fund .25%
AIM International Funds, Inc. (Class A Shares Only)
- - ---------------------------------------------------
AIM Global Aggressive Growth Fund .25%
AIM Global Growth Fund .25%
AIM Global Income Fund .25%
AIM International Equity Fund .25%
AIM Investment Securities Funds
- - -------------------------------
Limited Maturity Treasury Portfolio (AIM
Limited Maturity Treasury Shares) .15%
</TABLE>
Distributor or its affiliates shall calculate the amount of quarterly
payment and shall deliver to Plan Provider a quarterly statement showing the
calculation of the quarterly amounts payable to Plan provider. Payment to Plan
Provider shall occur within 30 days following the end of each quarter. All
parties agree that the payments referred to herein are for record keeping and
administrative services only and are not for legal, investment advisory or
distribution services.
* AIM Aggressive Growth Fund is currently closed to new investors.
<PAGE> 1
EXHIBIT 10(f)(1)
[LOGO APPEARS HERE] A I M DISTRIBUTORS, INC.
A I M Distributors, Inc. SHAREHOLDER SERVICE AGREEMENT
(BROKERS FOR BANK TRUST DEPARTMENTS)
_________________________, 19_____
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
Gentlemen:
We desire to enter into an Agreement with A I M Distributors, Inc. ("AIM
Distributors") as agent on behalf of the funds listed on Schedule A hereto (the
"Funds"), for the servicing of our clients who are shareholders of, and the
administration of accounts in, the Funds. We understand that this Shareholder
Service Agreement (the "Agreement") has been adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act") by each of the Funds,
under a Distribution Plan (the "Plan") adopted pursuant to said Rule, and is
subject to applicable rules of the National Association of Securities Dealers,
Inc. ("NASD"). This Agreement defines the services to be provided by us for
which we are to receive payments pursuant to the Plan. The Plan and the
Agreement have been approved by a majority of the directors or trustees of the
applicable Fund, including a majority of directors or trustees who are not
interested persons of the applicable Fund, and who have no direct or indirect
financial interest in the operation of the Plan or related agreements, by votes
cast in person at a meeting called for the purpose of voting on the Plan. Such
approval included a determination by the directors or trustees of the
applicable Fund, in the exercise of their reasonable business judgement and in
light of their fiduciary duties, that there is a reasonable likelihood that the
Plan will benefit the Fund and the holders of its Shares. The terms and
conditions of this Agreement shall be as follows:
1. To the extent that we provide continuing personal shareholder services
and administrative support services to our customers who may from time
to time own shares of the Funds of record or beneficially, including but
not limited to, forwarding sales literature, answering routine customer
inquiries regarding the Funds, assisting customers in changing dividend
options, account designations and addresses, and in enrolling into any
of several special investment plans offered in connection with the
purchase of the Funds' shares, assisting in the establishment and
maintenance of customer accounts and records and in the processing of
purchase and redemption transactions, investing dividends and capital
gains distributions automatically in shares of the Funds and providing
such other services as AIM Distributors or the customer may reasonably
request, you shall pay us a fee periodically. We represent that we
shall accept fees hereunder only so long as we continue to provide such
personal shareholder services.
2. We agree to transmit to AIM Distributors in a timely manner, all
purchase orders and redemption requests of our clients and to forward to
each client all proxy statements, periodic shareholder reports and other
communications received from AIM Distributors by
<PAGE> 2
Shareholder Service Agreement Page 2
(Brokers for Bank Trust Departments)
us relating to shares of the Funds owned by our clients. AIM
Distributors, on behalf of the Funds, agrees to pay all out-of-pocket
expenses actually incurred by us in connection with the transfer by us
of such proxy statements and reports to our clients as required under
applicable laws or regulations.
3. We agree to transfer to AIM Distributors in a timely manner as set forth
in the applicable prospectus, federal funds in an amount equal to the
amount of all purchase orders placed by us and accepted by AIM
Distributors. In the event that AIM Distributors fails to receive such
federal funds on such date (other than through the fault of AIM
Distributors), we shall indemnify the applicable Fund and AIM
Distributors against any expense (including overdraft charges) incurred
by the applicable Fund and/or AIM Distributors as a result of the
failure to receive such federal funds.
4. We agree to make available upon AIM Distributors's request, such
information relating to our clients who are beneficial owners of Fund
shares and their transactions in such shares as may be required by
applicable laws and regulations or as may be reasonably requested by AIM
Distributors.
5. We agree to transfer record ownership of a client's Fund shares to the
client promptly upon the request of a client. In addition, record
ownership will be promptly transferred to the client in the event that
the person or entity ceases to be our client.
6. Neither we nor any of our employees or agents are authorized to make any
representation to our clients concerning the Funds except those
contained in the then current prospectuses applicable to the Funds,
copies of which will be supplied to us by AIM Distributors; and we shall
have no authority to act as agent for any Fund or AIM Distributors.
Neither a Fund, nor A I M Advisors, Inc. ("AIM") will be a party, nor
will they be represented as a party, to any agreement that we may enter
into with our clients and neither a Fund nor AIM shall participate,
directly or indirectly, in any compensation that we may receive from our
clients in connection with our acting on their behalf with respect to
this Agreement.
7. In consideration of the services and facilities described herein, we
shall receive a maximum annual service fee and asset-based sales charge,
payable monthly, as set forth on Schedule A hereto. We understand that
this Agreement and the payment of such service fees and asset-based
sales charge has been authorized and approved by the Board of Directors
or Trustees of the applicable Fund, and that the payment of fees
thereunder is subject to limitations imposed by the rules of the NASD.
8. AIM Distributors reserves the right, in its discretion and without
notice, to suspend the sale of any Fund or withdraw the sale of shares
of a Fund, or upon notice to us, to amend this Agreement. We agree that
any order to purchase shares of the Funds placed by us after notice of
any amendment to this Agreement has been sent to us shall constitute our
agreement to any such amendment.
9. All communications to AIM Distributors shall be duly given if mailed to
<PAGE> 3
Shareholder Service Agreement Page 3
(Brokers for Bank Trust Departments)
A I M Distributors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas
77046-1173. Any notice to us shall be duly given if mailed to us at the
address specified by us in this Agreement or to such other address as we
shall have designated in writing to AIM Distributors.
10. This Agreement may be terminated at any time by AIM Distributors on not
less than 60 days' written notice to us at our principal place of
business. We, on 60 days' written notice addressed to AIM Distributors
at its principal place of business, may terminate this Agreement. AIM
Distributors may also terminate this Agreement for cause on violation
by us of any of the provisions of this Agreement, said termination to
become effective on the date of mailing notice to us of such
termination. AIM Distributors's failure to terminate for any cause
shall not constitute a waiver of AIM Distributors's right to terminate
at a later date for any such cause. This Agreement may be terminated
with respect to any Fund at any time by the vote of a majority of the
directors or trustees of such Fund who are disinterested directors or by
a vote of a majority of the Fund's outstanding shares, on not less than
60 days' written notice to us at our principal place of business. This
Agreement will be terminated by any act which terminates a Fund's
Distribution Agreement with AIM Distributors, the Selected Dealer
Agreement between us and AIM Distributors or a Fund's Distribution Plan,
and in any event, shall terminate automatically in the event of its
assignment by us, the term "assignment" for this purpose having the
meaning defined in Section 2(a)(4) of the 1940 Act.
11. We represent that our activities on behalf of our clients and pursuant
to this Agreement either (i) are not such as to require our registration
as a broker-dealer in the state(s) in which we engage in such
activities, or (ii) we are registered as a broker-dealer in the state(s)
in which we engage in such activities. We represent that we are
registered as a broker-dealer with the NASD if required under applicable
law.
12. This Agreement and all rights and obligations of the parties hereunder
shall be governed by and construed under the laws of the State of Texas.
This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which shall constitute the same
instrument. This Agreement shall not relieve us or AIM Distributors
from any obligations either may have under any other agreements between
us.
13. This Agreement shall become effective as of the date when it is executed
and dated by AIM Distributors.
<PAGE> 4
Shareholder Service Agreement Page 4
(Brokers for Bank Trust Departments)
The undersigned agrees to abide by the foregoing terms and conditions.
------------------------------------
(Firm Name)
------------------------------------
(Address)
------------------------------------
City/State/Zip/County
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Dated:
------------------------------
ACCEPTED:
A I M DISTRIBUTORS, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Dated:
-----------------------------------
Please sign both copies and return to:
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
<PAGE> 5
Shareholder Service Agreement Page 5
(Brokers for Bank Trust Departments)
SCHEDULE A
Funds Fees
- - ----- ----
AIM Equity Funds, Inc.
AIM Charter Fund (Retail Class)
AIM Constellation Fund (Retail Class)
AIM Weingarten Fund (Retail Class)
* AIM Aggressive Growth Fund
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Funds Group
AIM Balanced Fund
AIM Global Utilities Fund
AIM Growth Fund
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Value Fund
AIM International Funds, Inc.
AIM International Equity Fund
AIM Global Aggressive Growth Fund
AIM Global Growth Fund
AIM Global Income Fund
AIM Investment Securities Funds
Limited Maturity Treasury Portfolio
AIM Tax-Exempt Funds, Inc.
AIM Tax-Exempt Cash Fund
AIM Tax-Exempt Bond Fund of Connecticut
Intermediate Portfolio
__________________________________
*Shares of AIM Aggressive Growth Fund may only be sold to current
shareholders who maintain open accounts in AIM Aggressive Growth Fund.
<PAGE> 6
[LOGO APPEARS HERE] A I M DISTRIBUTORS, INC.
A I M Distributors, Inc. SHAREHOLDER SERVICE AGREEMENT
(BANK TRUST DEPARTMENTS)
_________________________, 19_____
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
Gentlemen:
We desire to enter into an Agreement with A I M Distributors, Inc. ("AIM
Distributors") as agent on behalf of the funds listed on Schedule A hereto (the
"Funds"), for the servicing of our clients who are shareholders of, and the
administration of accounts in, the Funds. We understand that this Shareholder
Service Agreement (the "Agreement") has been adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act") by each of the Funds,
under a Distribution Plan (the "Plan") adopted pursuant to said Rule, and is
subject to applicable rules of the National Association of Securities Dealers,
Inc. ("NASD"). This Agreement defines the services to be provided by us for
which we are to receive payments pursuant to the Plan. The Plan and the
Agreement have been approved by a majority of the directors or trustees of the
applicable Fund, including a majority of directors or trustees who are not
interested persons of the applicable Fund, and who have no direct or indirect
financial interest in the operation of the Plan or related agreements, by votes
cast in person at a meeting called for the purpose of voting on the Plan. Such
approval included a determination by the directors or trustees of the
applicable Fund, in the exercise of their reasonable business judgement and in
light of their fiduciary duties, that there is a reasonable likelihood that the
Plan will benefit the Fund and the holders of its Shares. The terms and
conditions of this Agreement shall be as follows:
1. To the extent that we provide continuing personal shareholder services
and administrative support services to our customers who may from time
to time own shares of the Funds of record or beneficially, including but
not limited to, forwarding sales literature, answering routine customer
inquiries regarding the Funds, assisting customers in changing dividend
options, account designations and addresses, and in enrolling into any
of several special investment plans offered in connection with the
purchase of the Funds' shares, assisting in the establishment and
maintenance of customer accounts and records and in the processing of
purchase and redemption transactions, investing dividends and capital
gains distributions automatically in shares of the Funds and providing
such other services as AIM Distributors or the customer may reasonably
request, you shall pay us a fee periodically. We represent that we
shall accept fees hereunder only so long as we continue to provide such
personal shareholder services.
2. We agree to transmit to AIM Distributors in a timely manner, all
purchase orders and redemption requests of our clients and to forward to
each client all proxy statements, periodic shareholder reports and other
communications received from AIM Distributors by
<PAGE> 7
Shareholder Service Agreement Page 2
(Bank Trust Departments)
us relating to shares of the Funds owned by our clients. AIM
Distributors, on behalf of the Funds, agrees to pay all out-of-pocket
expenses actually incurred by us in connection with the transfer by us
of such proxy statements and reports to our clients as required under
applicable laws or regulations.
3. We agree to make available upon AIM Distributors's request, such
information relating to our clients who are beneficial owners of Fund
shares and their transactions in such shares as may be required by
applicable laws and regulations or as may be reasonably requested by AIM
Distributors.
4. We agree to transfer record ownership of a client's Fund shares to the
client promptly upon the request of a client. In addition, record
ownership will be promptly transferred to the client in the event that
the person or entity ceases to be our client.
5. Neither we nor any of our employees or agents are authorized to make any
representation to our clients concerning the Funds except those
contained in the then current prospectuses applicable to the Funds,
copies of which will be supplied to us by AIM Distributors; and we shall
have no authority to act as agent for any Fund or AIM Distributors.
Neither a Fund, nor A I M Advisors, Inc. ("AIM") will be a party, nor
will they be represented as a party, to any agreement that we may enter
into with our clients and neither a Fund nor AIM shall participate,
directly or indirectly, in any compensation that we may receive from our
clients in connection with our acting on their behalf with respect to
this Agreement.
6. In consideration of the services and facilities described herein, we
shall receive a maximum annual service fee and asset-based sales charge,
payable monthly, as set forth on Schedule A hereto. We understand that
this Agreement and the payment of such service fees and asset-based
sales charge has been authorized and approved by the Board of Directors
or Trustees of the applicable Fund, and that the payment of fees
thereunder is subject to limitations imposed by the rules of the NASD.
7. AIM Distributors reserves the right, in its discretion and without
notice, to suspend the sale of any Fund or withdraw the sale of shares
of a Fund, or upon notice to us, to amend this Agreement. We agree that
any order to purchase shares of the Funds placed by us after notice of
any amendment to this Agreement has been sent to us shall constitute our
agreement to any such amendment.
8. All communications to AIM Distributors shall be duly given if mailed to
A I M Distributors, Inc., 11 Greenway Plaza, Suite 1919, Houston, Texas
77046-1173. Any notice to us shall be duly given if mailed to us at the
address specified by us in this Agreement or to such other address as we
shall have designated in writing to AIM Distributors.
9. This Agreement may be terminated at any time by AIM Distributors on not
less than 60 days' written notice to us at our principal place of
business. We, on 60 days' written notice addressed to AIM Distributors
at its principal place of business, may terminate this
<PAGE> 8
Shareholder Service Agreement Page 3
(Bank Trust Departments)
Agreement. AIM Distributors may also terminate this Agreement for cause
on violation by us of any of the provisions of this Agreement, said
termination to become effective on the date of mailing notice to us of
such termination. AIM Distributors's failure to terminate for any cause
shall not constitute a waiver of AIM Distributors's right to terminate
at a later date for any such cause. This Agreement may be terminated
with respect to any Fund at any time by the vote of a majority of the
directors or trustees of such Fund who are disinterested directors or by
a vote of a majority of the Fund's outstanding shares, on not less than
60 days' written notice to us at our principal place of business. This
Agreement will be terminated by any act which terminates a Fund's
Distribution Agreement with AIM Distributors, the Agreement for Purchase
of Shares of The AIM Family of Funds(R) between us and AIM Distributors
or a Fund's Distribution Plan, and in any event, it shall terminate
automatically in the event of its assignment by us, the term
"assignment" for this purpose having the meaning defined in Section
2(a)(4) of the 1940 Act.
10. We represent that our activities on behalf of our clients and pursuant
to this Agreement either (i) are not such as to require our registration
as a broker-dealer in the state(s) in which we engage in such
activities, or (ii) we are registered as a broker-dealer in the state(s)
in which we engage in such activities. We represent that we are
registered as a broker-dealer with the NASD if required under applicable
law.
11. This Agreement and the Agreement for Purchase of Shares of The AIM
Family of Funds(R) through Bank Trust Departments constitute the entire
agreement between us and AIM Distributors and supersede all prior oral
or written agreements between the parties hereto. This Agreement may be
executed in counterparts, each of which shall be deemed an original but
all of which shall constitute the same instrument.
12. This Agreement and all rights and obligations of the parties hereunder
shall be governed by and construed under the laws of the State of Texas.
13. This Agreement shall become effective as of the date when it is executed
and dated by AIM Distributors.
<PAGE> 9
Shareholder Service Agreement Page 4
(Bank Trust Departments)
The undersigned agrees to abide by the foregoing terms and conditions.
-----------------------------------------
(Firm Name)
-----------------------------------------
(Address)
-----------------------------------------
City/State/Zip/County
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
Dated:
----------------------------------
ACCEPTED:
A I M DISTRIBUTORS, INC.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
Dated:
----------------------------
Please sign both copies and return to:
A I M Distributors, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
<PAGE> 10
Shareholder Service Agreement Page 5
(Bank Trust Departments)
SCHEDULE A
<TABLE>
<CAPTION>
Funds Fees
----- ----
<S> <C>
AIM Equity Funds, Inc.
AIM Charter Fund (Retail Class)
AIM Constellation Fund (Retail Class)
AIM Weingarten Fund (Retail Class)
* AIM Aggressive Growth Fund
AIM Blue Chip Fund
AIM Capital Development Fund
AIM Funds Group
AIM Balanced Fund
AIM Global Utilities Fund
AIM Growth Fund
AIM High Yield Fund
AIM Income Fund
AIM Intermediate Government Fund
AIM Money Market Fund
AIM Municipal Bond Fund
AIM Value Fund
AIM International Funds, Inc.
AIM International Equity Fund
AIM Global Aggressive Growth Fund
AIM Global Growth Fund
AIM Global Income Fund
AIM Investment Securities Funds
Limited Maturity Treasury Portfolio
AIM Tax-Exempt Funds, Inc.
AIM Tax-Exempt Cash Fund
AIM Tax-Exempt Bond Fund of Connecticut
Intermediate Portfolio
</TABLE>
- - ----------------------------------
*Shares of AIM Aggressive Growth Fund may only be sold to current
shareholders who maintain open accounts in AIM Aggressive Growth Fund.
<PAGE> 1
EXHIBIT 11
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL]
December 29, 1995
AIM Equity Funds, Inc.
11 Greenway Plaza
Suite 1919
Houston, TX 77046
RE: SHARES OF AIM EQUITY FUNDS, INC.
Gentlemen:
We have acted as counsel to AIM Equity Funds, Inc., a Maryland
corporation (the "Company"), in connection with the proposed Agreement and Plan
of Reorganization (the "Agreement") between the Company and Baird Blue Chip
Fund, Inc., a Wisconsin corporation ("Baird Blue Chip"), and the consummation of
the transactions contemplated therein. The Agreement contemplates the
acquisition of substantially all of the assets of Baird Blue Chip by the Company
in exchange for Class A shares of Common Stock of the AIM Blue Chip Fund, a
portfolio of the Company, which shares will be issued directly by the Company to
the shareholders of Baird Blue Chip (the "Transaction"). Each shareholder of
Baird Blue Chip will receive that number of shares of AIM Blue Chip Fund (the
"Shares") representing interests with an aggregate net asset value equal to the
aggregate net asset value of his or her shares of Baird Blue Chip.
The opinion expressed below is based on the assumption that a
Registration Statement on Form N-14 with respect to the Shares ill have been
filed by the Company with the Securities and Exchange Commission and will have
become effective before the Transaction occurs.
Based on the foregoing, we are of the opinion that the Shares, when
issued by the Company directly to the shareholders of Baird Blue chip in
accordance with the terms and conditions of the Agreement, will be legally
issued, fully paid and nonassessable.
<PAGE> 2
AIM Equity Funds, Inc.
December 29, 1995
Page 2
We consent to the filing of this opinion as Exhibit 11 to the
Company's Registration Statement on Form N-14 and to the references to this firm
in such Registration Statement.
Very truly yours,
BALLARD SPAHR ANDREWS &
INGERSOLL
<PAGE> 1
EXHIBIT 12
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL]
December 29, 1995
Baird Blue Chip Fund, Inc.
777 Wisconsin Avenue
Milwaukee, Wisconsin 53202
AIM Blue Chip Fund
AIM Equity Funds, Inc.
11 Greenway Plaza
Suite 1919
Houston, TX 77046-1173
RE: PROPOSED TRANSFER OF ASSETS --
FEDERAL INCOME TAX CONSEQUENCES
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences to (1) Baird Blue Chip Fund, Inc. (the "Baird Fund") and (2) AIM
Blue Chip Fund (the "AIM Fund"), a portfolio of AIM Equity Funds, Inc. ("AIM
Equity"), in connection with the proposed transfer of substantially all of the
properties of the Baird Fund to the AIM Fund in exchange solely for voting
shares of the AIM Fund (the "Shares"), followed by the actual or constructive
distribution of the Shares received by the Baird Fund and of any money and other
property of the Baird Fund in complete liquidation and termination of the Baird
Fund (the "Transaction"), all pursuant to the Agreement and Plan of
Reorganization made December 20, 1995 by and between the Baird Fund and AIM
Equity on behalf of the AIM Fund (the "Agreement").
For purposes of this opinion, we have examined and rely upon the Agreement, the
description of the transaction set forth in the Registration Statement on Form
N-14 filed by AIM Equity on or about December 29, 1995 with the Securities and
Exchange Commission (the "Filing"), and such other documents and instruments as
we have deemed necessary or appropriate.
<PAGE> 2
Baird Blue chip Fund, Inc.
AIM Equity Funds, Inc.
December 29, 1995
Page 2
This opinion is based upon the assumptions that, as has been
represented to us, (a) there is no plan or intention on the part of the
shareholders of the Baird Fund to sell, exchange, transfer by gift or otherwise
dispose of a number of shares of the AIM Fund received in the Transaction that
would, when aggregated with transfers of shares of the Baird Fund prior to the
Closing Date (as defined in the Agreement) that are made in contemplation of the
Transaction, reduce the ownership by the shareholders of the Baird Fund to a
number of shares of the AIM Fund having a value, as of the Closing Date, of less
than fifty percent (50%) of the total value of all the shares of the Baird Fund
outstanding immediately prior to the Transaction; and (b) the AIM Fund and the
Baird Fund will each separately qualify and be treated as regulated investment
companies under Subchapter M of Chapter 1 of the Internal Revenue Code of 1986,
as amended (the "Code") for their respective taxable years that include the
Closing Date. If these assumptions are not correct, the Transaction may not
qualify as a tax-free reorganization and, therefore, our opinion could be
altered. For purposes of rendering this opinion, we have not been requested to
undertake, nor have we undertaken, any investigation or inquiry as to whether
these assumptions are and will be correct.
This opinion is based upon the Code, United States Treasury
regulations, judicial decisions and administrative rulings and pronouncements of
the Internal Revenue Service, all as in effect on the date hereof. This opinion
is conditioned upon (a) the Transaction taking place in the manner described in
the Agreement and (b) there being no change in the Code, United States Treasury
regulations, judicial decisions, or administrative rulings and pronouncements of
the Internal Revenue Service between the date hereof and the Closing Date.
This opinion is further conditioned upon our receiving such executed
letters of representation as we shall request. We have not been asked to, nor
have we undertaken to, verify the accuracy of any representations made to us and
the inaccuracy of any representation could alter our opinion. This opinion shall
be effective only at such time as we receive those letters and confirm our
opinion in writing on the Closing Date, and in the absence of such confirmation,
will be deemed to have been withdrawn.
Based upon and subject to the foregoing, it is our opinion that, for
federal income tax purposes:
1. The transfer of the assets of the Baird Fund to the AIM Fund in
exchange for the Shares, and the constructive distribution of the Shares to the
shareholders of the Baird Fund
<PAGE> 3
Baird Blue Chip Fund, Inc.
AIM Equity Funds, Inc.
December 29, 1995
Page 3
in complete liquidation of the Baird Fund, as provided in the Agreement, will
constitute a "reorganization" within the meaning of Section 368 (a) of the Code
and the Baird Fund and the AIM Fund will each be "a party to a reorganization"
within the meaning of Section 368 (b) of the Code;
2. In accordance with Section 361 (a) and Section 361 (c) (1) of the
Code, no gain or loss will be recognized by the Baird Fund as a result of such
transaction;
3. In accordance with Section 354 (a) (1) of the Code, no gain or
loss will be recognized by the shareholders of the Baird Fund on the
constructive distribution to them by the Baird Fund of the Shares in exchange
for their shares of the Baird Fund;
4. In accordance with Section 358 (a) of the Code, a shareholder's
basis for the Shares constructively distributed to him will be the same as his
basis for the shares of the Baird Fund surrendered in exchange therefor;
5. In accordance with Section 1223 (1) of the Code, a shareholder's
holding period of for the Shares constructively distributed to him will be
determined by including such shareholder's holding period for the shares of the
Baird Fund exchanged therefor, provided that the shareholder held such shares of
the Baird Fund as a capital asset;
6. In accordance with Section 1032 of the code, no gain or loss will
be recognized by the AIM Fund upon the receipt of assets of the Baird Fund in
exchange for the Shares;
7. In accordance with Section 1223 (2) of the Code, the basis to the
AIM Fund of the assets of the Baird Fund transferred to it will be, in each
instance, the same as the basis of such assets in the hands of the Baird Fund
immediately prior to the exchange;
8. In accordance with Section 1223 (2) of the Code, the holding
period of the AIM Fund with respect to the assets of the Baird Fund transferred
to it will include the holding period for such assets in the hands of the Baird
fund; and
9. In accordance with Section 381 (a) (2) of the Code, the AIM Fund
will succeed to and take into account the items of the Baird Fund described in
Section 381 (c) of the Code, subject to the conditions and limitations specified
in Sections 381 through 384 of the Code and the Treasury regulations thereunder.
<PAGE> 4
Baird Blue Chip Fund, Inc.
AIM Equity Funds, Inc.
December 29, 1995
Page 4
We express no opinion as to the tax consequences of the Transaction
except as expressly set forth above, or as to any transaction except the
Transaction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form N-14 referred to above and filed by AIM Equity
with the Securities and Exchange Commission.
Very truly yours,
BALLARD SPAHR ANDREWS &
INGERSOLL
<PAGE> 1
EXHIBIT 13 (d)(1)
AMENDMENT NO. 1
TO
MASTER ADMINISTRATIVE SERVICES AGREEMENT
The Master Administrative Services Agreement (the "Agreement"), dated
October 18, 1993, by and between AIM Equity Funds, Inc., a Maryland
corporation, and A I M Advisors, Inc., a Delaware corporation, is hereby
amended as follows:
Appendix A of the Agreement is hereby deleted in its entirety and
replaced with the following:
"AIM EQUITY FUNDS, INC.
APPENDIX A TO MASTER ADMINISTRATIVE SERVICES AGREEMENT
_______________________________, 1995
AIM Charter Fund
Institutional Class
Retail Class
AIM Constellation Fund
Institutional Class
Retail Class
AIM Weingarten Fund
Institutional Class
Retail Class
AIM Aggressive Growth Fund
AIM Blue Chip Fund
AIM Capital Development Fund"
All other terms and provisions of the Agreement not amended herein
shall remain in full force and effect.
Dated: ____________________________, 1995
AIM EQUITY FUNDS, INC.
Attest: ___________________________ By: _______________________________
Assistant Secretary President
(SEAL)
A I M ADVISORS, INC.
Attest: ___________________________ By: _______________________________
Assistant Secretary President
(SEAL)
<PAGE> 1
APPENDIX II
AGREEMENT
and
PLAN OF REORGANIZATION
for
BAIRD CAPITAL DEVELOPMENT FUND, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.1. Reorganization of Baird Capital Development . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2. Computation of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.3. Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4. Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6. Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7. Issuance of AIM Equity Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8. Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BAIRD CAPITAL DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.1. Incorporation: Qualification and Corporate Authority . . . . . . . . . . . . . . . . . . . 9
Section 3.2. Registration and Regulation of Baird Capital Development . . . . . . . . . . . . . . . . . 9
Section 3.3. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.4. No Material Adverse Changes; Contingent Liabilities . . . . . . . . . . . . . . . . . . . . 10
Section 3.5. BCD Shares; Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.6. Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.7. Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.8. No Breaches or Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.9. Authorizations or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.10. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.11. No Actions, Suits or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.12. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.13. Properties and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.14. Ineligible Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.15. Rule 17e-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.16. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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Section 3.17. Benefit and Employment Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.18. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.19. Voting Requirements; Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.20. State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.21. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.22. Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AIM EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.1. Incorporation: Qualification and Corporate Authority . . . . . . . . . . . . . . . . . . . 16
Section 4.2. Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.3. No Breaches or Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.4. Authorizations or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.5. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.6. No Actions, Suits or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.7. Ineligible Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.8. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.9. Registration and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.10. Registration of Portfolio Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.11. Representations Concerning the Reorganization . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.12. Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.1. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.2. Confidentiality and Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.4. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.5. Notice of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.6. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.7. Consents, Approvals and Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.8. Submission of Agreement to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.9. Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.10. Fiduciary Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.11. Section 15(f) of the 1940 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.1. Conditions Precedent of AIM Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.2. Mutual Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.3. Conditions Precedent of Baird Capital Development . . . . . . . . . . . . . . . . . . . . . 31
TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.2. Survival After Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.1. Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.2. Law Governing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.3. Binding Effect, Persons Benefiting, No Assignment . . . . . . . . . . . . . . . . . . . . . 34
Section 8.4. Obligation of AIM Equity Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.5. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.6. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.7. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.9. Entire Agreement; Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Schedule 3.12(a) - Contracts
Schedule 6.1(d) - Opinion of Counsel to Baird Capital Development
Schedule 6.2(g) - Tax Opinions
Schedule 6.3(d) - Opinion of Counsel to AIM Equity
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of December 20,
1995 (this "Agreement"), by and between Baird Capital Development Fund, Inc., a
Wisconsin corporation ("Baird Capital Development"), and AIM Equity Funds,
Inc., a Maryland corporation ("AIM Equity"), acting on behalf of AIM Capital
Development Fund (the "Portfolio").
WITNESSETH
WHEREAS, Baird Capital Development is an investment company
registered with the Securities and Exchange Commission (the "SEC") under the
Investment Company Act (as defined below); and
WHEREAS, AIM Equity is an investment company registered with
the SEC under the Investment Company Act that offers separate classes of its
shares representing interests in several investment portfolios for sale to the
public; and
WHEREAS, Baird Capital Development owns securities in which
the Portfolio is permitted to invest; and
WHEREAS, Baird Capital Development desires to provide for its
reorganization through the transfer of substantially all of its assets to the
Portfolio in exchange for shares of the Portfolio issued in the manner set
forth in this Agreement; and
WHEREAS, this Agreement is intended to be and is adopted as a
Plan of Reorganization and Liquidation within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and
the agreements and undertakings of AIM Equity and Baird Capital Development
contained in this Agreement, AIM Equity and Baird Capital Development agree as
follows:
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ARTICLE I
DEFINITIONS
Section 1.1. Definitions. (a) For all purposes in this
Agreement, the following terms shall have the respective meanings set forth in
this Section 1.1 (such definitions to be equally applicable to both the
singular and plural forms of the terms herein defined):
"Acquisition Proposal" means, except for the transactions
contemplated hereby, any proposal with respect to a merger, reorganization,
consolidation, share exchange or similar transaction involving Baird Capital
Development, or any purchase of all or any significant portion of the assets of
Baird Capital Development, or any equity interest in Baird Capital Development.
"AEF Registration Statement" means the registration statement
on Form N-1A of AIM Equity, as amended, Registration No. 2-25469/811-1424, that
is applicable to the Portfolio.
"Advisers Act" means the Investment Advisers Act of 1940, as
amended, and all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in
Section 2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization
together with all schedules and exhibits attached hereto and all amendments
hereto and thereof.
"AIM Equity" means AIM Equity Funds, Inc., a Maryland
corporation.
"Baird Capital Development" means Baird Capital Development
Fund, Inc., a Wisconsin corporation.
"BCD Financial Statements" shall have the meaning set forth in
Section 3.3 of this Agreement.
"BCD Shareholders" means the holders of record as of the
Closing Date of the issued and outstanding shares of the capital stock of Baird
Capital Development.
"BCD Shareholders Meeting" means a meeting of the shareholders
of Baird Capital Development convened in accordance with applicable law and the
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articles of incorporation of Baird Capital Development to consider and vote
upon the approval of this Agreement and the transactions contemplated by this
Agreement.
"BCD Shares" means the issued and outstanding shares of the
capital stock of Baird Capital Development.
"Benefit Plan" means any material "employee benefit plan" (as
defined in Section 3(3) of ERISA) and any material bonus, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, vacation, retirement, profit sharing, welfare plans or
other plan, arrangement or understanding maintained or contributed to by Baird
Capital Development, or otherwise providing benefits to any current or former
employee, officer or director of Baird Capital Development.
"Closing" means the transfer of the assets of Baird Capital
Development against the delivery of Portfolio Shares directly to the
shareholders of Baird Capital Development as described in Section 2.1 of this
Agreement.
"Closing Date" means March 29, 1996, or such other date as the
parties may mutually determine.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall have the meaning set forth in
Section 5.2(a) of this Agreement.
"Custodian" means State Street Bank and Trust Company acting
in its capacity as custodian for the assets of the Portfolio.
"Effective Time" shall mean 2:00 p.m. Central Time on the
Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities and Exchange Act of 1934,
as amended, and all rules and regulations adopted by the SEC pursuant thereto.
"Excluded Assets" shall have the meaning set forth in Section
2.3 of this Agreement.
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"Governmental Authority" means any foreign, United States or
state government, government agency, department, board, commission (including
the SEC) or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the National Association of
Securities Dealers, Inc., the Commodities and Futures Trading Commission, the
National Futures Association, the Investment Management Regulatory Organization
Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of
1940, as amended, and all rules and regulations adopted by the SEC pursuant
thereto.
"Lien" means any pledge, lien, security interest, charge,
claim or encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a
change in the condition (financial or otherwise), properties, assets or
prospects of an entity having an adverse monetary effect in an amount equal to
or greater than $50,000.
"Person" means an individual or a corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
"Portfolio" means AIM Capital Development Fund, an investment
portfolio of AIM Equity.
"Portfolio Shares" means shares of common stock of AIM Equity,
par value $.001, each representing an interest in the Portfolio.
"Reorganization" means the acquisition of certain of the
assets of Baird Capital Development by the Portfolio in consideration of the
issuance of Portfolio Shares directly to BCD Shareholders as described in this
Agreement.
"Required BCD Shareholder Vote" shall have the meaning set
forth in Section 3.19 of this Agreement.
"Return" means any return, report or form or any attachment
thereto required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange
Commission.
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<PAGE> 9
"Securities Act" means the Securities Act of 1933, as amended,
and all rules and regulations adopted by the SEC pursuant thereto.
"Tax" means any tax or similar governmental charge, impost or
levy (including, without limitation, income taxes (including, without
limitation, alternative minimum tax and estimated tax), franchise taxes,
transfer taxes or fees, sales taxes, use taxes, gross receipts taxes, value
added taxes, employment taxes, excise taxes, ad valorem taxes, property taxes,
withholding taxes, payroll taxes, minimum taxes, or windfall profit taxes),
together with any related penalties, fines, additions to tax or interest,
imposed by the United States or any state, county, local or foreign government
or subdivision or agency thereof.
"Valuation Date" shall have the meaning set forth in Section
2.4 of this Agreement.
ARTICLE II
TRANSFER OF ASSETS
Section 2.1. Reorganization of Baird Capital Development.
At the Effective Time, all of the assets of Baird Capital Development, except
the Excluded Assets, shall be delivered to the Custodian for the account of the
Portfolio in exchange for, and against delivery by AIM Equity directly to the
BCD Shareholders at the opening of business on the Closing Date of a number of
Portfolio Shares (including, if applicable, fractional shares rounded to the
nearest thousandth) having an aggregate net asset value equal to the net value
of the assets of Baird Capital Development so transferred, assigned and
delivered, all determined and adjusted as provided in Section 2.2 below. Upon
delivery of such assets, the Portfolio will receive good and marketable title
to such assets free and clear of all Liens.
Section 2.2. Computation of Net Asset Value.
(a) The net asset value of the Portfolio Shares and the
net value of the assets of Baird Capital Development subject to this Agreement
shall, in each case, be determined as of the close of business on the NYSE on
the Valuation Date.
(b) The net asset value of the Portfolio Shares shall be
computed in the manner set forth in accordance with the policies and procedures
of the Portfolio as described in the AEF Registration Statement.
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<PAGE> 10
(c) The net value of the assets of Baird Capital
Development subject to this Agreement shall be computed by AIM Equity and shall
be subject to adjustment by the amount, if any, agreed to by Baird Capital
Development and AIM Equity. In determining the value of the securities
transferred by Baird Capital Development to the Portfolio, each security shall
be priced in accordance with the policies and procedures of the Portfolio as
described in the AEF Registration Statement. For such purposes, market quotes
and the security characteristics relating to establishing such quotes shall be
determined by AIM Equity, with the approval of Baird Capital Development.
Securities for which market quotes are not available shall be valued as
mutually agreed by AIM Equity and Baird Capital Development, provided that such
value is consistent with the pricing procedures adopted by AIM Equity. All
computations shall be made by AIM Equity in cooperation with the auditors of
AIM Equity and the auditors of Baird Capital Development, who will apply
certain procedures agreed to by AIM Equity and Baird Capital Development to
test such computations.
Section 2.3. Excluded Assets. There shall be deducted
from the assets of Baird Capital Development described in Section 2.1 all
organizational expenses, any prepaid expenses that would not have value to the
Portfolio and cash in an amount estimated by Baird Capital Development to be
sufficient to pay all the liabilities of Baird Capital Development, including,
without limitation, (i) amounts owed or to be owed to any BCD Shareholder,
including declared but unpaid dividends, (ii) accounts payable, taxes and other
accrued and unpaid expenses, if any, incurred in the normal operation of its
business up to and including the Closing Date and (iii) the costs and expenses
incurred by Baird Capital Development in making and carrying out the
transactions contemplated by this Agreement.
Section 2.4. Valuation Date. The assets of Baird Capital
Development and the net asset value per share of the Portfolio Shares shall be
valued as of the close of business on the NYSE on the business day next
preceding the Closing Date (the "Valuation Date"). The stock transfer books of
Baird Capital Development will be permanently closed as of the close of
business on the Valuation Date and only requests for the redemption of shares
of Baird Capital Development received in proper form prior to the close of
trading on the NYSE on the Valuation Date shall be accepted by Baird Capital
Development. Redemption requests thereafter received by Baird Capital
Development shall be deemed to be redemption requests for Portfolio Shares
(assuming that the transactions contemplated by this Agreement have been
consummated) to be distributed to BCD Shareholders under this Agreement.
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<PAGE> 11
Section 2.5. Delivery.
(a) Assets held by Baird Capital Development shall be
delivered by Baird Capital Development to the Custodian on the Closing Date.
No later than three (3) business days preceding the Closing Date Baird Capital
Development shall instruct its custodian to make such delivery to the
Custodian. Baird Capital Development shall further instruct its custodian that
any trade made by Baird Capital Development during the three day period before
the Closing Date shall settle at the Custodian. The assets so delivered shall
be duly endorsed in proper form for transfer in such condition as to constitute
a good delivery thereof, in accordance with the custom of brokers, and shall be
accompanied by all necessary state stock transfer stamps, if any, or a check
for the appropriate purchase price thereof. Cash held by Baird Capital
Development (other than cash held as part of the Excluded Assets) shall be
delivered at the Effective Time and shall be in the form of currency or wire
transfer in Federal funds, payable to the order of the account of the Portfolio
at the Custodian.
(b) If, on the Closing Date, Baird Capital Development is
unable to make delivery in the manner contemplated by Section 2.5(a) of
securities held by Baird Capital Development for the reason that any of such
securities purchased prior to the Closing Date have not yet been delivered to
Baird Capital Development, its broker or brokers, then, AIM Equity shall waive
the delivery requirements of Section 2.5(a) with respect to said undelivered
securities, if Baird Capital Development has delivered to the Custodian by or
on the Closing Date and with respect to said undelivered securities, executed
copies of an agreement of assignment and escrow agreement and due bills
executed on behalf of said broker or brokers, together with such other
documents as may be required by AIM Equity or the Custodian, including brokers'
confirmation slips.
Section 2.6. Dissolution. As soon as reasonably
practicable after the Closing Date, Baird Capital Development shall pay or make
provisions for all of its debts, liabilities and taxes and distribute all
remaining assets to the BCD Shareholders, and Baird Capital Development shall
be dissolved and deregistered under the Investment Company Act and under
applicable state laws, provided that, in the event that the transactions
contemplated herein are not approved by the BCD Shareholders, Baird Capital
Development shall not be obligated to so dissolve and deregister.
Section 2.7. Issuance of AIM Equity Shares. At the
Closing Date, Baird Capital Development shall instruct AIM Equity that the pro
rata interest of each of BCD Shareholders of record as of the close of business
on the Valuation Date, as certified by Baird Capital Development's transfer
agent, in the Portfolio
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<PAGE> 12
Shares be registered on the books of AIM Equity in full and fractional shares
in the name of each BCD Shareholder, and AIM Equity agrees promptly to comply
with said instruction. All issued and outstanding shares of Baird Capital
Development's capital stock shall thereupon be canceled on the books of Baird
Capital Development. AIM Equity shall have no obligation to inquire as to the
validity, propriety or correctness of any such instruction, but shall, in each
case, assume that such instruction is valid, proper and correct. AIM Equity
shall record on its books the ownership of the Portfolio Shares by BCD
Shareholders and shall forward a confirmation of such ownership to the BCD
Shareholders. No redemption or repurchase of such shares credited to former
BCD Shareholders in respect of Baird Capital Development shares represented by
unsurrendered stock certificates shall be permitted until such certificates
have been surrendered to AIM Equity for cancellation, or if such certificates
are lost or misplaced, until lost certificate affidavits have been executed and
delivered to AIM Equity.
Section 2.8. Investment Securities.
(a) It is expressly understood that Baird Capital
Development may hereafter sell any securities owned by it in the ordinary
course of its business as a diversified, open-end, management investment
company. Upon written request by AIM Equity, Baird Capital Development shall
(i) prior to the Closing Date, dispose of equity securities held by it to
assure that AIM Equity does not own ten percent (10%) or more of the
outstanding voting securities of any issuer as a result of the Reorganization,
or (ii) cooperate with and assist AIM Equity in preparing and filing on the
Closing Date the notification and report form required by the Hart-Scott-Rodino
Antitrust Improvements Act, in which case the Closing shall be delayed until
the end of the waiting period prescribed by such act.
(b) On or prior to the Valuation Date, Baird Capital
Development shall deliver a list setting forth the securities it then owns
together with the respective Federal income tax bases thereof. Baird Capital
Development shall provide to AIM Equity on or before the Valuation Date,
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the
partial sale of any security transferred to the Portfolio hereunder. Such
records shall be made available by Baird Capital Development prior to the
Valuation Date for inspection by the Treasurer (or his designee) or the
auditors of AIM Equity upon reasonable request.
2.9. Liabilities and Expenses. The Portfolio shall not
assume any liabilities of Baird Capital Development and Baird Capital
Development shall use its
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<PAGE> 13
reasonable best efforts to discharge all known liabilities, as far as may be
possible, prior to the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BAIRD CAPITAL DEVELOPMENT
Baird Capital Development represents and warrants to AIM
Equity that:
Section 3.1. Incorporation: Qualification and Corporate
Authority. Baird Capital Development has been duly incorporated and is validly
existing and in active status under the laws of the State of Wisconsin with all
requisite corporate power and authority to conduct its business as presently
conducted.
Section 3.2. Registration and Regulation of Baird Capital
Development. Baird Capital Development is duly registered with the SEC as an
investment company under the Investment Company Act and all BCD Shares which
have been or are being offered for sale have been duly registered under the
Securities Act and have been duly registered, qualified or are exempt from
registration or qualification under the securities laws of each state or other
jurisdiction in which such shares have been or are being offered for sale, and
no action has been taken by Baird Capital Development to revoke or rescind any
such registration or qualification. Baird Capital Development is in compliance
in all material respects with all applicable laws, rules and regulations,
including, without limitation, the Investment Company Act, the Securities Act,
the Exchange Act and all applicable state securities laws. Baird Capital
Development is in compliance in all material respects with the applicable
investment policies and restrictions set forth in its registration statement
currently in effect. The value of the net assets of Baird Capital Development
is determined using portfolio valuation methods that comply in all material
respects with the requirements of the Investment Company Act and the policies
of Baird Capital Development and all purchases and redemptions of BCD Shares
have been effected at the net asset value per share calculated in such manner.
Section 3.3. Financial Statements. The books of account
and related records of Baird Capital Development fairly reflect in reasonable
detail its assets, liabilities and transactions in accordance with generally
accepted accounting principles applied on a consistent basis. The audited
financial statements dated September 30, 1995 of Baird Capital Development
previously delivered to AIM Equity (the "BCD Financial Statements") present
fairly in all
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material respects the financial position of Baird Capital Development as at the
dates indicated and the results of operations and cash flows for the periods
then ended in accordance with generally accepted accounting principles applied
on a consistent basis for the periods then ended.
Section 3.4. No Material Adverse Changes; Contingent
Liabilities. Since September 30, 1995, no material adverse change has occurred
in the financial condition, results of operations, business, assets or
liabilities of Baird Capital Development or the status of Baird Capital
Development as a regulated investment company under the Code, other than
changes resulting from any change in general conditions in the financial or
securities markets or the performance of any investments made by Baird Capital
Development or occurring in the ordinary course of business of Baird Capital
Development. There are no contingent liabilities of Baird Capital Development
not disclosed in the BCD Financial Statements which are required to be
disclosed in accordance with generally accepted accounting principles.
Section 3.5. BCD Shares; Liabilities.
(a) The BCD Shares have been duly authorized and validly
issued and are fully paid and non-assessable (except as provided in Wisconsin
Business Corporation Law Section 180.0622(2)(b)).
(b) There is no plan or intention by the shareholders of
Baird Capital Development who own five percent (5%) or more of the BCD Shares,
and to the knowledge of Baird Capital Development's management, the remaining
BCD Shareholders have no present plan or intention of selling, exchanging,
redeeming or otherwise disposing of a number of the Portfolio Shares received
by them in connection with the Reorganization that would reduce the BCD
Shareholders' ownership of Portfolio Shares to a number of shares having a
value, as of the Closing Date, of less than fifty percent (50%) of the value of
all of the formerly outstanding BCD Shares as of the same date. For purposes
of this Section 3.5, BCD Shares exchanged for cash or other property or
exchanged for cash in lieu of fractional shares of the Portfolio will be
treated as outstanding BCD Shares on the date of the Reorganization. Moreover,
BCD Shares and Portfolio Shares held by BCD Shareholders and otherwise sold,
redeemed or disposed of prior or subsequent to the Reorganization will be
considered in making this representation, except for BCD Shares or Portfolio
Shares which have been, or will be, redeemed by Baird Capital Development or
the Portfolio in the ordinary course of its business as an open-end,
diversified management investment company (or a series thereof) under the
Investment Company Act.
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(c) At the time of the Reorganization, Baird Capital
Development shall not have outstanding any warrants, options, convertible
securities or any other type of right pursuant to which any Person could
acquire BCD Shares, except for the right of investors to acquire BCD Shares at
net asset value in the normal course of its business as an open-end diversified
management investment company operating under the Investment Company Act.
(d) Throughout the five-year period ending on the Closing
Date, Baird Capital Development will have conducted its historic business
within the meaning of Section 1.368-1(d) of the Income Tax Regulations under
the Code in a substantially unchanged manner. In anticipation of the
Reorganization, Baird Capital Development will not dispose of assets that, in
the aggregate, will result in less than fifty percent (50%) of its historic
business assets being transferred to the Portfolio.
(e) Baird Capital Development does not have, and has not
had during the six (6) months prior to the date of this Agreement, any
employees, and shall not hire any employees from and after the date of this
Agreement through the Closing Date.
Section 3.6. Accountants. Price Waterhouse, LLP, which
has reported upon BCD Financial Statements for the period ended September 30,
1995, are independent public accountants as required by the Securities Act and
the Exchange Act.
Section 3.7. Binding Obligation. This Agreement has been
duly authorized, executed and delivered by Baird Capital Development and,
assuming this Agreement has been duly executed and delivered by AIM Equity and
approved by the BCD Shareholder, constitutes the legal, valid and binding
obligation of Baird Capital Development, enforceable against Baird Capital
Development in accordance with its terms, except as the enforceability hereof
may be limited by bankruptcy, insolvency, reorganization or similar laws
relating to or affecting creditors' rights generally or by general equity
principles (whether applied in a court of law or a court of equity and
including limitations on the availability of specific performance or other
equitable remedies).
Section 3.8. No Breaches or Defaults. The execution and
delivery of this Agreement by Baird Capital Development and performance by
Baird Capital Development of its obligations hereunder has been duly authorized
by all necessary corporate action on the part of Baird Capital Development,
other than BCD Shareholder approval, and (i) does not and, on the Closing Date,
will not result in any violation of the articles of incorporation or by-laws of
Baird Capital
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Development and (ii) does not and, will not on the Closing Date, result in a
breach of any of the terms or provisions of, or constitute (with or without the
giving of notice or the lapse of time or both) a default under, or give rise to
a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation or imposition
of any Lien upon any property or assets of Baird Capital Development (except
for such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Baird Capital Development is a party or by which it may be
bound or to which any of its properties may be subject; (B) any Permit; or (C)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over Baird Capital Development or
any of its properties. Baird Capital Development is not under the jurisdiction
of a court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
Section 3.9. Authorizations or Consents. Other than those
which shall have been obtained or made on or prior to the Closing Date and
those that must be made after the Closing Date to comply with Section 2.6 of
this Agreement, no authorization or approval or other action by, and no notice
to or filing with, any Governmental Authority will be required to be obtained
or made by Baird Capital Development in connection with the due execution and
delivery by Baird Capital Development of this Agreement and the consummation by
Baird Capital Development of the transactions contemplated hereby.
Section 3.10. Permits. Baird Capital Development has in
full force and effect all Federal, state, local and foreign governmental
approvals, consents, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights (collectively, "Permits") necessary for
it to conduct its business as presently conducted, and there has occurred no
default under any Permit, except for the absence of Permits and for defaults
under Permits the absence or default of which would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect. To the
knowledge of Baird Capital Development there are no proceedings relating to the
suspension, revocation or modification of any Permit, except for such that
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect.
Section 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, litigation or proceeding,
nor, to the knowledge of Baird Capital Development, has any litigation been
overtly threatened
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in writing or orally, against Baird Capital Development before any Governmental
Authority which questions the validity or legality of this Agreement or of the
actions contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no legal, administrative or arbitration
actions, suits, or proceedings instituted or pending or, to the knowledge of
Baird Capital Development, threatened in writing or, if probable of assertion,
orally against Baird Capital Development or affecting any property, asset,
interest, or right of Baird Capital Development, that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
There are not in existence on the date hereof any plea agreements, judgments,
injunctions, consents, decrees, exceptions or orders that were entered by,
filed with or issued by Governmental Authority relating to the conduct of the
business of Baird Capital Development affecting in any significant respect the
conduct of its business. Baird Capital Development is not, and has not been,
to the knowledge of Baird Capital Development, the target of any investigation
by the SEC or any state securities administrator.
Section 3.12. Contracts.
(a) Except for the contracts and agreements listed on Schedule
3.12(a), Baird Capital Development is not a party to any material contract,
debt arrangement, futures contract, plan, lease, franchise or permit of any
kind or nature whatsoever.
(b) Baird Capital Development is not in default under any
contract, agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its assets, business, or operations
may be bound or affected, or under which it or its assets, business or
operations receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to
the knowledge of Baird Capital Development, there has not occurred any event
that, with the lapse of time or the giving of notice or both, would constitute
such a default.
Section 3.13. Properties and Assets. Baird Capital
Development has good and marketable title to all properties and assets
reflected in BCD Financial Statements as owned by it, free and clear of all
Liens except as described in the BCD Financial Statements.
Section 3.14. Ineligible Persons. Except as previously
disclosed to AIM Equity, neither Baird Capital Development nor any "Affiliated
Person" of Baird Capital Development has been convicted of any felony or
misdemeanor,
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described in Section 9(a)(1) of the Investment Company Act, nor
has any Affiliated Person of Baird Capital Development been subject, or
presently is subject, to any disqualification that would be a basis for denial,
suspension or revocation of registration of an investment adviser under Section
203(e) of the Advisers Act or Rule 206(4)-4(b) thereunder or of a broker-dealer
under Section 15 of the Exchange Act, or for disqualification as an investment
adviser, employee, officer or director of an investment company under Section 9
of the Investment Company Act, and, to Baird Capital Development's knowledge,
there is no proceeding or investigation that is reasonably likely to become the
basis for any such disqualification, denial, suspension or revocation.
Section 3.15. Rule 17e-1. Baird Capital Development has
duly adopted procedures pursuant to Rule 17e-1 under the Investment Company
Act, to the extent applicable, and Baird Capital Development currently
complies and will comply with the requirements of Section 17(e) of the
Investment Company Act and Rule 17e-1 thereunder, to the extent applicable.
Section 3.16. Taxes.
(a) Baird Capital Development has elected to be treated
as a regulated investment company under Subchapter M of the Code. Baird
Capital Development has qualified as such for each taxable year since inception
and that has ended prior to the Closing Date and will have satisfied the
requirements of Section 851(b) of the Code for the period beginning on the
first day of its current taxable year and ending on the Closing Date. In order
to (i) insure continued qualification of Baird Capital Development as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Baird Capital Development arising by reason of undistributed
investment company taxable income or net taxable gain, Baird Capital
Development will declare to the BCD Shareholders of record on or prior to the
Valuation Date a dividend or dividends that, together with all such previous
dividends shall have the effect of distributing (A) all of its investment
company taxable income (determined without regard to any deductions for
dividends paid) for the taxable year ended September 30, 1995 and for the short
taxable year beginning on October 1, 1995 and ending on the Closing Date and
(B) all of its net capital gains realized in its taxable year ended September
30, 1995 and in such short taxable year (after reduction for any capital loss
carryover).
(b) Baird Capital Development has timely filed all
Returns required to be filed by it and all Taxes with respect thereto have been
paid, except where the failure so to file or so to pay, would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
Adequate provision has been made in the financial statements of Baird Capital
Development for all Taxes in
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respect of all periods ending on or before the date of such financial
statements, except where the failure to make such provisions would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No deficiencies for any Taxes have been proposed, assessed or
asserted in writing by any taxing authority against Baird Capital Development,
and no deficiency has been proposed, assessed or asserted, in writing, where
such deficiency would reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect. No waivers of the time to assess any such
Taxes are outstanding nor are any written requests for such waivers pending and
no Return of Baird Capital Development is currently being or has been audited
since September 30, 1990 with respect to income taxes (and since September 30,
1992 with respect to all other Taxes) by any Federal, state, local, or foreign
Tax authority.
(c) Baird Capital Development's fiscal year has not been
changed for tax purposes since September 30, 1990.
Section 3.17. Benefit and Employment Obligations. Baird
Capital Development has no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to under any
Benefit Plan, and has no obligation to provide unfunded deferred compensation
or other unfunded or self-funded benefits to any Person.
Section 3.18. Brokers. No broker, finder or similar
intermediary has acted for or on behalf of Baird Capital Development in
connection with this Agreement or the transactions contemplated hereby, and no
broker, finder, agent or similar intermediary is entitled to any broker's,
finder's or similar fee or other commission in connection therewith based on
any agreement, arrangement or understanding with Baird Capital Development or
any action taken by it.
Section 3.19. Voting Requirements; Dissenter's Rights. The
affirmative votes of a majority of the holders of the outstanding BCD Shares
(the "Required BCD Shareholder Vote") are the only votes of the holders of any
class or series of Baird Capital Development's capital stock necessary to
approve this Agreement and the transactions contemplated by this Agreement.
The BCD Shareholders may not exercise dissenter's rights granted under the
Wisconsin Business Corporation Law with respect to the Reorganization.
Section 3.20. State Takeover Statutes. No state takeover
statute or similar statute or regulation applies or purports to apply to the
Reorganization, this Agreement or any of the transactions contemplated by this
Agreement.
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Section 3.21. Books and Records. The books and records of
Baird Capital Development reflecting, among other things, the purchase and sale
of BCD Shares by BCD Shareholders, the number of issued and outstanding shares
owned by each BCD Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
Section 3.22. Prospectus. The current prospectus and
statement of additional information for Baird Capital Development as of the
date on which they were issued did not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date, do not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided, however, that no representation or warranty is made with
respect to written information provided by AIM Equity for inclusion in the
prospectus or statement of additional information of Baird Capital Development,
or any supplement thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AIM EQUITY
AIM Equity represents and warrants to Baird Capital
Development as follows:
Section 4.1. Incorporation: Qualification and Corporate
Authority. AIM Equity has been duly incorporated and is validly existing and
in good standing under the laws of Maryland, with all requisite corporate power
and authority to enter into this Agreement and perform its obligations
hereunder.
Section 4.2. Binding Obligation. This Agreement has been
duly authorized, executed and delivered by AIM Equity and, assuming this
Agreement has been duly executed and delivered by Baird Capital Development,
constitutes the legal, valid and binding obligation of AIM Equity, enforceable
against AIM Equity in accordance with its terms, except as the enforceability
hereof may be limited by bankruptcy, insolvency, reorganization or similar laws
relating to or affecting creditors' rights generally or by general equity
principles (whether applied in a court of law or a court of equity and
including limitations on the availability of specific performance or other
equitable remedies).
Section 4.3. No Breaches or Defaults. The execution and
delivery of this Agreement by AIM Equity and performance by AIM Equity of its
obligations hereunder have been duly authorized by all necessary corporate
action on the part of AIM Equity and (i) do not, and on the Closing Date will
not, result in
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any violation of the charter or by-laws of AIM Equity and (ii) does not, and on
the Closing Date will not, result in a breach of any of the terms or provisions
of, or constitute (with or without the giving of notice or the lapse of time or
both) a default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation or imposition of any Lien upon any property or assets of
the Portfolio (except for such breaches or defaults or Liens that would not
reasonably be expected, individually or in the aggregate, to adversely affect
the consummation of the Reorganization) under (A) any indenture, mortgage or
loan or any other material agreement or instrument to which AIM Equity is a
party or by which it may be bound which relates to the Portfolio or to which
any properties of the Portfolio may be subject; (B)any Permit; or (C) any
existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over AIM Equity or any of the
Portfolio's properties.
Section 4.4. Authorizations or Consents. Other than those
which shall have been obtained or made on or prior to the Closing Date, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by AIM
Equity in connection with the due execution and delivery by AIM Equity of this
Agreement and the consummation by AIM Equity of the transactions contemplated
hereby.
Section 4.5. Permits. AIM Equity has in full force and
effect all Permits necessary for it to conduct its business as presently
conducted as it relates to the Portfolio, and there has occurred no default
under any Permit, except for the absence of Permits and for defaults under
Permits the absence or default of which would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect. To the
knowledge of AIM Equity there are no proceedings relating to the suspension,
revocation or modification of any Permit, except for such that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
Section 4.6. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor,
to the knowledge of AIM Equity, has any litigation been overtly threatened in
writing or, if probable of assertion, orally, against AIM Equity before any
Governmental Authority which questions the validity or legality of this
Agreement or of the transactions contemplated hereby, or which seeks to prevent
the consummation of the transactions contemplated hereby, including the
Reorganization.
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(b) There are no legal, administrative or arbitration
actions, suits, or proceedings instituted or pending or, to the knowledge of
AIM Equity, threatened in writing or, if probable of assertion, orally against
AIM Equity or affecting any property, asset, interest, or right of the
Portfolio, that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. There are not in existence on the date
hereof any plea agreements, judgments, injunctions, consents, decrees,
exceptions or orders that were entered by, filed with or issued by Governmental
Authority relating to AIM Equity's conduct of the business of the Portfolio
affecting in any significant respect the conduct of such business. AIM Equity
is not, and has not been, to the knowledge of AIM Equity, the target of any
investigation by the SEC or any state securities administrator.
Section 4.7. Ineligible Persons. Neither AIM Equity nor
any "Affiliated Person" of AIM Equity has been convicted of any felony or
misdemeanor, described in Section 9(a)(1) of the Investment Company Act, nor
has any affiliated person of AIM Equity been subject, or presently is subject,
to any disqualification that would be a basis for denial, suspension or
revocation of registration of an investment adviser under Section 203(e) of the
Advisers Act or Rule 206(4)-4(b) thereunder or of a broker-dealer under Section
15 of the Exchange Act, or for disqualification as an investment adviser,
employee, officer or director of an investment company under Section 9 of the
Investment Company Act, and, to AIM Equity's knowledge, there is no proceeding
or investigation that is reasonably likely to become the basis for any such
disqualification, denial, suspension or revocation.
Section 4.8. Brokers. No broker, finder or similar
intermediary has acted for or on behalf of AIM Equity in connection with this
Agreement or the transactions contemplated hereby, and no broker, finder, agent
or similar intermediary is entitled to any broker's, finder's or similar fee or
other commission in connection therewith based on any agreement, arrangement or
understanding with AIM Equity or any action taken by AIM Equity.
Section 4.9. Registration and Regulation. AIM Equity is
registered with the SEC under the Investment Company Act as an open-end,
management, series, investment company and the Portfolio has elected to qualify
as a regulated investment company under Section 851 of the Code. On the
Closing Date the Portfolio will be in compliance in all material respects with
all applicable laws, rules and regulations, including, without limitation, the
Investment Company Act, the Securities Act, the Exchange Act and all applicable
state securities laws. On the Closing Date the Portfolio will be in compliance
in all material respects with the applicable investment policies and
restrictions set forth
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in its registration statement currently in effect. After the Closing Date the
value of the net assets of the Portfolio will be determined using portfolio
valuation methods that comply in all material respects with the requirements of
the Investment Company Act.
Section 4.10. Registration of Portfolio Shares.
(a) The authorized capital stock of AIM Equity consists
of 7,000,000,000 shares with a par value of $0.001 each.
(b) The Portfolio Shares of AIM Equity to be issued
pursuant to Section 2.7 shall on the Closing Date be duly registered under the
Securities Act by a Registration Statement on Form N-14 of AIM Equity then in
effect.
(c) The Portfolio Shares to be issued pursuant to Section
2.7 are duly authorized and on the Closing Date will be validly issued and
fully paid and non-assessable and will conform in all substantial respects to
the description thereof contained in the Registration Statement on Form N-14
then in effect. At the time of the Reorganization, the Portfolio shall not
have outstanding any warrants, options, convertible securities or any other
type of right pursuant to which any Person could acquire Portfolio Shares,
except for the right of investors to acquire Portfolio Shares at the public
offering price in the normal course of its business as an open-end diversified
management investment company operating under the Investment Company Act.
(d) The combined proxy statement/prospectus (the
"Combined Proxy Statement/Prospectus") which forms a part of AIM Equity's
Registration Statement on Form N-14 shall be furnished to Baird Capital
Development and BCD Shareholders entitled to vote at the BCD Shareholders
Meeting. The Combined Proxy Statement/Prospectus and related Statement of
Additional Information of the Portfolio, when they become effective, shall
conform in all material respects to the applicable requirements of the
Securities Act and the Investment Company Act and shall not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading, provided,
however, that no representation or warranty is made with respect to written
information provided by Baird Capital Development for inclusion in the Combined
Prospectus/Proxy Statement.
(e) The Portfolio Shares which AIM Equity intends to
offer for sale to the public after the Closing Date shall be duly registered
under the Securities Act by the AEF Registration Statement then in effect.
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Section 4.11. Representations Concerning the
Reorganization.
(a) AIM Equity has no plan or intention to reacquire any
of the Portfolio Shares issued in the Reorganization, except to the extent that
the Portfolio is required by the Investment Company Act to redeem any of its
shares presented for redemption.
(b) The Portfolio has no plan or intention to sell or
otherwise dispose of any of the assets of Baird Capital Development acquired in
the Reorganization, other than in the ordinary course of its business and to
the extent necessary to maintain its status as a "regulated investment company"
under the Code.
(c) Following the Reorganization, the Portfolio will
continue the "historic business" of Baird Capital Development (within the
meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code) or
use a significant portion of Baird Capital Development's historic assets in a
business.
(d) Upon consummation of the Reorganization, the
investment portfolios of AIM Equity, in the aggregate, will not own ten percent
or more of the voting securities any issuer.
Section 4.12. Prospectus. The prospectus and statement of
additional information for Baird Capital Development that will become effective
on the Closing Date will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided, however, that no
representation or warranty is made with respect to written information provided
by Baird Capital Development for inclusion in such prospectus or statement of
additional information, or any supplement thereto.
ARTICLE V
COVENANTS
Section 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including
the Closing Date (or, if earlier, the date upon which this Agreement is
terminated pursuant to Article VII), Baird Capital Development shall conduct
its businesses only in the ordinary course and substantially in accordance with
past practices, and shall use its reasonable best efforts to preserve intact
its business organization and
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material assets and maintain the rights, franchises and business and customer
relations necessary to conduct its businesses in the ordinary course in all
material respects. Without limiting the generality of the foregoing, Baird
Capital Development shall not do any of the following without the prior written
consent of AIM Equity, which consent shall not be unreasonably withheld:
(i) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock;
(ii) amend its articles of incorporation or by-laws;
(iii) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division
thereof or any assets that are material, individually or in the
aggregate, to Baird Capital Development taken as a whole, except
purchases of assets in the ordinary course of business consistent with
past practice, and except as permitted under Sections 5.9 and 5.10;
(iv) sell, lease or otherwise dispose of any of its material
properties or assets, or mortgage or otherwise encumber or subject to
any Lien any of its material properties or assets, other than in the
ordinary course of business;
(v) incur any indebtedness for borrowed money or guarantee
any indebtedness of another Person, issue or sell any debt securities
or warrants or other rights to acquire any debt securities of Baird
Capital Development, guarantee any debt securities of another Person,
enter into any "keep well" or other agreement to maintain any
financial statement condition of another Person, or enter into any
arrangement having the economic effect of any of the foregoing;
(vi) settle or compromise any income tax liability or make
any material tax election;
(vii) pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than in the ordinary course of
business;
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(viii) change its methods of accounting, except as required by
changes in generally accepted accounting principles as concurred in by
its independent auditors, or change its fiscal year;
(ix) make or agree to make any material severance,
termination, indemnification or similar payments except pursuant to
existing agreements; or
(x) adopt any Benefit Plan.
(b) From the date of this Agreement up to and including
the Closing Date (or, if earlier, the date upon which this Agreement is
terminated pursuant to Article VII), AIM Equity shall conduct the business of
the Portfolio only in the ordinary course and substantially in accordance with
past practices, and shall use its reasonable best efforts to preserve intact
its business organization and material assets and maintain the rights,
franchises and business and customer relations necessary to conduct the
business operations of the Portfolio in the ordinary course in all material
respects.
Section 5.2. Confidentiality and Announcements.
(a) As used herein, "Confidential Information" means all
information, whether oral, written or otherwise (including any information
furnished prior to the execution of this Agreement), furnished to AIM Equity,
or its directors, officers, partners, affiliates, employees, agents, advisors
or representatives (collectively "representatives") by Baird Capital
Development or its representatives relating to Baird Capital Development, and
all reports, analyses, compilations, studies and other materials prepared by
AIM Equity or its representatives (in whatever form maintained, whether
documentary, computer storage or otherwise) containing, reflecting or based
upon, in whole or in part, any such information or reflecting its review or
view of, or interest in, Baird Capital Development, a possible transaction with
Baird Capital Development or the Confidential Information. The term
"Confidential Information" does not include information which (i) is or becomes
generally available to the public other than as a result of disclosure by AIM
Equity, its representatives or anyone to whom AIM Equity or its representatives
transmits any Confidential Information, in breach of this Agreement or (ii) is
or becomes known or available to AIM Equity on a non-confidential basis from a
source (other than Baird Capital Development, or its representatives) who,
insofar as is known to AIM Equity after due inquiry, is not prohibited from
transmitting the information to AIM Equity or its representatives by a
contractual, legal, fiduciary or other obligation.
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(b) Subject to Section 5.2(c) below, AIM Equity
and its representatives shall keep the Confidential Information confidential
and shall not, without prior written consent of Baird Capital Development
disclose, in whole or in part, and will not use, Confidential Information,
directly or indirectly, for any purpose other than in connection with
evaluating the transaction contemplated by this Agreement. Moreover, AIM
Equity shall transmit Confidential Information to its representatives only if
and to the extent that such representatives need to know the Confidential
Information for the purpose of evaluating such transaction and, prior to being
furnished any Confidential Information, are informed by AIM Equity of the
confidential nature of the Confidential Information, are provided with a copy
of the provisions of this Section 5.2 and agree to be bound hereby. In any
event, AIM Equity shall be responsible for any actions by its representatives
which are not in accordance with the provisions hereof. AIM Equity agrees that
neither AIM Equity nor its representatives will make inquires of, or conduct
any discussions with, any representative of Baird Capital Development or
regarding the Confidential Information other than with the permission of Marcus
C. Low, Jr., Ronald J. Kruszewski or Glen F. Hackmann.
(c) In the event that AIM Equity, its
representatives or anyone to whom AIM Equity or its representatives supply the
Confidential Information are requested or required to disclose any Confidential
Information, AIM Equity agrees (i) to immediately notify Baird Capital
Development of the existence, terms and circumstances surrounding such a
request, (ii) to consult with Baird Capital Development on the advisability of
taking legally available steps to resist or narrow the Confidential Information
which, in the opinion of its counsel, AIM Equity is legally compelled to
disclose and (iii) to cooperate with any action by Baird Capital Development or
to obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the Confidential Information; provided,
however, that this Section 5.2(c) shall not prohibit AIM Equity or its
representatives from disclosing Confidential Information that consists of its
or their own work product to persons that have a need to know such information
in the ordinary course of business.
(d) Upon termination of this Agreement pursuant
to Article VII, and promptly upon request from Baird Capital Development
thereafter, AIM Equity shall redeliver to Baird Capital Development or destroy
all tangible Confidential Information and any other tangible material
containing, prepared on the basis of, or reflecting any information in the
Confidential Information (whether prepared by Baird Capital Development, its
advisors or otherwise), and neither AIM Equity nor its representatives will
retain any copies, extracts or other reproductions in whole or in part of such
tangible material. For purposes of this Agreement, "tangible" Confidential
Information shall include, without limitation, information
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<PAGE> 28
contained in printed, magnetic or other tangible media, or in information
storage and retrieval systems. At the request of Baird Capital Development,
compliance with the foregoing shall be certified in writing to Baird Capital
Development by an authorized officer supervising the same.
(e) Notwithstanding the other provisions of this
Section 5.2, promptly following execution and delivery of this Agreement, Baird
Capital Development and AIM Equity shall agree upon and release a mutually
acceptable press release and Baird Capital Development shall give any and all
notices required to be given by law. Except as described in the preceding
sentence and as required by law, prior to the Closing Date, none of Baird
Capital Development, AIM Equity or the parent or any affiliate of either will
issue any press release or make any other public statement with respect to this
Agreement, without the prior written consent of the other parties, which
consent shall not be unreasonably withheld.
(f) The provisions of this Section 5.2 shall
terminate on the closing of the Reorganization.
Section 5.3. Expenses. Baird Capital Development and AIM
Equity shall each bear their respective direct and indirect expenses incurred
in connection with this Agreement, the Reorganization and the other
transactions contemplated hereby.
Section 5.4. Further Assurances. Each of the parties
hereto shall execute such documents and other papers and perform such further
acts as may be reasonably required to carry out the provisions hereof and the
transactions contemplated hereby. Each such party shall, on or prior to the
Closing Date, use its reasonable best efforts to fulfill or obtain the
fulfillment of the conditions precedent to the consummation of the
Reorganization, including the execution and delivery of any documents,
certificates, instruments or other papers that are reasonably required for the
consummation of the Reorganization.
Section 5.5. Notice of Events. AIM Equity shall give
prompt notice to Baird Capital Development, and Baird Capital Development shall
give prompt notice to AIM Equity, of (i) the occurrence or nonoccurrence of any
event of which to the knowledge of AIM Equity or to the knowledge of Baird
Capital Development, the occurrence or non-occurrence of which would be likely
to result in any of the conditions specified in (x) in the case of AIM Equity,
Sections 6.1 and 6.2 or (y) in the case of Baird Capital Development, Sections
6.2 and 6.3, not being satisfied so as to permit the consummation of the
Reorganization and (ii) any material failure on its part, or on the part of the
other party hereto of which it has knowledge, to comply with or satisfy any
covenant, condition or agreement to be
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<PAGE> 29
complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.5 shall not limit or
otherwise affect the remedies available hereunder to any party.
Section 5.6. Access to Information.
(a) Baird Capital Development will, during regular business
hours and on reasonable prior notice, allow AIM Equity and its authorized
representatives reasonable access to employees, books and records of Baird
Capital Development; provided, however, that any such access shall not
significantly interfere with the business or operations of Baird Capital
Development.
(b) Any information made available to or obtained by AIM
Equity or its authorized representatives pursuant to subsection (a) above, or
otherwise in connection with this Agreement, shall be subject to the
confidentiality provisions described in Section 5.2 above.
(c) AIM Equity will, during regular business hours and on
reasonable prior notice, allow Baird Capital Development and its authorized
representatives reasonable access to the books and records of AIM Equity
pertaining to the assets of the Portfolio and to employees of AIM Equity with
knowledge thereof, provided, however, that any such access shall not
significantly interfere with the business or operations of AIM Equity.
Section 5.7. Consents, Approvals and Filings. Each of
Baird Capital Development and AIM Equity shall make all necessary filings, as
soon as reasonably practicable, including, without limitation, those required
under the Securities Act, the Exchange Act, the Investment Company Act and the
Advisers Act, in order to facilitate prompt consummation of the Reorganization
and the other transactions contemplated by this Agreement. In addition, each
of Baird Capital Development and AIM Equity shall use its reasonable best
efforts, and shall cooperate fully with each other (i) to comply as promptly as
reasonably practicable with all requirements of Governmental Authorities
applicable to the Reorganization and the other transactions contemplated herein
and (ii) to obtain as promptly as reasonably practicable all necessary permits,
orders or other consents of Governmental Authorities and consents of all third
parties necessary for the consummation of the Reorganization and the other
transactions contemplated herein. Each of Baird Capital Development and AIM
Equity shall use reasonable efforts to provide such information and
communications to Governmental Authorities as such Governmental Authorities may
request.
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Section 5.8. Submission of Agreement to Shareholders.
Baird Capital Development shall take all action necessary in accordance with
applicable law and its articles of incorporation and by-laws to convene the BCD
Shareholders Meeting. Baird Capital Development shall, through its Board of
Directors, recommend to the BCD Shareholders approval of this Agreement and the
other transactions contemplated by this Agreement, except to the extent
provided in Section 5.10 hereof. Baird Capital Development shall use its
reasonable best efforts to hold the BCD Shareholders Meeting as soon as
practicable after the date hereof.
Section 5.9. Acquisition Proposals. Baird Capital
Development shall not, nor shall it authorize any officer, director or employee
of, or any investment banker, attorney or other advisor or representative of
Baird Capital Development to, directly or indirectly (i) solicit, initiate or
encourage the submission of any Acquisition Proposal or (ii) participate in any
discussions or negotiations regarding, or furnish to any Person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal, and Baird Capital Development shall promptly
terminate any such discussions with any Person that has expressed or expresses
an interest in acquiring Baird Capital Development or negotiations pending at
the date of this Agreement provided, however, Baird Capital Development or any
officer, director or employee of, or any investment banker, attorney or other
adviser or representative of Baird Capital Development may, following the
receipt of an Acquisition Proposal that the Board of Directors of Baird Capital
Development determines in good faith, after consultation with outside counsel,
would permit the Board of Directors to take any of the actions referred to in
Section 5.10, participate in negotiations regarding such Acquisition Proposal.
Baird Capital Development shall promptly notify AIM Equity, orally and in
writing, of the receipt by it after the date hereof of any Acquisition Proposal
or any inquiry from a potential acquiror of Baird Capital Development which
could reasonably be expected to lead to any Acquisition Proposal, the material
terms and conditions of such Acquisition Proposal or inquiry and the identity
of the Person making any such Acquisition Proposal or inquiry, except to the
extent Baird Capital Development's Board of Directors concludes, after
consultation with outside counsel, that the disclosure of any such information
would be a breach of a duty of confidentiality imposed on Baird Capital
Development with respect to such information. Subject to the foregoing, Baird
Capital Development shall keep AIM Equity informed of the status and details of
any such Acquisition Proposal or inquiry.
Section 5.10. Fiduciary Duties. The Board of Directors of
Baird Capital Development shall not (i) withdraw or modify, or propose to
withdraw or
26
<PAGE> 31
modify, in a manner adverse to AIM Equity, its approval or recommendation of
this Agreement or the Reorganization, (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal or (iii) authorize Baird Capital
Development to enter into any agreement with respect to any Acquisition
Proposal, unless Baird Capital Development receives an Acquisition Proposal and
the Board of Directors of Baird Capital Development determines in good faith,
after consultation with outside counsel, that in order to comply with its
fiduciary duties to the shareholders of Baird Capital Development under
applicable law, the Board of Directors of Baird Capital Development should
withdraw or modify its approval or recommendation of this Agreement or the
Reorganization, approve, recommend or enter into negotiations concerning such
Acquisition Proposal, or authorize Baird Capital Development to enter into an
agreement with respect to such Acquisition Proposal or terminate this
Agreement. Nothing contained in this Section 5.10 shall prohibit Baird Capital
Development from making any disclosure to the BCD Shareholders which, in the
good faith and reasonable judgment of the Board of Directors of Baird Capital
Development based on the advice of outside counsel, is required under
applicable law. Notwithstanding any provision of this Agreement to the
contrary, any action by the Board of Directors of Baird Capital Development
permitted by this Section 5.10 shall not constitute a breach of this Agreement
by Baird Capital Development.
Section 5.11. Section 15(f) of the 1940 Act.
(a) Each of AIM Equity and Baird Capital Development
shall use its reasonable best efforts to assure compliance with the conditions
of Section 15(f) of the Investment Company Act as it applies to the
transactions contemplated by this Agreement.
(b) AIM Equity shall for a period of not less than three
years after the Closing Date, use its reasonable best efforts to assure that no
more than 25% of the members of the board of directors AIM Equity shall be
"interested persons" (as defined in the Investment Company Act) of the
investment adviser of Baird Capital Development or any entity that served as
investment advisor to Baird Capital Development or any Person that before or
after the Closing Date was or is an Affiliated Person of any of the foregoing.
Without limiting the generality of the foregoing, AIM Equity will not take,
recommend or endorse any action that would cause more than 25% of the number of
members of its board of directors to be such "interested persons."
(c) AIM Equity represents and warrants that there is no
express or implied understanding, arrangement or intention on its part to
impose an "unfair burden" within the meaning of Section 15(f) of the Investment
Company Act on
27
<PAGE> 32
the Portfolio as a result of the transactions contemplated hereby, and that for
a period of not less than two years after the Closing Date, it shall not take
or recommend any act that would constitute an "unfair burden" on the
Portfolio.
Section 5.12. Sales Charges. Baird Capital Development
shall deliver to AIM Equity on the Closing Date a certificate showing (a) the
Remaining Amount and Balance for Interest relating to Asset Based Sales
Charges, as such terms are used in NASD Notice to Members 93-12 at page 56, and
(b) the total sales charges, and the components thereof, paid by Baird Capital
Development shareholders, collected by Baird Capital Development or paid by
Baird Capital Development in connection with sales of its shares since July 1,
1993.
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION
Section 6.1. Conditions Precedent of AIM Equity. The
obligation of AIM Equity to consummate the Reorganization is subject to the
satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived in writing by AIM Equity.
(a) The representations and warranties of Baird Capital
Development set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date
with the same effect as though all such representations and warranties had been
made as of the Closing Date.
(b) Baird Capital Development shall have complied with
and satisfied in all material respects all agreements and all conditions set
forth herein on its part to be performed or satisfied at or prior to the
Closing Date.
(c) AIM Equity shall have received at the Closing Date
(i) a certificate, dated as of the Closing Date, from an officer of Baird
Capital Development on behalf of Baird Capital Development, in such
individual's capacity as an officer of Baird Capital Development and not as an
individual, to the effect that the conditions specified in Section 6.1(a) and
(b) have been satisfied and (ii) a certificate, dated as of the Closing Date,
from the Secretary or Assistant Secretary of Baird Capital Development
certifying as to the accuracy and completeness of the attached articles of
incorporation and by-laws, and resolutions, consents and authorizations with
respect to the execution and delivery of this Agreement and the transactions
contemplated hereby.
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<PAGE> 33
(d) AIM Equity shall have received the signed opinion of
Quarles & Brady, counsel to Baird Capital Development, or other counsel
reasonably acceptable to AIM Equity, in form and substance reasonably
acceptable to counsel for AIM Equity, as to the matters set forth in Schedule
6.1(d).
Section 6.2. Mutual Conditions. The obligation of Baird
Capital Development and AIM Equity to consummate the Reorganization is subject
to the satisfaction, at or prior to the Closing Date, of all of the following
further conditions, any one or more may be waived in writing by Fund and AIM
Equity, but only if and to the extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing
Date with, and all consents, approvals, permits and authorizations required to
be obtained on or prior to the Closing Date from Governmental Authorities, in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated herein by Baird Capital
Development and AIM Equity shall have been made or obtained, as the case may
be; provided, however, that such consents, approvals, permits and
authorizations may be subject to conditions that would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
(b) This Agreement, the Reorganization and related
corporate matters shall have been approved and adopted at the BCD Shareholders
Meeting by the shareholders of Baird Capital Development on the record date by
the Required BCD Shareholder Vote.
(c) The assets of Baird Capital Development to be
acquired by the Portfolio shall constitute at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of the gross
assets of Baird Capital Development immediately prior to the Reorganization.
For these purposes, assets used by Baird Capital Development to pay the
expenses it incurs in connection with this Agreement and the Reorganization and
to effect all shareholder redemptions and distributions (other than regular,
normal dividends and regular, normal redemptions pursuant to the Investment
Company Act, and not in excess of the requirements of Section 852 of the Code,
occurring in the ordinary course Baird Capital Development's business as an
open-end diversified management investment company) after the date of this
Agreement shall be included as assets of Baird Capital Development immediately
prior to the Reorganization.
(d) No temporary restraining order, preliminary or
permanent injunction or other order issued by any Governmental Authority
preventing the consummation of the Reorganization on the Closing Date shall be
in effect;
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<PAGE> 34
provided, however, that the party or parties invoking this condition shall use
reasonable efforts to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by AIM
Equity with respect to the Portfolio Shares to be issued to BCD Shareholders in
connection with the Reorganization shall have become effective under the
Securities Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(f) A post-effective amendment to the AEF Registration
Statement filed by AIM Equity to register Portfolio Shares to be offered to the
public shall have become effective under the Securities Act and no stop orders
suspending the effectiveness thereof shall have been issued and, to the best
knowledge of the parties hereto, no investigation or proceeding for that
purpose shall have been instituted or be pending, threatened or contemplated
under the Securities Act.
(g) Baird Capital Development and AIM Equity shall have
received on or before the Closing Date an opinion of Ballard Spahr Andrews and
Ingersoll in form, scope and substance satisfactory to Baird Capital
Development and AIM Equity, set forth on Schedule 6.2(g).
(h) The transactions contemplated by that certain
Agreement and Plan of Reorganization dated December 20, 1995, between Baird
Blue Chip Fund, Inc. and AIM Equity acting on behalf of AIM Blue Chip Fund, and
that certain Agreement and Plan of Reorganization dated December 20, 1995
between The Baird Funds, Inc., acting on behalf of Baird Quality Bond Fund, and
AIM Funds Group, acting on behalf of AIM Income Fund, shall be consummated on
the Closing Date.
(i) The dividend or dividends described in the last
sentence of Section 3.16(b) shall have been declared.
(j) A I M Advisors, Inc. ("AIM") shall have executed and
delivered to Baird Capital Development a certificate to the effect that:
(i) its balance sheet as of December 31, 1994 has been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and fairly reflects the financial
condition of AIM as of the date indicated; since December 31, 1994
there has not been any change in AIM's financial condition, assets,
liabilities or business that would have a
30
<PAGE> 35
material adverse effect upon its ability to provide investment
advisory services to the Portfolio and the other funds advised by AIM
(the "AIM Funds").
(ii) AIM is, and on the Closing Date shall be, registered
as an investment adviser under the Investment Advisers Act and,
registered as an investment adviser in all states where it is
required to be so registered.
(iii) AIM is in compliance in all material respects with
all laws, rules and regulations applicable to its business of
providing investment advisory services to the Portfolio and the
AIM Funds, including, without limitation, federal and state
securities laws.
(iv) Neither AIM nor any affiliated person of AIM is
ineligible to serve as an employee, officer, director, member of an
advisory board, investment adviser, depositor or principal
underwriter of any investment company registered under the Investment
Company Act by reason of any conviction of a felony or misdemeanor,
described in Section 9(a)(1) of the Investment Company Act, and is
not subject to any order issued by the SEC under Section 9(b) of the
Investment Company Act. To the best of AIM's knowledge, no facts
exist with respect to AIM, or any Affiliated Person of AIM, which
would form a basis for any such conviction or the issuance of any
such order, judgment or decree.
(v) No litigation, proceeding or governmental
investigation or inquiry is pending or, to the best of AIM's
knowledge, threatened, against AIM that, if determined against AIM
would be reasonably likely to have a material adverse effect on the
Portfolio or a material adverse effect on AIM's ability to provide
investment advisory services to the Portfolio or any of the AIM
Funds.
(k) The transactions contemplated by that certain
Acquisition Agreement dated December 20, 1995 between Robert W. Baird & Co.
Incorporated and A I M Advisors, Inc. shall be consummated on the Closing Date.
Section 6.3. Conditions Precedent of Baird Capital
Development. The obligation of Baird Capital Development to consummate the
Reorganization is subject to the satisfaction, at or prior to the Closing Date,
of all of the following conditions, any one or more of which may be waived in
writing by Baird Capital Development.
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<PAGE> 36
(a) The representations and warranties of AIM Equity on
behalf of the Portfolio set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date with the same effect as though all such representations and warranties had
been made as of the Closing Date.
(b) AIM Equity shall have complied with and satisfied in
all material respects all agreements and all conditions set forth herein on its
part to be performed or satisfied at or prior to the Closing Date.
(c) Baird Capital Development shall have received on the
Closing Date (i) a certificate, dated as of the Closing Date, from an officer
of AIM Equity, in such individual's capacity as an officer of AIM Equity and
not as an individual, to the effect that the conditions specified in Section
6.3(a) and (b) have been satisfied and (ii) a certificate, dated as of the
Closing Date, of AIM Equity, certifying as to the accuracy and completeness of
the attached articles of incorporation and by-laws, and resolutions, consents
and authorizations with respect to the execution and delivery of this Agreement
and the transactions contemplated hereby.
(d) Baird Capital Development shall have received the
signed opinion of Ballard Spahr Andrews & Ingersoll, counsel to AIM Equity, or
other counsel reasonably acceptable to Baird Capital Development, in form and
substance reasonably acceptable to special counsel for Baird Capital
Development, as to the matters set forth on Schedule 6.3(d).
ARTICLE VII
TERMINATION OF AGREEMENT
Section 7.1. Termination.
(a) This Agreement may be terminated on or prior to the
Closing Date as follows:
(i) by mutual written consent of Baird Capital
Development and AIM Equity; and
(ii) at the election of Baird Capital Development or AIM
Equity:
(A) if the Closing Date shall not be on or before
June 30, 1996, or such later date as the
parties hereto may agree
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<PAGE> 37
upon, unless the failure to consummate the
Reorganization is the result of a willful and
material breach of this Agreement by the
party seeking to terminate this Agreement;
(B) if, upon a vote at BCD Shareholders Meeting
or any adjournment thereof, the Required BCD
Shareholder Vote shall not have been obtained
as contemplated by Section 5.8; or
(C) if any Governmental Authority shall have
issued an order, decree or ruling or taken
any other action permanently enjoining,
restraining or otherwise prohibiting the
Reorganization and such order, decree, ruling
or other action shall have become final and
nonappealable; or
(iii) by Baird Capital Development in the event Baird Capital
Development receives an Acquisition Proposal and the Board of Directors of
Baird Capital Development determines in good faith, after consultation with
outside counsel, that, in order to comply with its fiduciary duties to the
stockholders of Baird Capital Development under applicable law, the Board of
Directors of Baird Capital Development should authorize Baird Capital
Development to terminate this Agreement; or
(iv) by AIM Equity 45 days following the date on which Baird
Capital Development first actively participates in any discussions on
negotiations regarding, or furnishes to any Person any confidential information
with respect to, any Acquisition Proposal, unless prior to the expiration of
such 45 day period Baird Capital Development notifies AIM Equity that such
Acquisition Proposal has been rejected and any such negotiations have been
terminated.
(b) The termination of this Agreement shall be effectuated by
the delivery by the terminating party to the other party of a written notice of
such termination. If this Agreement so terminates, it shall become null and
void and have no further force or effect, except as provided in Section 7.2.
Section 7.2. Survival After Termination. If this
Agreement is terminated in accordance with Section 7.1 hereof and the
transactions contemplated hereby are not consummated, this Agreement shall
become void and of no further force and effect, except for the provisions of
Section 5.2 and Section 5.3.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1. Nonsurvival of Representations and
Warranties. Except as set forth below, none of the representations, warranties
or covenants in this Agreement or in any certificate or instrument delivered
pursuant to this Agreement shall survive the Closing Date and no party shall,
therefore, have any recourse therefor against any other party in connection
therewith. This Section 8.1 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Closing Date.
Section 8.2. Law Governing. This Agreement shall be
construed and interpreted according to the laws of the State of Maryland
applicable to contracts made and to be performed wholly within such state.
Section 8.3. Binding Effect, Persons Benefiting, No
Assignment. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and the respective successors and assigns of the parties and
such Persons. Nothing in this Agreement is intended or shall be construed to
confer upon any entity or Person other than the parties hereto and their
respective successors and permitted assigns any right, remedy or claim under or
by reason of this Agreement or any part hereof. Without the prior written
consent of the parties hereto, this Agreement may not be assigned by any of the
parties hereto.
Section 8.4. Obligation of AIM Equity Portfolio. Baird
Capital Development and AIM Equity hereby acknowledge and agree that the
Portfolio is a separate investment portfolio of AIM Equity, that AIM Equity is
executing this Agreement on behalf of the Portfolio, and that any amounts
payable by AIM Equity under or in connection with this Agreement shall be
payable solely from the revenues and assets of the Portfolio.
Section 8.5. Amendments. This Agreement may not be
amended, altered or modified except by a written instrument executed by Baird
Capital Development and AIM Equity.
Section 8.6. Enforcement. The parties agree irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States or any
34
<PAGE> 39
state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
Section 8.7. Interpretation. When a reference is made in
this Agreement to a Section or Schedule, such reference shall be to a Section
of, or a Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". Each representation and warranty contained in Article III or IV
that relates to a general category of a subject matter shall be deemed
superseded by a specific representation and warranty relating to a subcategory
thereof to the extent of such specific representation or warranty.
Section 8.8. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original and each of which
shall constitute one and the same instrument.
Section 8.9. Entire Agreement; Schedules. This Agreement,
including the Schedules, certificates and lists referred to herein, and any
documents executed by the parties simultaneously herewith or pursuant thereto,
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, written or oral, between the parties with respect to such
subject matter.
Section 8.10. Notices. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or by overnight courier, two days after
being sent by registered mail, return receipt requested, or when sent by
telecopier (with receipt confirmed), provided, in the case of a telecopied
notice, a copy is also sent by registered mail, return receipt requested, or by
courier, addressed as follows (or to such other address as a party may
designate by notice to the other):
(a) If to AIM Equity:
AIM Equity Funds, Inc.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046-1173
Attn: Carol F. Relihan, Esq.
Fax: (713) 993-9185
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<PAGE> 40
with a copy to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103-7599
Attn: William H. Rheiner, Esq.
Fax: (215) 864-8999
(b) If to Baird Capital Development:
Baird Capital Development Fund, Inc.
777 Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Glen F. Hackmann, Esq.
Fax: (414) 765-3662
with a copy to:
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Conrad G. Goodkind, Esq.
Fax: (414) 271-3552
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<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
BAIRD CAPITAL DEVELOPMENT FUND, INC.
By: /s/ M. C. LOW, JR.
__________________________________
AIM EQUITY FUNDS, INC., acting
on behalf of AIM Capital Development Fund
By: /s/ ROBERT H. GRAHAM
__________________________________
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<PAGE> 42
Schedule 3.12(a)
LIST OF CONTRACTS AND AGREEMENTS
1. Investment Advisory Agreement dated June 25, 1984
between Baird Growth Settlement Fund, Inc. (now
named Baird Capital Development Fund, Inc.) ("BCD
Fund") and Fiduciary Management, Inc. ("FMI").
2. Amendment to Investment Advisory Agreement Dated June
21, 1986 between BCD Fund and FMI.
3. Sub-Advisory Agreement dated December 12, 1986
between BCD Fund and Robert W. Baird & Co.
Incorporated ("Baird").
4. Administration Agreement dated December 19, 1988
between BCD Fund and Baird.
5. Amended and Restated Distribution Plan of BCD Fund.
6. Distribution Agreement dated June 21, 1986 between
BCD Fund and Baird.
7. Distribution Assistance Agreement dated June 21, 1986
between BCD Fund and Baird.
8. Custodian Agreement dated June 25, 1984 between BCD
Fund and First Wisconsin Trust Company (now named
Firstar Trust Company) ("Firstar").
9. Amendment to Custodian Agreement dated June 21, 1986
between BCD Fund and Firstar.
10. Transfer Agent Agreement dated July 20, 1990 between
BCD Fund and Firstar.
11. License Agreement dated March 31, 1987 between BCD
Fund and Baird.
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12. Agreement dated September 14, 1994, as amended, among
the BCD Fund, The Baird Funds, Inc. and Baird Blue
Chip Fund, Inc. regarding allocation of fidelity bond
coverage, pursuant to Rule 17g-1(f) under the
Investment Company Act of 1940.
13. $1,600,000 Fidelity Bond issued by Reliance Insurance
Company.
14. Articles of Incorporation of BCD Fund.
15. Bylaws of BCD Fund.
16. Order under Section 6(c) of the Investment Company
Act of 1940, dated February 27, 1991, granting an
exemption from Sections 2(a)(32), 2(a)(35), 22(c) and
22(d) of the Act and Rule 22c-1 thereunder.
2
<PAGE> 44
Schedule 6.1(d)
OPINION OF COUNSEL TO BAIRD CAPITAL DEVELOPMENT
1. Baird Capital Development is a corporation duly
incorporated and validly existing under the laws of
the State of Wisconsin.
2. Baird Capital Development is an open-end management
investment company registered under the Investment
Company Act of 1940.
3. The execution, delivery and performance of the
Agreement by Baird Capital Development have been duly
authorized and approved by all requisite corporate
action on the part of Baird Capital Development. The
Agreement has been duly executed and delivered by
Baird Capital Development and constitutes the valid
and binding obligation of Baird Capital Development.
4. The BCD Shares outstanding on the date hereof have
been duly authorized and validly issued, are fully
paid and are non-assessable (subject to Wisconsin
Business Corporation Law Section 180.0622(2)(b)).
5. Baird Capital Development is not required to submit
any notice, report or other filing with or obtain any
authorization consent or approval from any
governmental authority or self regulatory
organization prior to the consummation of the
transactions contemplated by the Agreement.
We confirm to you that to our knowledge after inquiry of each
lawyer who is the current primary contact for Baird Capital Development or who
has devoted substantive attention on behalf of Baird Capital Development during
the preceding twelve months and who is still currently employed by or is
currently a member of this firm, no litigation or governmental proceeding is
pending or threatened in writing against Baird Capital Development (i) with
respect to the Agreement or (ii) which involves in excess of $500,000 in
damages.
1
<PAGE> 45
Schedule 6.2(g)
Tax Opinions.
(i) The transfer of the assets of Baird Capital
Development to the Portfolio in exchange for the Portfolio Shares
distributed directly to the BCD Shareholders, as provided in the
Agreement, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code and that Baird Capital Development and AIM
Equity will each be a "party to a reorganization" within the meaning
of 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section
361(c)(1) of the Code, no gain or loss will be recognized by Baird
Capital Development as a result of such transaction.
(iii) In accordance with Section 1032 of the Code,
no gain or loss will be recognized by the Portfolio upon the receipt
of assets of Baird Capital Development in exchange for Portfolio
Shares issued directly to the BCD Shareholders
(iv) In accordance with Section 354(a)(1) of the
Code, no gain or loss will be recognized by BCD Shareholders on
issuance by AIM Equity of Portfolio Shares in exchange for their BCD
Shares.
(v) In accordance with Section 362(b) of the
Code, the basis to the Portfolio of the assets of Baird Capital
Development transferred to it will be the same as the basis of such
assets in the hands of Baird Capital Development immediately prior to
the exchange.
(vi) In accordance with Section 358(a) of the
Code, a BCD Shareholder's basis for Portfolio Shares issued to such
BCD Shareholder pursuant to Section 2.7 of the Agreement ("Issued
Shares") will be the same as his basis for BCD Shares.
(vii) In accordance with Section 1223(1) of the
Code, a BCD Shareholder's holding period for Portfolio Shares will be
determined by including said BCD Shareholder's holding period for BCD
Shares exchanged therefor, provided that BCD Shareholder held such BCD
Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the
Code, the holding period with respect to the assets of Baird Capital
Development
1
<PAGE> 46
transferred to the Portfolio will include the holding
period for such assets in the hands of Baird Capital Development.
(ix) In accordance with Section 381(a)(2) of the
Code, the Portfolio will succeed to and take into account the items of
Baird Capital Development described in Section 381(c) of the Code,
subject to the conditions and limitations specified in Sections 381
through 384 of the Code and the Internal Revenue Service regulations
thereunder.
2
<PAGE> 47
Schedule 6.3(d)
OPINION OF COUNSEL TO AIM EQUITY
1. AIM Equity is a corporation duly incorporated and
validly existing under the laws of the State of
Maryland.
2. AIM Equity is an open-end, management investment
company registered under the Investment Company Act
of 1940.
3. The execution, delivery and performance of the
Agreement by AIM Equity have been duly authorized
and approved by all requisite corporate action on
the part of AIM Equity. The Agreement has been duly
executed and delivered by AIM Equity and constitutes
the valid and binding obligation of the Portfolio.
4. The Portfolio Shares outstanding on the date hereof
have been duly authorized and validly issued, are
fully paid and are non-assessable.
5. AIM Equity is not required to submit any notice,
report or other filing with or obtain any
authorization consent or approval from any
governmental authority or self regulatory
organization prior to the consummation of the
transactions contemplated by the Agreement.
We confirm to you that to our knowledge after inquiry of each
lawyer who is the current primary contact for AIM Equity or who has devoted
substantive attention on behalf of AIM Equity during the preceding twelve
months and who is still currently employed by or is currently a member of this
firm, no litigation or governmental proceeding is pending or threatened in
writing against the Portfolio (i) with respect to the Agreement or (ii) which
involves in excess of $500,000 in damages.
1
<PAGE> 1
EXHIBIT 14(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this registration statement on Form N-14 (the
"Registration Statement") of our report dated October 25, 1995, relating to
the financial statements and financial highlights of Baird Blue Chip Fund,
Inc., which appears in such Statement of Additional Information, and to the
incorporation by reference of our report into the Prospectus which constitutes
part of this Registration Statement. We also consent to the references to us
under the headings "Financial Information" and "Selected Baird Blue Chip
Fund Per Share Data and Ratios" in such Prospectus and the reference to us
under the heading "Audit Reports" in such Statement of Additional Information.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
December 27, 1995
<PAGE> 1
EXHIBIT 17(a)
BAIRD BLUE CHIP FUND, INC.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
REVOCABLE PROXY FOR SPECIAL MEETING OF SHAREHOLDERS OF BAIRD QUALITY BOND FUND TO BE HELD ON MARCH 15, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Marcus L. Low, Jr. and Glen F. Hackmann, and each of them individually, as proxy, with full power of
substitution, to represent and vote, as designated below, all shares of the Baird Blue Chip Fund, Inc. ("Baird Blue Chip") that the
undersigned is entitled to vote at the Special Meeting of Shareholders of the Baird Blue Chip, to be held at the University Club,
924 East Wells Street, Milwaukee, Wisconsin 53202, at 10:00 a.m., Central Time, on March 15, 1996, or at any adjournment thereof,
with respect to the matters set forth below and described in the accompanying Notice of Special Meeting and Proxy
Statement/Prospectus, receipt of which is hereby acknowledged.
Please place an "X" in the desired box for each item.
Shares represented by this Proxy will be voted as directed by the shareholder.
IF NO DIRECTION IS SUPPLIED, THE PROXY WILL BE VOTED FOR PROPOSAL 1.
---
1. PROPOSAL TO APPROVE an Agreement and Plan of Reorganization (the "Agreement") FOR [ ] AGAINST [ ] ABSTAIN [ ]
between Baird Blue Chip and AIM Funds, Inc. ("AEF") and the consummation of the
transactions contemplated therein (the "Transaction"). Pursuant to the Agreement,
substantially all of the assets of Baird Blue Chip will be transferred to AIM
Blue Chip Fund ("AIM Blue Chip"), a newly-created portfolio of AEF. Upon such
transfer, AEF will issue shares of AIM Blue Chip directly to the shareholders of
Baird Blue Chip. Shareholders of Baird Blue Chip will receive shares of AIM
Blue Chip with an aggregate net asset value equal to the aggregate net value of the
Baird Blue Chip assets transferred in connection with the Transaction. It is
expected that the value of each shareholder's account with AIM Blue Chip
immediately after the Transaction would be the same as the value of such
shareholder's account with Baird Blue Chip immediately prior to the Transaction.
2. In their discretion, on such other matters as may properly come before the meeting
or any adjournment thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL 1.
---
(TO BE DATED AND SIGNED ON THE REVERSE SIDE)
[FRONT]
</TABLE>
<PAGE> 2
DATE: ______________________________________________________________, 1996
(If this account is owned by more than one person, all owners should sign.
Persons signing as executors, administrators, trustees or in similar
capacities should so indicate.)
**************************************************************************
* *
* *
* *
* *
**************************************************************************
(Please sign exactly as name appears at left)
[BACK]
<PAGE> 1
EXHIBIT 17(b)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 24f-2
ANNUAL NOTICE OF SECURITIES SOLD
PURSUANT TO RULE 24f-2
READ INSTRUCTIONS AT END OF FORM BEFORE PREPARING FORM.
PLEASE PRINT OR TYPE.
________________________________________________________________________________
1. Name and address of issuer:
AIM EQUITY FUNDS, INC.
11 GREENWAY PLAZA, SUITE 1919
HOUSTON, TEXAS 77046-1173
________________________________________________________________________________
2. Name of each series or class of funds for which this notice is filed:
AIM AGGRESSIVE GROWTH FUND - CLASS A SHARES
AIM CHARTER FUND - CLASS A SHARES
AIM CHARTER FUND - CLASS B SHARES
AIM CHARTER FUND - INSTITUTIONAL CLASS
AIM WEINGARTEN FUND - CLASS A SHARES
AIM WEINGARTEN FUND - CLASS B SHARES
AIM WEINGARTEN FUND - INSTITUTIONAL CLASS
AIM CONSTELLATION FUND - CLASS A SHARES
AIM CONSTELLATION FUND - INSTITUTIONAL CLASS
________________________________________________________________________________
3. Investment Company Act File Number: 811-1424
Securities Act File Number: 2-25469
________________________________________________________________________________
4. Last day of fiscal year for which this notice is filed: OCTOBER 31, 1995
________________________________________________________________________________
5. Check box if this notice is being filed more than 180 days after the close
of the issuer's fiscal year for purposes of reporting securities sold after the
close of the fiscal year but before termination of the issuer's 24f-2
declaration:
[ ]
________________________________________________________________________________
6. Date of termination of issuer's declaration under rule 24f-2(a)(1), if
applicable (see Instruction A.6):
________________________________________________________________________________
7. Number and amount of securities of the same class or series which had been
registered under the Securities Act of 1933 other than puruant to rule 24f-2 in
a prior fiscal year, but which remained unsold at the beginning of the fiscal
year:
- -0- -
________________________________________________________________________________
8. Number and amount of securities registered during the fiscal year other
than pursuant to rule 24f-2:
- -0- -
________________________________________________________________________________
9. Number and aggregate sale price of securities sold during the fiscal year:
396,420,368 $8,228,530,121
________________________________________________________________________________
<PAGE> 2
________________________________________________________________________________
10. Number and aggregate sale price of securities sold during the fiscal year
in reliance upon registration pursuant to rule 24f-2:
396,420,368 $8,228,530,121
________________________________________________________________________________
11. Number and aggregate sale price of securities issued during the fiscal
year in connection with dividend reinvestment plans, if applicable (see
Instruction B.7):
________________________________________________________________________________
12. Calculation of registration fee:
(i) Aggregate sale price of securities sold during the
fiscal year in reliance of rule 24f-2 (from
Item 10): $8,228,530,121
______________
(ii) Aggregate price of shares issued in connection with
dividend reinvestment plan (from Item 11, if
applicable): +
______________
(iii) Aggregate price of shares redeemed or repurchased
during the fiscal year (if applicable): -4,732,505,952
______________
(iv) Aggregate price of shares redeemed or repurchased and
previously applied as a reduction to filing fees
pursuant to rule 24e-2 (if applicable): +
______________
(v) Net aggregate price of securities sold and issued
during the fiscal year in reliance on rule 24f-2
[line (i), plus line (ii), less line (iii), plus
line (iv)] (if applicable): 3,496,024,169
______________
(vi) Multiplier prescribed by Section 6(b) of the
Securities Act of 1933 or other applicable law or
regulation (see Instruction C.6): x 1/2900
______________
(vii) Fee due [line (i) or line (v) multiplied by line
(vi)]: $ 1,205,525.58
______________
INSTRUCTION: ISSUERS SHOULD COMPLETE LINES (ii), (iii), (iv), AND (v) ONLY
IF THE FORM IS BEING FILED WITHIN 60 DAYS AFTER THE CLOSE OF THE ISSUER'S
FISCAL YEAR. SEE INSTRUCTION C.3.
________________________________________________________________________________
13. Check box if fees are being remitted to the Commission's lockbox
depository as described in section 3a of the Commission's Rules of Informal and
Other Procedures (17 CFR 202.3a).
[ XX ]
Date of mailing or wire transfer of filing fees to the Commission's lockbox
depository: 12-21-95
________________________________________________________________________________
SIGNATURES
This report has been signed below by the following persons on behalf of the
issuer and in the capacities and on the dates indicated.
By (Signature and Title)* /s/ Mary J. Benson
____________________________________________________
Mary J. Benson, Assistant Treasurer
____________________________________________________
Date December 21, 1995
____________________________
* PLEASE PRINT THE NAME AND TITLE OF THE SIGNING OFFICER BELOW THE SIGNATURE.
________________________________________________________________________________
<PAGE> 1
EXHIBIT 17(c)
BAIRD QUALITY BOND FUND
A SERIES OF THE BAIRD FUNDS, INC.
SUPPLEMENT DATED DECEMBER 21, 1995 TO
PROSPECTUS DATED JANUARY 31, 1995
On December 20, 1995, following unanimous approval by the Board of
Directors of The Baird Funds, Inc., acting on behalf of the Baird Quality Bond
Fund (the "BQB Fund"), the BQB Fund entered into an Agreement and Plan of
Reorganization pursuant to which the BQB Fund would transfer substantially all
of its net assets to the AIM Income Fund, an existing portfolio of AIM Funds
Group. In the transaction, shareholders of the BQB Fund would receive, in
exchange for their BQB Fund shares, that number of shares of the AIM Income
Fund having an aggregate net asset value equal to the aggregate value of the
BQB Fund assets transferred in connection with the transaction. BQB Fund
Shareholders would not pay any load or sales commission on the shares of the
AIM Income Fund they receive. The transaction would be structured to qualify
as a tax-free reorganization, and if it so qualifies BQB Fund Shareholders
would not recognize any taxable gain or loss as a result of the exchange of
their shares.
The transaction is subject to normal and customary closing conditions and
to approval by the shareholders of the BQB Fund at a special meeting to be
called and held for that purpose during Spring 1996. Shareholders will receive
a separate proxy statement/prospectus in connection with the special meeting.
The AIM Income Fund is managed by A I M Advisors, Inc. ("AIM"). AIM was
organized in 1976 and presently serves as manager or advisor to 38 separate
investment company portfolios. As of November 30, 1995, the total net assets
of the investment company portfolios advised or managed by AIM or its
affiliates were approximately $41.1 billion. AIM is a wholly-owned subsidiary
of A I M Management Group Inc. AIM's principal executive offices are located
at 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173.
The investment objective of the AIM Income Fund is to achieve a high level
of current income consistent with reasonable concern for safety of principal,
by investing primarily in fixed rate corporate debt and U.S. Government
obligations. In attempting to achieve its objective, the AIM Income Fund is
permitted to invest up to 35% of its net assets in non-investment grade debt
securities. AIM believes this practice, together with other differences
between the investment programs and policies of the AIM Income Fund and the BQB
Fund, offer shareholders of the AIM Income Fund an opportunity for higher
yields, but also involve risks that are different in magnitude and/or nature
than risks associated with an investment in the BQB Fund. For a more complete
discussion of the investment policies and restrictions of the AIM Income Fund,
please read the AIM Income Fund Prospectus accompanying this Supplement.
The BQB Fund's current investment advisor and distributor has announced
that, for calendar year 1996, it will waive fees and/or reimburse expenses as
necessary to limit the BQB Fund's total annual operating expenses at a ratio of
1.00% of average net assets. The total operating expenses of the AIM Income
Fund as a percentage of average net assets for its fiscal year ended December
31, 1994 were 0.98%.
<PAGE> 2
BAIRD BLUE CHIP FUND, INC.
SUPPLEMENT DATED DECEMBER 21, 1995 TO
PROSPECTUS DATED JANUARY 31, 1995
On December 20, 1995, following unanimous approval by the Board of
Directors of Baird Blue Chip Fund, Inc. (the "BBC Fund"), the BBC Fund entered
into an Agreement and Plan of Reorganization pursuant to which the BBC Fund
would transfer substantially all of its net assets to the AIM Blue Chip Fund, a
newly-created portfolio of AIM Equity Funds, Inc. In the transaction,
shareholders of the BBC Fund would receive, in exchange for their BBC Fund
shares, an equal number of shares of the AIM Blue Chip Fund. BBC Fund
shareholders would not pay any load or sales commission on the shares of the
AIM Blue Chip Fund they receive. The transaction would be structured to
qualify as a tax-free reorganization, and if it so qualifies BBC Fund
Shareholders would not recognize any taxable gain or loss as a result of the
exchange of their shares.
The transaction is subject to normal and customary closing conditions and
to approval by the shareholders of the BBC Fund at a special meeting to be
called and held for that purpose during Spring 1996. Shareholders will receive
a separate proxy statement/ prospectus in connection with the special meeting.
Following the transaction, the assets of the new AIM Blue Chip Fund would
be managed by A I M Advisors, Inc. ("AIM"). AIM was organized in 1976 and
presently serves as manager or advisor to 38 separate investment company
portfolios. As of November 30, 1995, the total net assets of the investment
company portfolios advised or managed by AIM or its affiliates were
approximately $41.1 billion. AIM is a wholly-owned subsidiary of A I M
Management Group Inc. AIM's principal executive offices are located at 11
Greenway Plaza, Suite 1919, Houston, Texas 77046-1173.
The AIM Blue Chip Fund will seek long-term growth of capital (with current
income being a secondary objective) by investing primarily in dividend paying
stocks of "Blue Chip" companies. While the AIM Blue Chip Fund's investment
program and policies are expected to be similar to those of the BBC Fund, the
AIM Blue Chip Fund may employ techniques and strategies which are somewhat
different from those used by the BBC Fund. These strategies and techniques are
intended by AIM to facilitate achieving the AIM Blue Chip Fund's objective, and
may involve market risks that are different in nature and/or magnitude from
those associated with an investment in the BBC Fund.
If the transaction is consummated, AIM has committed that, during the two-
year period immediately following the consummation of the proposed transaction,
it will reimburse expenses or waive fees as necessary so that the AIM Blue Chip
Fund's total operating expense ratio during those two years will not exceed the
BBC Fund's expense ratio for the fiscal year ended September 30, 1995 (after
giving effect to expense reimbursements and fee waivers), or 1.31% of average
net assets.
<PAGE> 3
BAIRD CAPITAL DEVELOPMENT FUND, INC.
SUPPLEMENT DATED DECEMBER 21, 1995 TO
PROSPECTUS DATED JANUARY 31, 1995
On December 20, 1995, following unanimous approval by the Board of
Directors of Baird Capital Development Fund, Inc. (the "BCD Fund"), the BCD
Fund entered into an Agreement and Plan of Reorganization pursuant to which the
BCD Fund would transfer substantially all of its net assets to AIM Capital
Development Fund, a newly-created portfolio of AIM Equity Funds, Inc. In the
transaction, shareholders of the BCD Fund would receive, in exchange for their
BCD Fund shares, an equal number of shares of AIM Capital Development Fund.
BCD Fund Shareholders would not pay any load or sales commission on the shares
of AIM Capital Development Fund they receive. The transaction would be
structured to qualify as a tax-free reorganization, and if it so qualifies BCD
Fund Share- holders would not recognize any taxable gain or loss as a result of
the exchange of their shares.
The transaction is subject to normal and customary closing conditions and
to approval by the shareholders of the BCD Fund at a special meeting to be
called and held for that purpose during Spring 1996. Shareholders will receive
a separate proxy statement/ prospectus in connection with the special meeting.
Following the transaction, the assets of the new AIM Capital Development
Fund would be managed by A I M Advisors, Inc. ("AIM"). AIM was organized in
1976 and presently serves as manager or advisor to 38 separate investment
company portfolios. As of November 30, 1995, the total net assets of the
investment company portfolios advised or managed by AIM or its affiliates were
approximately $41.1 billion. AIM is a wholly-owned subsidiary of A I M
Management Group Inc. AIM's principal executive offices are located at 11
Greenway Plaza, Suite 1919, Houston, Texas 77046-1173.
The AIM Capital Development Fund will seek to produce long-term capital
appreciation through investing in common stocks, convertible securities and
bonds issued primarily by small and medium-sized companies which, based upon
factors considered by AIM, AIM believes are underpriced relative to the
company's future growth prospects. While the AIM Capital Development Fund's
investment program and policies are expected to be similar to those of the BCD
Fund, the AIM Capital Development Fund may employ certain strategies and
techniques that are different from those used by the BCD Fund. Such strategies
and techniques are intended by AIM to facilitate achieving the AIM Capital
Development Fund's objective, and may involve risks that are different in
magnitude and/or nature from the risks associated with an investment in the BCD
Fund.
If the transaction is consummated, AIM has committed that, during the two-
year period immediately following the consummation of the proposed transaction,
it will reimburse expenses or waive fees as necessary to assure that the AIM
Capital Development Fund's total operating expense ratio during those two years
will not exceed the BCD Fund's expense ratio for the fiscal year ended
September 30, 1995 (after giving effect to expense reimbursements and fee
waivers), or 1.34% of average net assets.
<PAGE> 4
PROSPECTUS
BAIRD CAPITAL
DEVELOPMENT FUND
BAIRD BLUE
CHIP FUND
BAIRD QUALITY
BOND FUND
(Baird Logo)
PROSPECTUS
January 31, 1995
BAIRD CAPITAL DEVELOPMENT FUND
BAIRD BLUE CHIP FUND
BAIRD QUALITY BOND FUND
The Baird Mutual Funds consist of three separate open-end diversified
management investment companies, the Baird Capital Development Fund, Inc., the
Baird Blue Chip Fund, Inc. and the Baird Quality Bond Fund.
BAIRD CAPITAL DEVELOPMENT FUND. The primary investment objective of the Baird
Capital Development Fund is to produce long-term capital appreciation. This
Fund will invest principally in common stocks believed by the Fund's investment
adviser to be underpriced relative to future growth prospects. Current income
is a secondary objective.
BAIRD BLUE CHIP FUND. The primary investment objective of the Baird Blue Chip
Fund is to produce long-term growth of capital and income. This Fund will
invest principally in dividend paying common stocks rated A+, A or A- by
Standard & Poor's Corporation. Current income is a secondary objective.
BAIRD QUALITY BOND FUND. The investment objective of the Baird Quality Bond
Fund is to provide a high level of current income. This Fund will invest
principally in a diversified portfolio of investment grade debt securities.
There can be no assurance that the Baird Mutual Funds will meet their
respective investment objectives and investment in the Funds involves certain
risks. See ''Investment Objectives and Policies'' and ''Portfolio Securities
and Investment Practices.''This Prospectus sets forth concisely the information
about the Baird Mutual Funds that prospective investors should know before
investing. Investors are advised to read this Prospectus and retain it for
future reference. This Prospectus does not set forth all of the information
included in the Registration Statements and Exhibits thereto with respect to
the Baird Mutual Funds which has been filed with the Securities and Exchange
Commission. Statements of Additional Information, dated January 31, 1995,
which are a part of such Registration Statements, are incorporated by reference
in this Prospectus. Copies of the Statements of Additional Information will be
provided without charge to each person to whom a Prospectus is delivered upon
written or oral request made to the Funds' Distributor, Robert W. Baird & Co.
Incorporated, by writing to 777 East Wisconsin Avenue, Milwaukee, Wisconsin
53202 or calling (414) 765-3500.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(Baird Logo)
MUTUAL FUNDS
<PAGE> 5
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the
Statements of Additional Information dated January 31, 1995 and, if given or
made, such information or representations may not be relied upon as having been
authorized by the Baird Mutual Funds or Robert W. Baird & Co. Incorporated.
This Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be made.
TABLE OF CONTENTS
Expense Information.................................................. 1
Financial Highlights................................................. 2
Performance Information.............................................. 4
Management's Discussion of Performance of the Funds.................. 6
Introduction......................................................... 7
Investment Objectives and Policies................................... 7
Portfolio Securities and Investment Practices........................ 11
Management of the Funds.............................................. 19
Determination of Net Asset Value..................................... 21
Purchase of Shares................................................... 21
Redemption and Repurchase of Shares.................................. 24
Reinstatement Privilege.............................................. 26
Dividend Reinvestment................................................ 27
Directed Reinvestment................................................ 27
Systematic Withdrawal Plan........................................... 27
Automatic Exchange Plan.............................................. 28
Exchange Privileges.................................................. 28
Individual Retirement Account and Simplified Employee Pension Plan... 29
Defined Contribution Retirement and 401(k) Plan...................... 30
Dividends, Distributions and Taxes................................... 30
Capital Structure.................................................... 31
Shareholder Reports.................................................. 32
Account Application.................................................. 33
Automatic Investment Plan Application................................ 35
<PAGE> 6
EXPENSE INFORMATION
The following information is provided in order to assist the investor in
understanding the various costs and expenses that investors in the Baird Mutual
Funds bear directly or indirectly. The Baird Capital Development Fund, Inc. is
hereinafter referred to as the ''BCD Fund'', the Baird Blue Chip Fund, Inc. is
hereinafter referred to as the ''BBC Fund'' and the Baird Quality Bond Fund is
hereinafter referred to as the ''BQB Fund.'' The BCD Fund, BBC Fund and BQB
Fund are sometimes individually referred to herein as the ''Fund'' or a ''Baird
Mutual Fund''and collectively as the ''Funds'' or the ''Baird Mutual Funds''.
SHAREHOLDER TRANSACTION EXPENSES*<F1>
<TABLE>
<CAPTION>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)
<S> <C>
BCD Fund 5.75%
BBC Fund 5.75%
BQB Fund 4.00%
</TABLE>
*<F1>The Baird Mutual Funds do not charge redemption fees or exchange fees.
Broker-dealers, including Baird, may charge a service fee for redemptions or
repurchases of shares effected through them. See ''Redemption and Repurchase of
Shares.''The Baird Mutual Funds charge a 1% contingent deferred sales load in
certain limited situations as described under ''Redemption and Repurchase of
Shares'', none of which involve purchases where a sales load is charged.
Reinvested dividends are exempt from the sales loads.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
Total Operating
Management Other Expenses
Fee 12b-1 Fee Expenses (Net of Waivers and
Fund (Net of Waiver) (Net of Waiver)(After Reimbursement) After Reimbursement)
<S> <C> <C> <C> <C>
BCD Fund .74% .32% .36% 1.42%
BBC Fund .74% .31% .31% 1.36%
BQB Fund .39% .15% .06% .60%
</TABLE>
The information in the chart indicates actual expenses incurred during the
fiscal year ended September 30, 1994. Without waivers and reimbursements, the
Management Fee, 12b-1 Fee, Other Expenses and Total Operating Expenses for the
BQB Fund would have been, .50%, .45%, 0.72% and 1.67%, respectively.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Period (in years)
Fund 1 3 5 10
<S> <C> <C> <C> <C>
BCD Fund $72 $102 $135 $228
BBC Fund $71 $101 $132 $221
BQB Fund $46 $ 59 $ 73 $115
</TABLE>
The Example is based on the Annual Fund Operating Expenses described above.
Please remember that the Example should not be considered a representation of
past or future expenses and that actual expenses may be greater or less than
those shown. The Example assumes a 5% annual rate of return and the
reinvestment of all dividends and distributions pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of the Baird Mutual
Funds.
1
<PAGE> 7
FINANCIAL HIGHLIGHTS
(Selected Data for each share of each Fund outstanding throughout each period)
The following information has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report thereon is included in the
Statement of Additional Information. The Financial Highlights should be read in
conjunction with the financial statements and notes thereto also included in
the Statement of Additional Information.
BAIRD CAPITAL DEVELOPMENT FUND, INC.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning
of year.................................. $23.27 $21.67 $21.35 $15.38 $19.16 $14.81 $18.50 $15.44 $13.33 $11.20
Income from investment operations:
Net investment income (loss) 0.04 0.04 0.11 0.13 0.19 0.14 (0.03) (0.04) (0.12) (0.15)
Net realized and unrealized
gains (losses) on investments**<F3>..... 0.80 3.54 2.17 6.77 (3.86) 4.21 (2.54) 3.19 4.28 2.33
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.84 3.58 2.28 6.90 (3.67) 4.35 (2.57) 3.15 4.16 2.18
Less distributions:
Dividends from net investment
income ................................. (0.04) (0.08) (0.10) (0.20) (0.11) - - - - (0.05)
Distributions from net realized
gains .................................. (0.53) (1.90) (1.86) (0.73) - - (1.12) (0.09) (2.05) -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from distributions................... (0.57) (1.98) (1.96) (0.93) (0.11) - (1.12) (0.09) (2.05) (0.05)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year............... $23.54 $23.27 $21.67 $21.35 $15.38 $19.16 $14.81 $18.50 $15.44 $13.33
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT
RETURN***<F4>............................ 3.7% 17.9% 11.6% 47.8% (19.3%) 29.4% (12.8%) 20.6% 35.8% 19.6%
Ratios/Supplmental Data
Net assets, end of year
(in 000's) ............................. 53,807 52,169 38,236 26,713 18,454 21,372 18,868 23,052 10,233 176
Ratio of expenses to average
net assets*<F2>......................... 1.4% 1.4% 1.6% 1.7% 1.7% 1.7% 2.3% 2.5% 2.1% 3.0%
Ratio of net investment income
(loss) to average net assets ........... 0.2% 0.2% 0.5% 0.7% 1.1% 0.3% (0.6%) (0.4%) (0.5%) (1.2%)
Portfolio turnover rate .................. 29.5% 25.2% 47.7% 64.1% 63.8% 50.5% 55.6% 80.1% 41.9% 64.5%
</TABLE>
*<F2>Includes a 1% distribution fee through December 12, 1985, a .75%
distribution fee from June 21, 1986 through September 30, 1988 and a .45%
distribution fee beginning October 1, 1988.
**<F3>On a per share basis this amount may not agree with the net realized and
unrealized gains (losses) experienced on the portfolio securities for the
period because of the timing of sales and repurchases of the Fund's shares in
relation to fluctuating market values of the portfolio.
***<F4>Total return does not include the sales load.
2
<PAGE> 8
BAIRD BLUE CHIP FUND, INC.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992 1991 1990 1989 1988 1987+<F5>
------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period....... $18.89 $18.24 $16.77 $13.60 $13.82 $11.48 $13.10 $10.00
Income from investment operations:
Net investment income .................... 0.15 0.19 0.20 0.23 0.25 0.24 0.12 0.01
Net realized and unrealized gains
(losses) on investments ................ 1.24 0.63 1.48 3.19 (0.20) 2.25 (1.68) 3.09
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 1.39 0.82 1.68 3.42 0.05 2.49 (1.56) 3.10
Less distributions:
Dividends from net
investment income ...................... (0.21) (0.17) (0.21) (0.25) (0.27) (0.15) (0.02) -
Distributions from net
realized gains ......................... (0.85) - - - - - (0.04) -
------ ------ ------ ------ ------ ------ ------ ------
Total from distributions................... (1.06) (0.17) (0.21) (0.25) (0.27) (0.15) (0.06) -
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period............. $19.22 $18.89 $18.24 $16.77 $13.60 $13.82 $11.48 $13.10
====== ====== ====== ====== ====== ====== ===== ======
TOTAL INVESTMENT RETURN***<F8>............. 7.7% 4.5% 10.1% 25.5% 0.3% 22.0% (11.8%) 13.5%*<F6>
Ratios/Supplmental Data
Net assets, end of period (in 000's) ..... 60,115 65,112 61,601 46,958 31,706 21,170 18,681 16,917
Ratio of expenses to average
net assets**<F7> ....................... 1.4% 1.3% 1.4% 1.5% 1.6% 1.7% 2.2% 2.6%*<F6>
Ratio of net investment income
to average net assets .................. 0.8% 1.0% 1.2% 1.6% 2.0% 1.9% 3.3% 0.2%*<F6>
Portfolio turnover rate .................. 12.7% 24.9% 5.4% 8.8% 12.2% 14.8% 14.8% 9.0%
</TABLE>
+<F5>For the period from December 31, 1986 (commencement of operations) to
September 30, 1987.
*<F6>Annualized.
**<F7>Includes a .75% distribution fee from December 31, 1986 through September
30, 1988 and a .45% distribution fee beginning October 1, 1988.
***<F8>Total return does not include the sales load.
BAIRD QUALITY BOND FUND
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE YEAR FROM
SEPTEMBER 30, OCTOBER 1, 1992*<F9>
1994 TO SEPTEMBER 30, 1993
------------ ---------------------
<S> <C> <C>
Per Share Operating Performance
Net asset value, beginning of year........ $10.31 $10.00
Income from investment operations:
Net investment income ................... 0.6698 0.6314
Net realized and unrealized (loss)
gain on investments ..................... (1.1975) 0.3100
-------- --------
Total from investment operations......... .(0.5277) 0.9414
Less distributions:
Dividends from net investment income ... .(0.6698) (0.6314)
Distribution from net realized gains .... (0.1125) -
-------- --------
Total from distributions.................. (0.7823) (0.6314)
-------- --------
Net asset value, end of year.............. $ 9.00 $10.31
======== ========
TOTAL INVESTMENT RETURN****<F12>......... (5.4%) 9.8%
Ratios/Supplmental Data
Net assets, end of year (in 000's) ...... 7,961 6,240
Ratio of expenses (after reimbursement)
to average net assets**<F10>........... 0.6% 0.4%
Ratio of net investment income
to average net assets***<F11>............ 7.0% 6.2%
Portfolio turnover rate ................. 99.6% 124.1%
</TABLE>
*<F9> Commencement of Operations.
**<F10>Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios would have
been 1.7% and 2.1%, respectively, for the years ended September 30, 1994 and
1993.
***<F11>The ratio of net investment income prior to adviser's expense
limitation undertaking to average net assets for the years ended September
30, 1994 and 1993 would have been 5.9% and 4.5%, respectively.
****<F12>Total return does not include the sales load.
3
<PAGE> 9
PERFORMANCE INFORMATION
The Baird Mutual Funds may provide from time to time in advertisements, reports
to shareholders and other communications with shareholders their average annual
compounded rates of return. An average annual compounded rate of return refers
to the rate of return which, if applied to an initial investment at the
beginning of a stated period and compounded over the period, would result in
the redeemable value of the investment at the end of the stated period assuming
reinvestment of all dividends and distributions and reflecting the effect of
all recurring fees. In addition, the BQB Fund may provide yield data from time
to time in advertisements, reports to shareholders and other communications
with shareholders. The yield of the BQB Fund is determined by dividing the
Fund's net investment income for a 30-day (or one month) period by the average
number of shares of the Fund outstanding during the period, and expressing the
result as a percentage of the Fund's share price on the last day of the 30-day
or one month period. This percentage is then annualized. Capital gains and
losses are not included in the yield calculation. The yield of the BQB Fund
will be affected if the BQB Fund experiences a net inflow of new money which is
invested at interest rates different from those being earned on its
then-current investments. An investor's principal in the BQB Fund and the BQB
Fund's net asset value and return are not guaranteed and will fluctuate. Yield
information may be useful in reviewing the performance of the BQB Fund and for
providing a basis for comparison with other investment alternatives. However,
since net investment income of the BQB Fund changes in response to fluctuations
in interest rates and the BQB Fund's expenses, any given yield quotation should
not be considered representative of the BQB Fund's yield for any future period.
An investor should also be aware that there are differences in investments
other than yield.
The foregoing total return information includes changes in share price and
reinvestment of dividends and capital gains as well as the maximum sales load
imposed on purchases (5.75% for the BCD Fund and the BBC Fund and 4.00% for the
BQB Fund).
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
BAIRD CAPITAL DEVELOPMENT FUND AND NASDAQ COMPOSITE INDEX
<TABLE>
<CAPTION>
Date Baird Capital Development Fund Nasdaq Composite Index
<S> <C> <C>
9/30/84 9,425 10,000
9/30/85 10,622 11,220
9/30/86 14,425 14,036
9/30/87 17,396 17,784
9/30/88 15,169 15,508
9/30/89 19,629 18,904
9/30/90 15,841 13,762
9/30/91 23,413 21,042
9/30/92 26,129 23,315
9/30/93 30,806 30,519
9/30/94 31,945 30,580
</TABLE>
Average Annual Total Return
1-Year -2.3%
5-Year +8.9%
10-Year +13.0%
Past performance is not predictive of future performance.
4
<PAGE> 10
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
BAIRD BLUE CHIP FUND AND S&P 500 INDEX
<TABLE>
<CAPTION>
Date Baird Blue Chip Fund S&P 500 Index
<S> <C> <C>
2/4/87*<F20> 9,425 10,000
9/30/87 10,867 11,710
9/30/88 9,585 10,235
9/30/89 11,693 13,581
9/30/90 11,728 12,318
9/30/91 14,719 16,186
9/30/92 16,206 17,983
9/30/93 16,935 20,321
9/30/94 18,239 21,052
</TABLE>
Average Annual Total Return
1-Year +1.5%
5-Year +8.0%
Since Inception 2/4/87 +8.2%
*<F20>Inception date
Past performance is not predictive of future performance.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN BAIRD QUALITY BOND FUND,
MERRILL DOMESTIC MASTER INDEX AND MORNINGSTAR GOVERNMENT BOND MUTUAL
FUND/CORPORATE BOND, GENERAL
<TABLE>
<CAPTION>
Baird Quality Bond Fund Baird Quality Bond Fund Merrill Domestic Master Index Morningstar Government Bond
(At Public Offering Price (At Net Asset Value) Mutual Fund/Corporate Bond,
Date 4% Sales Charge) General
<S> <C> <C> <C> <C>
10/1/92*<F21> $9,600 $10,000 $10,000 $10,000
10/31/92 $9,350 $9,742 $9,874 $9,854
11/30/92 $9,333 $9,725 $9,871 $9,855
12/31/92 $9,520 $9,920 $10,024 $9,995
1/31/93 $9,747 $10,156 $10,214 $10,187
2/28/93 $9,934 $10,351 $10,392 $10,382
3/31/93 $9,953 $10,371 $10,442 $10,441
4/30/93 $9,990 $10,410 $10,518 $10,515
5/31/93 $9,971 $10,390 $10,526 $10,529
6/30/93 $10,203 $10,632 $10,721 $10,725
7/31/93 $10,268 $10,699 $10,783 $10,795
8/31/93 $10,453 $10,892 $10,977 $10,997
9/30/93 $10,537 $10,979 $11,017 $11,038
10/31/93 $10,576 $11,020 $11,060 $11,094
11/30/93 $10,497 $10,938 $10,968 $11,001
12/31/93 $10,566 $11,009 $11,029 $11,052
1/31/94 $10,728 $11,178 $11,175 $11,199
2/28/94 $10,568 $11,012 $10,973 $11,006
3/31/94 $10,285 $10,716 $10,724 $10,755
4/30/94 $10,151 $10,578 $10,628 $10,648
5/31/94 $10,072 $10,495 $10,630 $10,630
6/30/94 $10,003 $10,423 $10,610 $10,604
7/31/94 $10,207 $10,635 $10,805 $10,753
8/31/94 $10,191 $10,619 $10,822 $10,783
9/30/94 $9,970 $10,388 $10,670 $10,665
</TABLE>
Average Annual Total Return
1-Year -9.2%
Since Inception*<F21> 10/1/92 -0.2%
*<F21>Inception Date
Past performance is not predictive of future performance.
5
<PAGE> 11
The results below show the value of an assumed initial investment of $10,000
made in each of the Baird Mutual Funds for the period shown through December
31, 1994, assuming the applicable sales charge (see page 1) and reinvestment of
all dividends and distributions.
<TABLE>
<CAPTION>
BCD BBC BQB
-------------------------- ------------------------- -------------------------
VALUE OF VALUE OF VALUE OF
OF $10,000 CUMULATIVE OF $10,000 CUMULATIVE OF $10,000 CUMULATIVE
DECEMBER 31 INVESTMENT % CHANGE INVESTMENT % CHANGE INVESTMENT % CHANGE
----------- ----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1984 $10,291*<F13> +2.9%*<F13>
1985 14,264 +42.6
1986 16,301 +63.0
1987 15,274 +52.7 $8,954*<F13> -10.5%*<F13>
1988 17,788 +77.9 9,622 -3.8
1989 22,116 +121.2 12,242 +22.4
1990 20,394 +103.9 12,611 +26.1
1991 29,916 +199.2 16,434 +64.3
1992 34,094 +240.9 16,868 +68.7 $9,520*<F13> -4.8%*<F13>
1993 38,023 +280.2 17,644 +76.4 10,566 +5.7%
1994 37,923 +279.2 18,468 +84.7 10,017 +0.2
</TABLE>
*<F13>The BCD Fund commenced operations on July 2, 1984. The BBC Fund
commenced operations on February 4, 1987. The BQB Fund commenced operations
on October 1, 1992.
The foregoing performance results are based on historical earnings and should
not be considered as representative of the performance of a Fund in the future.
An investment in a Fund will fluctuate in value and at redemption its value may
be more or less than the initial investment. The Baird Mutual Funds may compare
their performance to other mutual funds with similar investment objectives and
to the industry as a whole, as reported by Lipper Analytical Services, Inc.,
Morningstar, Inc., Money, Forbes, Business Week and Barron's magazines and The
Wall Street Journal. (Lipper Analytical Services, Inc. and Morningstar, Inc.
are independent ranking services that rank mutual funds based upon total return
performance.) The Baird Mutual Funds may also compare their performance to the
Dow Jones Industrial Average, Nasdaq Composite Index, Nasdaq Industrials Index,
Value Line Composite Index, the Standard & Poor's 500 Stock Index, the Merrill
Lynch Domestic Master Index and the Consumer Price Index.
MANAGEMENT'S DISCUSSION OF PERFORMANCE OF THE FUNDS
BAIRD CAPITAL DEVELOPMENT FUND - The principal economic factors affecting the
stock and bond markets during the fiscal year ended September 30, 1994 were the
rise in short- and long-term interest rates and the strengthening economic
recovery. Rising interest rates negatively impacted equity valuation levels
while rising earnings served as a support for stock prices. The result was a
generally sideways market for most of the year. The Fund's equity investments
have risen slightly in this environment.
BAIRD BLUE CHIP FUND - The Fund's total return without giving effect to the
5.75% front-end sales load was 7.7% which exceeded the 3.7% return of the
Standard & Poor's 500 Index. This return placed the Fund's performance 30th of
317 growth and income funds, the performance of which over the same period was
measured by Morningstar, Inc. (The Morningstar, Inc. ranking of the Fund's
performance over the one-year period ended December 31, 1994 was 13th out of
343 growth and income funds and over the five-year period ended December 31,
1994 was 59th out of 176 growth and income funds.)
6
<PAGE> 12
This strong relative performance was due in part to market conditions: the
high-quality stocks of well-established, industry-leading corporations
traditionally outperform in difficult market periods. Similarly, the Fund
outperformed the S&P 500 Index and other stock mutual funds in the recession
year of 1990 and the crash year of 1987. Equally important, the Fund benefitted
from economic recovery in Europe and Japan and continued rapid expansion in the
emerging economies. As of September 30, 1994, 22 of the 36 companies in the
Fund derived more than 35% of their total sales from international (non U.S.)
markets, and their stocks were among the best performing in the Fund during the
fiscal year.
BAIRD QUALITY BOND FUND - The rise in interest rates that began in February
sparked a decline in bond prices of extreme severity. As a result, the fixed
income markets recorded among the poorest total returns in over fifty years.
The performance of the BQB Fund, which invests primarily in U.S.
non-convertible bonds and debentures, was adversely affected by these market
conditions.
INTRODUCTION
The BCD Fund was incorporated under the laws of Wisconsin on February 21, 1984.
The BBC Fund was incorporated under the laws of Wisconsin on October 16, 1986.
The Baird Funds, Inc., of which the BQB Fund is a portfolio, was incorporated
under the laws of Wisconsin on June 26, 1992. The BCD Fund, BBCFund and The
Baird Funds, Inc. are open-end, diversified management investment companies
registered under the Investment Company Act of 1940. As open-end investment
companies they obtain their assets by continuously selling shares of their
common stock to the public. Proceeds from such sales are invested by the Funds
in securities of other companies. In this manner, the resources of many
investors are combined and each individual investor has an interest in every
one of the securities owned by the Fund in which he has invested. The Funds
provide each individual investor with diversification by investing in the
securities of many different companies in a variety of industries and furnish
experienced management to select and watch over its investments. As open-end
investment companies, the Baird Mutual Funds will redeem any of their
outstanding shares on demand of the owner at their net asset values.
Shares of each Fund will be sold by the Funds' Distributor, Robert W. Baird &
Co. Incorporated (''Baird''), in accordance with both Distribution Plans and
related Distribution Assistance Agreements adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the ''1940 Act''), and
Distribution Agreements between each of the Baird Mutual Funds and Baird.
Pursuant to the Distribution Agreements investors may purchase shares of any
Baird Mutual Fund's common stock at net asset value plus a maximum sales charge
ranging from 4.00% to 5.75% of the offering price. Reduced sales charges apply
to purchases of $50,000 or more for the BCD Fund and the BBC Fund and $100,000
or more for the BQB Fund with no sales charges applicable to certain purchases.
See ''Purchase of Shares.''
INVESTMENT OBJECTIVES AND POLICIES
BAIRD CAPITAL DEVELOPMENT FUND - The primary investment objective of the
BCDFund is long-term capital appreciation, and securities will be selected for
its portfolio primarily on this basis. It is anticipated that the major portion
of the BCDFund's portfolio will ordinarily be invested in common stocks.
Fiduciary Management, Inc. (''FMI''), the BCDFund's investment adviser,
purchases those common stocks which it believes to be underpriced relative to
the issuing corporation's future growth prospects. Such common stocks
frequently will be issued by smaller and medium capitalization companies in the
growth stage of development. See ''Portfolio Securities and Investment
Practices.'' The BCD Fund will also purchase common stocks where the price is
significantly below the estimated market value of the issuing corporation's
assets less its liabilities on a per share basis. In making a determination
that the above criteria is met with respect to a particular common stock, FMI
generally will study the financial statements
7
<PAGE> 13
of the issuing corporation and other companies in the same industry, market
trends and economic conditions in general. FMI is assisted by Baird which acts
as the BCD Fund's sub-adviser. See ''Management of the Funds.'' Since current
income is only a secondary objective in the selection of investments, a
particular issuer's dividend history is not a primary consideration. As a
consequence shares of the BCD Fund are not suitable investments for investors
needing current income. There can be no assurance that the primary objective of
the BCD Fund will be realized or that any income will be earned. There can be no
assurance that the BCD Fund's portfolio will not decline in value and the BCD
Fund's net asset value likely will be more volatile than that of a fund that
invests primarily in common stocks of larger, more established companies or in
investment grade income securities.
Although it is anticipated that the major portion of the BCD Fund's portfolio
will ordinarily be invested in common stocks, no minimum or maximum percentage
of the BCD Fund's assets is required to be invested in common stocks or any
other type of security. When FMI believes securities other than common stocks
offer opportunity for long-term capital appreciation, the BCD Fund may invest in
publicly distributed corporate bonds and debentures, preferred stocks,
particularly those which are convertible into or carry rights to acquire common
stocks, and warrants. See ''Portfolio Securities and Investment Practices.'' The
BCD Fund will limit its investments in corporate bonds and debentures to those
which have been assigned one of the highest three ratings of either Standard &
Poor's Corporation (''S&P'') or Moody's Investors Service, Inc. (''Moody's'')
and will invest in corporate bonds and debentures only when FMI believes
interest rates on such investments may decline thereby potentially increasing
the market value of the corporate bonds and debentures purchased by the BCD
Fund. A description of the foregoing ratings is set forth in the Statement of
Additional Information under the caption ''Description of Bond Ratings.'' Under
normal market conditions, the BCD Fund expects at all times to have at least
65% of its total assets invested in securities which FMI believes offer
opportunity for growth of capital.
The BCD Fund may invest up to 10% of its assets in securities of foreign
issuers. See ''Portfolio Securities and Investment Practices.''
BAIRD BLUE CHIP FUND - The primary investment objective of the BBC Fund is to
produce long-term growth of capital and income. Current income is a secondary
objective. It is anticipated that the major portion of the BBC Fund's portfolio
will ordinarily be invested in dividend-paying common stocks. Baird, the BBC
Fund's investment adviser, will purchase common stocks of issuers which it
believes to have superior fundamental characteristics which may include:
an experienced and tested management
a superior and pragmatic growth strategy
leadership positions in their market
proprietary products, processes or services
an above-average record of dividend consistency and growth
a strong balance sheet
In determining that the above characteristics are present with respect to
specific investments, Baird generally will study the financial statements of
the issuing corporations and other companies in the same industry, the issuing
corporation's reports to shareholders and analysts and general economic and
industry reports of brokers. In determining whether an issuer has an above-
average record of dividend consistency and growth Baird will generally compare
the dividend record of the issuer in question with the dividend record of
similarly sized issuers over a period of time which Baird believes covers the
full peak-to-peak range of a business cycle. The BBC Fund, under normal market
conditions, will have at least 65% of its total assets invested in common
stocks rated A+, A or A- by S&P. Baird considers common stocks so rated to be
''blue chip'' stocks. Up to 10% of the BBC Fund's portfolio of common stocks may
be unrated or rated below B+ by S&P.
8
<PAGE> 14
In rating common stocks S&P primarily considers stability of earnings and
dividends over the most recent 10 years. The dividends and earnings records of
issuers are compared and then aligned with the following order of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D Reorganization
A- Above Average B- Lower
An S&P common stock rating is not a forecast of future market price performance
as it is basically an appraisal of past performance of earnings and dividends,
and relative current standing. The ratings cannot take into account potential
effects of management changes, internal company policies not yet fully
reflected in the earnings and dividend record, public relations standing,
recent competitive shifts, and other factors which may be relevant to
investment status and decisions. Common stocks may be unrated because of
insufficient data or because they are not amenable to the ranking process (i.e.
publicly traded for less than 10 years). A more detailed description of the S&P
common stock ratings as well as a description of the other securities ratings
referred to below is set forth in the Statement of Additional Information under
the caption ''Description of Securities Ratings.''
The investment philosophy employed by Baird seeks to avoid strategies which
pursue aggressive growth through short-term investment techniques or high-risk
speculation. Substantial emphasis is placed on the fundamental investment
quality (i.e. the earnings, dividends and operations of an issuer) of the
securities purchased. The portfolio will be diversified among securities issued
by different companies and will not be concentrated in any single industry.
Since current income is only a secondary objective of the BBC Fund, shares of
the BBC Fund may not be an appropriate investment for investors needing current
income. Notwithstanding the foregoing there can be no assurances that the BBC
Fund's investment objectives will be achieved. There can be no assurance that
the BBC Fund's portfolio will not decline in value and the BBC Fund's net asset
value likely will be more volatile than that of a fund that invests primarily
in investment grade income securities.
When Baird believes securities other than common stocks offer opportunity for
long-term growth of capital and income, the BBC Fund may invest in United
States government securities, publicly distributed corporate bonds and
debentures and convertible preferred stocks and debt securities. See
''Portfolio Securities and Investment Practices.'' The BBC Fund will limit its
investments in non-convertible corporate bonds and debentures to those which
have been assigned one of the highest three ratings of either S&P or Moody's.
The BBC Fund will invest in United States government securities and corporate
bonds and debentures when Baird believes interest rates on such investments may
decline thereby potentially increasing the market value of the United States
government securities and corporate bonds and debentures purchased by the BBC
Fund or to meet the additional investment objective of producing current
income. The BBC Fund will limit its investments in convertible securities to
those which have been assigned one of the highest three ratings of S&P or
Moody's and in which the underlying common stock is a suitable investment for
the BBC Fund. Under normal market conditions, the BBC Fund expects at all
times to have at least 80% of its total assets invested in securities which
Baird believes offer opportunity for long-term growth of capital and income.
BAIRD QUALITY BOND FUND - The investment objective of the BQB Fund is to
provide a high level of current income. The BQB Fund will seek to achieve its
investment objective through investments in a diversified portfolio of
investment grade debt securities. Investment grade securities are (i) bonds,
debentures, notes and other debt instruments rated at least BBB by S&P or Baa
by Moody's at the time of acquisition; (ii) commercial paper and cash
equivalents rated A-1 by S&P or Prime-1 by Moody's at the time of acquisition;
and (iii) any type of unrated debt security which Baird determines at the time
of acquisition to be of a quality comparable to the foregoing. A description of
the foregoing ratings is set forth in the BQB Fund's Statement of Additional
Information under the caption ''Description of Securities Ratings.'' It is
anticipated that at least 80% of the BQB Fund's assets, under normal market
conditions will be invested in the following:
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U.S. non-convertible debt securities issued by corporations and
municipalities including bonds, debentures and notes;
Debt securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities (''U.S. government securities'');
Mortgage-backed securities, collateralized mortgage obligations and other
asset-backed securities;
Commercial paper, repurchase agreements, certificates of deposit, bankers
acceptances and other cash equivalents.
Investments in mortgage-backed securities, collateralized mortgage obligations
and other asset-backed securities must be rated at least either AA by S&P or Aa
by Moody's or unrated but determined by Baird to be of comparable quality. The
BQB Fund has adopted an investment policy pursuant to which it will invest,
under normal market conditions, at least 65% of its total assets in U.S. non-
convertible bonds and debentures issued by corporations or municipalities,
their agencies or instrumentalities or issued or guaranteed by the U.S.
government or its agencies or instrumentalities. See ''Portfolio Securities and
Investment Practices.''
The values of the securities in the BQB Fund are subject to price fluctuations
resulting from various factors, including rising or declining interest rates
(''market risks'') and the ability of the issuers of such investments to make
scheduled interest and principal payments (''financial risks''). Baird attempts
to manage these risks when selecting investments by taking into account
interest rates, terms and marketability of obligations, as well as such factors
as the capitalization, earnings, liquidity and other indicators of the issuer's
financial condition. The BQB Fund's intention to invest only in investment
grade securities (determined at the time of acquisition) will also limit to
some degree financial risks. Obligations rated BBB by S&P and Baa by Moody's,
although investment grade, do exhibit speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher-rated obligations. Unrated securities, while not necessarily of lower
quality than rated securities, may not have as broad a market as rated
securities. In addition, there may be less publicly available information with
respect to unrated securities and, to the extent that the BQB Fund invests in
unrated securities, it will be more dependent on the research and analyses
performed by Baird. The BQB Fund will not acquire a security rated BBB by S&P or
Baa by Moody's or an unrated security which is determined by Baird to be of
comparable quality if after such acquisition more than 35% of the BQB Fund's
total assets would be invested in such securities. The BQB Fund may retain up
to 5% of its net assets in securities whose ratings or quality have been
downgraded to below investment grade subsequent to their acquisition. Such
securities should be regarded as speculative and may be in default in the
payment of interest or principal.
The value of fixed-income securities generally will tend to decrease when
interest rates rise and increase when interest rates fall. The BQB Fund's share
price generally will react similarly. When Baird believes interest rates will
decline significantly, the BQB Fund generally will emphasize longer-term
securities. Conversely, when interest rates are expected to rise significantly,
the BQB Fund generally will emphasize shorter-term securities. Shorter-term
securities, while offering lower yields, generally provide greater price
stability than longer-term securities and are less affected by changes in
interest rates. The BQB Fund has the flexibility to invest in fixed income
securities without restriction upon the average maturity of the BQB Fund's
securities. To the extent that the BQB Fund invests to a significant degree in
longer-term securities, the net asset value of the BQB Fund may be more
volatile.
The BQB Fund is also authorized to engage in certain futures and option
transactions, although it has no intention of doing so during its fiscal year
ending September 30, 1995. See the BQB Fund's Statement of Additional
Information for a discussion of such transaction and some of the associated
risks.
CERTAIN ADDITIONAL POLICIES OF THE BAIRD MUTUAL FUNDS - Under certain
circumstances each of the BCD Fund, the BBC Fund and the BQB Fund may (a)
temporarily borrow money from banks for emergency or extraordinary
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borrowings, (b) pledge its assets to secure borrowings and (c) purchase
securities of other investment companies. Additionally the BCD Fund may (d)
invest in warrants and (e) invest in securities of issuers which have a record
of less than three years of continuous operations. A more complete discussion of
the circumstances in which the Baird Mutual Funds may engage in these activities
is included in their Statements of Additional Information. Except for the
investment policies discussed in this paragraph, the primary investment
objective and the other policies described under this caption are not
fundamental policies and may be changed without shareholder approval.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES - A change in a Baird Mutual
Fund's investment objective may result in a Baird Mutual Fund having investment
objectives different from the objectives which the shareholder considered
appropriate at the time of investment in such Baird Mutual Fund. At least 30
days prior to any change by a Baird Mutual Fund in its investment objectives,
the Baird Mutual Fund will provide written notice to all of its shareholders
regarding the proposed change.
PORTFOLIO SECURITIES AND INVESTMENT PRACTICES
Below is a brief description of the primary types of securities and investment
practices in which the Baird Mutual Funds may invest and engage, together with
a brief discussion of certain of the risks inherent in such investments.
COMMON STOCKS - The BCD Fund and the BBC Fund ordinarily will invest in common
stocks. Common stocks represent the residual ownership interest in the issuer
and are entitled to the income and increase in the value of the assets and
business of the entity after all of its obligations and preferred stocks are
satisfied. Common stocks generally have voting rights. Common stocks fluctuate
in price in response to many factors including historical and prospective
earnings of the issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market liquidity.
SMALLER CAPITALIZATION AND LESS SEASONED COMPANIES - The BCD Fund may invest in
smaller capitalization companies in the earlier stages of development. Smaller
growth companies may offer greater potential for capital appreciation than
larger companies. Smaller growth companies frequently have new products or
technologies, new distribution methods, rapid changes in industry conditions
due to regulatory or other developments, changes in management or similar
characteristics that may result not only in growth in revenues but in an
accelerated or above average rate of earnings growth. In addition, because they
are less actively followed by stock analysts and less information is available
on which to base stock price evaluations, the market may overlook favorable
trends in particular smaller growth companies, and then adjust its valuation
more quickly once investor interest is developed.
On the other hand, higher market risks are often associated with smaller growth
companies. They may have limited product lines, markets, market share and
financial resources, or they may be dependent on a small or inexperienced
management team. In addition, their stocks may trade less frequently and in
more limited volume and be subject to greater and more abrupt price swings than
stocks of larger companies.
PREFERRED STOCK - The BCD Fund and the BBC Fund may invest in preferred stocks.
Preferred stock has a preference over common stock in liquidation (and
generally dividends as well) but is subordinated to the liabilities of the
issuer in all respects. As a general rule the market value of preferred stock
with a fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk, while the market price of convertible
preferred stock generally also reflects some element of conversion value.
Because preferred stock is junior to debt securities and other obligations of
the issuer, deterioration in the credit quality of the issuer will cause
greater changes in the value of a preferred stock than in a more senior debt
security with similar stated yield characteristics. Unlike interest payments on
debt securities, preferred stock dividends are payable
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only if declared by the issuer's board of directors. Preferred stock also may be
subject to optional or mandatory redemption provisions.
WARRANTS - The BCD Fund may invest in warrants, which are securities
permitting, but not obligating, their holders to subscribe for other
securities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As
a result, an investment in warrants may be considered to be more speculative
than certain other types of investments. In addition, the value of a warrant
does not necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to its expiration
date.
CONVERTIBLE SECURITIES - The BCD Fund and the BBC Fund each may invest in
convertible securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock or other equity security of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible income
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities may be subject to redemption at the option
of the issuer at a price established in the convertible security's governing
instrument.
FOREIGN SECURITIES - The BCD Fund and the BBC Fund may invest in securities of
foreign issuers. These securities may be U.S. dollar-denominated or
denominated in foreign currencies. Investments in securities of foreign issuers
involve risks which are in addition to the usual risks inherent in domestic
investments. In many countries, there is less publicly available information
about issuers than is available in the reports and ratings published about
companies in the United States. Additionally, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards. Foreign
markets may be subject to less regulation, may be less liquid and of smaller
capitalization than U.S. markets and frequently are subject to greater
volatility. Dividends and interest on foreign securities may be subject to
foreign withholding taxes which would reduce a Fund's income without providing
a tax credit for the Fund shareholders. Although the Funds intend to invest in
securities of foreign issuers domiciled in nations in which their respective
investment advisers consider as having stable and friendly governments, there
is a possibility of expropriation, confiscatory taxation, currency blockage or
political or social instability which could affect investments in those
nations. With respect to securities denominated in foreign currencies, the
value of such foreign securities will rise or fall because of changes in
currency exchange rates and the Funds may incur certain costs in converting
securities denominated in foreign securities to U.S. dollars. The Fund's
custodian, Firstar Trust Company, may retain one or more subcustodians to
retain custody of all or a portion of each Fund's foreign securities.
Investment in foreign securities also typically involves greater expenses than
investment in U.S. securities.
In an effort to manage exposure to currency fluctuations, the BCD Fund's and
BBC Fund's investment advisers may enter into forward currency exchange
contracts (agreements to exchange one currency for another at a future date)
and may diversify currencies. Currency exchange contracts allow a Fund to fix a
definite price in dollars for securities it has agreed to buy or sell or can be
used to hedge a Fund's foreign investments against adverse exchange rate
changes. These strategies may require a Fund to set aside liquid high grade
debt securities in a segregated custodial account to cover its obligations.
This segregated account will be required whenever the liabilities under
contracts involving currencies exceed the value of securities denominated in
that currency.
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Each Fund has no specific limitation on the percentage of assets it may commit
to foreign currency exchange contracts, except that a Fund will not enter into
a foreign currency exchange contract if the amount of assets set aside to cover
the contract in the investment adviser's view would impede portfolio management
or a Fund's ability to meet redemption requests.
The BCD Fund and the BBC Fund may hold securities of U.S. and foreign issuers
in the form of American Depositary Receipts (''ADRs''), American Depositary
Shares (''ADSs'') or European Depositary Receipts (''EDRs''). These securities
may not necessarily be denominated in the same currency as the securities for
which they may be exchanged. ADRs and ADSs typically are issued by an American
bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation. Generally, ADRs and ADSs in registered form are designed
for use in U.S. securities markets. For purposes of the Funds' investment
policies, the Funds' investments in ADRs and ADSs will be deemed to be
investments in equity securities representing the securities of foreign issuers
into which they may be converted.
EDRs, which sometimes are referred to as Continental Depositary Receipts
(''CDRs''), are receipts issued in Europe, typically by foreign banks and trust
companies, that evidence ownership of either foreign or U.S. securities.
Generally, EDRs and CDRs, in bearer form, are designed for use in European
securities markets.
CORPORATE DEBT SECURITIES - Each of the Baird Mutual Funds may invest in
corporate debt securities. Corporations issue debt securities of various types,
including bonds and debentures (which are long-term), notes (which may be
short- or long-term), certificates of deposit (unsecured borrowings by banks),
bankers acceptances (indirectly secured borrowings to facilitate commercial
transactions) and commercial paper (short-term unsecured notes). These
securities typically provide for periodic payments of interest, which may be
fixed or adjustable rate with payment of principal upon maturity and are
generally not secured by assets of the issuer or otherwise guaranteed. The
values of fixed rate income securities tend to vary inversely with changes in
interest rates, with longer-term securities generally being more volatile than
shorter-term securities. Corporate securities frequently are subject to call
provisions that entitle the issuer to repurchase such securities at a
predetermined price prior to their stated maturity. In the event that a
security is called during a period of declining interest rates, a Fund may be
required to reinvest the proceeds in securities having a lower yield. In
addition, in the event that a security was purchased at a premium over the call
price, a Fund will experience a capital loss if the security is called.
Adjustable rate corporate debt securities may have interest rate caps and
floors as well as other features similar to those of mortgage-backed securities
discussed below.
None of the Baird Mutual Funds will invest in corporate debt securities rated
below investment grade by S&P and Moody's or in unrated corporate debt
securities believed by the Fund's investment adviser to be below investment
grade quality. Securities rated in the four highest long-term rating categories
by S&P and Moody's are considered to be ''investment grade.'' S&P's fourth
highest long-term rating category is ''BBB'', with BBB-being the lowest
investment grade rating. Moody's fourth highest long-term rating category is
''Baa'', with Baa3 being the lowest investment grade rating. Publications of
S&P indicate that it assigns securities to the ''BBB'' rating category when
such securities are ''regarded as having an adequate capacity to pay interest
and repay principal. [Such securities] normally exhibit adequate protection
parameters, but adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay,'' whereas securities rated AAA by
S&P are regarded as having ''capacity to pay interest and repay principal
[that] is extremely strong.'' Publications of Moody's indicate that it assigns
securities to the ''Baa'' rating category when such securities ''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
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characteristics and in fact have speculative characteristics as well,'' whereas
securities rated Aaa by Moody's ''are judged to be of the best quality'' and
''carry the smallest degree of investment risk.''
U.S. GOVERNMENT SECURITIES - All of the Baird Funds may invest in securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. These include Treasury securities (bills, notes, bonds and
other debt securities) which differ only in their interest rates, maturities
and times of issuance. U.S. government agency and instrumentality securities
include securities which are supported by the full faith and credit of the
U.S., securities that are supported by the right of the agency to borrow from
the U.S. Treasury, securities that are supported by the discretionary
authority of the U.S. government to purchase certain obligations of the agency
or instrumentality and securities that are supported only by the credit of such
agencies. While the U.S. government may provide financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it always will do so. The U.S. government, its agencies and
instrumentalities do not guarantee the market value of their securities and
consequently the values of such securities fluctuate.
ZERO COUPON, DEEP DISCOUNT AND PAYMENT-IN-KIND SECURITIES - Each of the Baird
Mutual Funds may invest in ''zero coupon'' and other deep discount securities
of governmental or private issuers. Zero coupon securities generally pay no
cash interest (or dividends in the case of preferred stock) to their holders
prior to maturity. Each of the BCD Fund and the BBC Fund may invest in
payment-in-kind securities, which allow the issuer, at its option, to make
current interest payments on such securities either in cash or in additional
securities. Accordingly, such securities usually are issued and traded at a
deep discount from their face or par value and generally are subject to greater
fluctuations of market value in response to changing interest rates than
securities of comparable maturities and credit quality that pay cash interest
(or dividends in the case of preferred stock) on a current basis.
Although a Fund will receive no payments on its zero coupon securities, and may
receive no cash payments on its payment-in-kind securities, prior to their
maturity or disposition, it will be required for federal income tax purposes
generally to include in its dividends each year an amount equal to the annual
income that accrues on its zero coupon securities and any non-cash ''interest''
it receives on its payment-in-kind securities. Such dividends will be paid from
the cash assets of the Fund, from borrowings or by liquidation of portfolio
securities, if necessary, at a time that the Fund otherwise would not have done
so. To the extent the proceeds from any such dispositions are used by the Fund
to pay distributions, the Fund will not be able to purchase additional income-
producing securities with such proceeds, and as a result its current income
ultimately may be reduced.
STRIPPED INCOME SECURITIES - Each of the Baird Mutual Funds may invest in
stripped income securities. Stripped income securities or obligations represent
an interest in all or a portion of the income or principal components of an
underlying or related security, a pool of securities or other assets. In the
most extreme case, one class will receive all of the interest, while the other
class will receive all of the principal. The market values of stripped income
securities tend to be more volatile in response to changes in interest rates
than are those of conventional income securities.
PREMIUM SECURITIES - Each of the Baird Mutual Funds may at times invest in
securities bearing coupon rates higher than prevailing market rates. Such
''premium'' securities are typically purchased at prices greater than the
principal amounts payable on maturity. If an issuer were to call or redeem
securities held by a Fund during a time of declining interest rates, the Fund
may not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed. If securities purchased by a Fund
at a premium are called or sold prior to maturity, the Fund generally will
recognize a capital loss to the extent the call or sale price is less than
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the Fund's adjusted tax basis in such securities. Similarly, the Fund generally
will recognize a capital loss in the event that such securities are held to
maturity.
ADJUSTABLE AND FLOATING RATE SECURITIES - Each of the Baird Mutual Funds may
invest in adjustable and floating rate securities. Adjustable and floating rate
securities are securities having interest rates or dividends which are adjusted
or reset at periodic intervals ranging, in general, from one day to several
years, based on a spread over or under a specific interest rate or interest
rate index or on the results of periodic auctions. Adjustable and floating rate
securities allow a Fund to participate in increases in interest rates through
periodic upward adjustments of the coupon rates of such securities, resulting
in higher yields. During periods of declining interest rates, however, coupon
rates may readjust downward resulting in lower yields. Adjustments in coupon
rates on such securities may, however, lag changes in market rates of interest.
Adjustable and floating rate securities may be subject to caps above which
their interest rates may not be adjusted and floors below which their interest
rates may not be adjusted.
MUNICIPAL SECURITIES - The BQB Fund may invest in debt obligations issued by or
on behalf of the governments of states, territories or possessions of the
United States, the District of Columbia and their political subdivisions,
agencies and instrumentalities, certain interstate agencies and certain
territories of the United States. The BQB Fund may invest in both taxable and
federal income tax-exempt municipal securities, although it expects that its
investments in municipal securities ordinarily will be taxable. The two
principal classifications of municipal securities are ''general obligation''
and ''revenue'' securities. ''General obligation'' securities are secured by
the issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. ''Revenue'' securities are usually payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise tax or other specific revenue
source. Industrial development bonds are usually revenue securities, the credit
quality of which is normally directly related to the credit standing of the
industrial user involved. Within these principal classifications of municipal
securities, there are a variety of categories of municipal securities,
including fixed and variable rate securities, municipal bonds, municipal notes,
municipal leases, custodial receipts and participation certificates. Certain of
the municipal securities in which the BQB Fund may invest represent relatively
recent innovations in the municipal securities markets. Because the BQB Fund
does not intend to invest a substantial amount of its assets in municipal
securities, the interest on which is exempt from federal income tax, the BQB
Fund does not expect to be entitled to pass through to its shareholders the
tax-exempt nature of any interest income attributable to investments in
municipal securities.
MORTGAGE-BACKED SECURITIES - The BQB Fund may invest in mortgage-backed
securities. Mortgage-backed securities are securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans secured by real property. Mortgage-backed securities include
guaranteed government agency mortgage-backed securities, which represent
participation interests in pools of residential mortgage loans originated by
U.S. governmental or private lenders and guaranteed, to the extent provided in
such securities, by the U.S. Government or one of its agencies or
instrumentalities. Guaranteed government agency mortgage-backed securities in
which the Funds may invest include those issued or guaranteed by the Government
National Mortgage Association (''Ginnie Mae''), the Federal National Mortgage
Association (''Fannie Mae'') and the Federal Home Loan Mortgage Corporation
(''Freddie Mac''). Mortgage-backed securities also include privately issued
mortgage-backed securities, which are not guaranteed by any agency or
instrumentality of the U.S. government. Such securities generally are issued
with some form of credit support. Securities issued by entities other than
governmental entities may offer a higher yield but also may be subject to
greater price fluctuations and credit risk than securities issued by
governmental entities. Mortgage-backed securities may
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represent ownership interests in the underlying mortgage loans and provide for
monthly payments that are a ''pass-through'' of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans. Mortgage-backed
securities also include collateralized mortgage obligations (''CMOs''). CMOs are
securities collateralized by mortgages or other mortgage-backed securities. In a
CMO, a series of bonds or certificates is issued in multiple classes. Each class
of a CMO, often referred to as a ''tranche,'' is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Interest typically is paid or accrues on classes of the CMO on a monthly,
quarterly or semi-annual basis. Because most CMO tranches typically provide for
the periodic payment of principal and are subject to principal prepayment, the
actual duration of a CMO typically will be significantly less than the stated
maturity or final distribution date. In addition, principal prepayments on the
underlying collateral may cause CMOs to be retired substantially earlier than
their stated maturities or final distribution dates. The principal of and
interest on the underlying collateral may be allocated among the several classes
of a CMO series in innumerable ways, some of which bear substantially more risk
than others. CMOs may be issued by governmental or nongovernmental entities such
as banks and other mortgage lenders.
The yield characteristics of mortgage-backed securities differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently and that principal may be prepaid
at any time because the underlying mortgage loans generally may be prepaid at
any time. As a result, if the BQB Fund purchases a security at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if the BQB Fund purchases
the securities at discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity. Certain
types of derivative mortgage-backed securities are designed to be highly
sensitive to changes in prepayment and interest rates and can subject the
holders thereof to extreme reductions of yield and possibly loss of principal.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors. Generally, however, prepayments
on fixed rate mortgage loans will increase during a period of falling interest
rates and decrease during a period of rising interest rates. Accordingly,
amounts available for reinvestment by the BQB Fund are likely to be greater
during periods of declining interest rates and, as a result, likely to be
reinvested at lower interest rates. Adjustable rate mortgages are subject to
prepayment risks in a manner similar to fixed rate mortgages although to a
lesser degree.
No assurance can be given as to the liquidity of the market for mortgage-backed
securities. Determination as to the liquidity of such securities will be made
in accordance with guidelines established by the BQB Fund's board of directors.
The values of mortgage-backed securities may change for a variety of reasons in
addition to changes in interest and prepayment rates, including changes in the
market's perception of the creditworthiness of the Federal agency that issued
or guaranteed them and changes in market conditions.
ASSET-BACKED SECURITIES - The BQB Fund also may invest in asset-backed
securities. The securitization techniques used to develop mortgage-backed
securities are now also applied to a broad range of assets, primarily
automobile and credit card receivables. Other types of asset-backed securities
may be developed in the future. In general, the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments. Asset-backed securities present
certain risks that are not presented by mortgage-backed securities. Primarily,
these securities do not have the benefit of the same security interest in the
related collateral as do mortgage-backed securities.
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OTHER DEBT OBLIGATIONS - Bank Obligations - Certificates of deposit are
certificates representing the obligation of a bank to repay funds deposited
with it for a specified period of time. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits
are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Time deposits which may be
held by the Baird Mutual Funds might not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation.
Commercial Paper - Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs and includes
commercial paper master notes (which are demand instruments with variable
coupon rates). Commercial paper purchased by the Baird Mutual Funds will
consist of direct obligations issued by domestic entities and will be rated in
one of the two highest rating categories by a nationally recognized rating
organization or will be unrated but determined by the Fund's investment adviser
to be of comparable credit quality.
REPURCHASE AGREEMENTS - Each Baird Mutual Fund may enter into repurchase
agreements with banks and broker-dealers, under which the Fund purchases
securities issued by the U.S. government or its agencies and instrumentalities
or other securities, and agrees to resell the securities at an agreed upon time
and at an agreed upon price. Repurchase agreements may be considered
collateralized loans by a Fund and the difference between the amount the Fund
pays for the securities and the amount it receives upon resale is accrued as
interest and reflected in the Fund's net income. When a Fund enters into
repurchase agreements, it relies on the seller to repurchase the securities.
Failure to do so may result in a loss for the Fund if the market value of the
securities is less than the repurchase price. At the time a Fund enters into a
repurchase agreement, the value of the underlying security including accrued
interest will be equal to or exceed the value of the repurchase agreement and,
for repurchase agreements that mature in more than one day, the seller will
agree that the value of the underlying security including accrued interest will
continue to be at least equal to the value of the repurchase agreement. In
determining whether to enter into a repurchase agreement with a bank or broker-
dealer, a Fund will take into account the creditworthiness of such party. The
Funds will only enter into repurchase agreements with entities which are
primary dealers in United States government securities or are among the top 100
domestic banks measured by assets. In the event of default by such party, a
Fund may not have the right to the underlying security and there may be
possible delays and expenses in liquidating the security purchased, resulting
in a decline in its value and loss of interest. Neither the BCD Fund nor the
BBC Fund will invest over 5% of its respective net assets in repurchase
agreements. The BQB Fund may invest in repurchase agreements having a duration
of seven days or less without limitation. Repurchase agreements that mature in
more than seven days are considered illiquid.
SHORT-TERM INVESTMENTS - Each Baird Mutual Fund may invest without limitation
in short-term instruments as a reserve for expenses or anticipated redemptions
and as a temporary defensive measure when the Fund's investment adviser deems
appropriate. The Baird Mutual Funds are not required to employ temporary
defensive techniques and the Fund's respective investment advisers ordinarily
do not actively seek to predict short- to intermediate-term changes in the
overall securities markets. Accordingly, the Funds will not necessarily employ
these techniques in anticipation of or response to a deterioration in the
markets in which they invest. To the extent that a Fund invests to a
significant degree in these instruments, its ability to achieve its primary
investment objective may be adversely effected. Short-term investments are debt
securities or other instruments having a remaining fixed maturity or time until
demand feature effectiveness of 18 months or less and that are
17
<PAGE> 23
issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities or that are rated in one of the two highest rating categories
by a nationally recognized rating organization or unrated but determined by
Baird to be of comparable credit quality. Short-term investments include
treasury bills and other U.S. government and government agency securities, bank
obligations, commercial paper and repurchase agreements.
WHEN-ISSUED SECURITIES - The BQB Fund may purchase securities on a forward
commitment or when-issued basis, where the price of the security is fixed at
the time the commitment is made. Delivery of and payment for such securities
typically occur 15 to 90 days after the commitment to purchase. These
transactions are subject to market fluctuations; the value of the securities at
delivery may be more or less than their purchase price and yields available on
comparable debt securities at the time of delivery may be higher or lower than
those contracted for on the when-issued security. The BQB Fund will make
commitments to purchase when-issued securities only with the intention of
actually acquiring the securities, but the BQB Fund may sell these securities
before the settlement if Baird deems it advisable. The BQB Fund will not accrue
income in respect to a when-issued security prior to its stated delivery date.
When the BQB Fund purchases securities on a when-issued basis it will maintain
in a segregated account with the Fund's custodian cash or marketable securities
having an aggregate value equal to the amount of the purchase commitment until
payment is made. When-issued securities may decline or increase in value during
the period from the investment commitment to the settlement of the purchase and
involve a degree of investment leverage. Such transactions also involve the
risk that the counterparty to the transaction fails to perform.
ILLIQUID SECURITIES - The BCD Fund and the BBC Fund may invest in illiquid
securities, which may include repurchase agreements maturing in more than seven
days and other securities that can not be sold in seven days at approximately
the price at which they are valued. The BCD Fund and the BBC Fund may not
invest in restricted securities. A Fund will not acquire illiquid securities
if, as a result, they would comprise more than 10% of the value of the Fund's
net assets. The Board of Directors of a Fund or its delegate has the ultimate
authority to determine, to the extent permissible under the federal securities
laws, which securities are liquid or illiquid for purposes of this limitation.
Securities that may be resold pursuant to Rule 144A under the Securities Act
may be considered liquid by the Board of Directors. Risks associated with
illiquid securities include the potential inability of a Fund to promptly sell
a portfolio security after its decision to sell, potential difficulties in
valuation and potentially greater market volatility.
PORTFOLIO TURNOVER - Due to the fact the BCD Fund and the BBC Fund do not intend
to place emphasis on short-term trading, and their investment advisers will
consider an issuer's growth prospects over a three to five year period, the BCD
Fund and the BBC Fund expect usually to have an annual portfolio turnover rate
of less than 65%. As with the BCD Fund and the BBC Fund, the portfolio turnover
rate of the BQB Fund will vary from year to year depending on market conditions.
Baird may vary the average maturity of the portfolio of the BQB Fund depending
on its interest rate outlook. Baird anticipates that the annual portfolio
turnover rate of the BQB Fund may exceed 50% but generally will not exceed 100%.
The annual portfolio turnover rate indicates changes in a Fund's portfolio and
is calculated by dividing the lesser of purchases or sales of portfolio
securities (excluding securities having maturities at acquisition of one year or
less) for the fiscal year by the monthly average of the value of the portfolio
securities (excluding securities having maturities at acquisition of one year or
less) owned by the Fund during the fiscal year. The annual portfolio turnover
rate may vary widely from year to year depending upon market conditions and
prospects. High turnover in any year may result in the payment by a Fund of
above average amounts of brokerage commissions or dealer mark-ups.
18
<PAGE> 24
MANAGEMENT OF THE FUNDS
As Wisconsin corporations the business and affairs of the Baird Capital
Development Fund, Inc., Baird Blue Chip Fund, Inc. and The Baird Funds, Inc.
are managed by their Boards of Directors who are assisted by the Funds'
officers. The following are the directors and officers of the Baird Mutual
Funds:
DIRECTORS
James D. Bell*<F14> Reverend Albert J. DiUlio, S.J. George C. Kaiser
Managing Director President of Sole Proprietor of
and Chief Marquette University George Kaiser & Co.
Administrative Officer
of Robert W. Baird
& Co., Incorporated
Allan H. Selig Edward J. Zore*<F14> President
and Chief Executive Executive Vice President
Officer of the Milwaukee Brewers of The Northwestern
Baseball Club, Inc. Mutual Life Insurance Co.
OFFICERS
Marcus C. Low, Jr.*<F14>Mary Ann Taylor*<F14> Laura H. Gough*<F14>
President Vice President Vice President
Glen F. Hackmann*<F14>
Secretary and Treasurer
For more information concerning the Directors and Officers of the Baird Mutual
Funds, see each respective Fund's Statement of Additional Information. Persons
indicated by an asterisk (*)<F14> are interested persons of the Funds within
the meaning of the 1940 Act.
BAIRD CAPITAL DEVELOPMENT FUND - Pursuant to an investment advisory agreement
(the ''BCD Advisory Agreement'') with the BCD Fund, FMI, 225 East Mason Street,
Milwaukee, Wisconsin 53202, furnishes continuous investment advisory services
to the BCD Fund. FMI is an investment adviser to individuals and institutional
clients (including investment companies) with substantial investment portfolios
and as of December 31, 1994, managed approximately $900,000,000 in assets. FMI
was organized in 1980 and is wholly owned by Ted D. Kellner and Donald S.
Wilson. Since that time, Mr. Kellner has served as Chairman of the Board and
Chief Executive Officer and Mr. Wilson has served as President and Treasurer of
FMI. Messrs. Kellner and Wilson are primarily responsible for the day-to-day
management of the BCD Fund's portfolio. They have held this responsibility
since the BCD Fund commenced operations on June 22, 1984.
FMI supervises and manages the investment portfolio of the BCD Fund and subject
to such policies as the Board of Directors of the BCD Fund may determine,
directs the purchase or sale of investment securities in the day-to-day
management of the BCD Fund. Under the BCD Advisory Agreement, FMI, at its own
expense and without reimbursement from the BCD Fund, furnishes office space,
and all necessary office facilities, equipment, and executive personnel for the
performance of the services required to be performed by it under the BCD
Advisory Agreement. For the foregoing, FMI receives a monthly fee of 1/12 of
0.4125% (0.4125% per annum) of the daily net assets of the BCD Fund. The
advisory fees paid to FMI in the fiscal year ended September 30, 1994 were
equal to 0.4125% of the BCD Fund's average net assets.
Pursuant to a sub-advisory agreement (the ''Sub-Advisory Agreement'') with the
BCD Fund, Baird furnishes regular advice to FMI regarding the value of
securities and the advisability of the BCD Fund purchasing or selling specific
securities as well as regular analyses and reports to FMI concerning issuers,
industries, securities, economic factors and portfolio strategy. Although Baird
furnishes regular advice to FMI, FMI makes the final decision as to the
securities to be purchased and sold for the BCD Fund and the timing of such
purchases and sales. Baird is an indirect partially-owned subsidiary of The
Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin and is
controlled by such firm. Baird is a securities broker-dealer and investment
adviser providing brokerage, research, investment banking and investment
advisory services to individuals, trusts, estates, corporations and other
institutional clients.
19
<PAGE> 25
In addition to the services referred to above, Baird pays the salaries and fees
of all officers and directors of the BCD Fund (except the fees to directors who
are not interested persons of the BCD Fund). For the foregoing Baird receives a
monthly fee of 1/12 of 0.3275% (0.3275% per annum) of the daily net assets of
the BCD Fund. The advisory fees paid to Baird in the fiscal year ended
September 30, 1994 were equal to 0.3275% of the BCD Fund's average net assets.
BAIRD BLUE CHIP FUND AND BAIRD QUALITY BOND FUND - Pursuant to investment
advisory agreements with the BBC Fund (the ''BBC Advisory Agreement'') and the
BQB Fund (the ''BQB Advisory Agreement'') (collectively the ''Advisory
Agreements'') Baird through its Investment Management Services Group, furnishes
continuous investment advisory services to the BBC Fund and the BQB Fund. The
Investment Management Services Group was organized in 1971 and as of December
31, 1994, managed in excess of $1,000,000,000 in assets for individuals,
trusts, estates, corporations, and such other institutional clients as employee
benefit plans and foundations.
Baird supervises and manages the investment portfolio of the BBC Fund and the
BQB Fund and subject to such policies as their respective Boards of Directors
may determine, directs the purchase or sale of investment securities in the
day-to-day management of these Funds. Under the Advisory Agreements, Baird, at
its own expense and without reimbursement from the Funds, furnishes office
space, and all necessary office facilities, equipment, and executive personnel
for managing the Funds and maintaining their organizations. In addition to the
services referred to above, Baird pays the salaries and fees of all officers
and directors of these Funds (except the fees to directors who are not
interested persons of these Funds). For the foregoing, Baird receives a monthly
fee of 1/12 of 0.74% (0.74% per annum) of the daily net assets of the BBC Fund,
and a monthly fee of 1/12 of 0.50% (0.50% per annum) of the daily net assets of
the BQB Fund. The advisory fees paid to Baird in the fiscal year ended
September 30, 1994 were equal to 0.74% of the BBC Fund's average net assets and
.39% of the BQB Fund's average net assets.
Robinson Bosworth III and John T. Evans, Portfolio Managers of the BBC Fund,
are primarily responsible for the day-to-day management of such Fund's
portfolio. They have held this responsibility since the BBC Fund commenced
operations on December 31, 1986. Mr. Bosworth joined Baird in 1971 and is a
Managing Director of Baird's Investment Management Services Group. Mr. Evans
joined Baird in 1977 and is a Senior Vice President in its Investment
Management Services Group.
James Kochan, Portfolio Manager of the BQB Fund, is primarily responsible for
the day-to-day management of the BQB Fund. He has held this responsibility
since such Fund commenced operations on October 1, 1992. Mr. Kochan has served
as First Vice President of Baird's Investment Management Services Group since
August 1990. Prior to that time, he was First Vice President of Merrill Lynch &
Co. from 1980 to 1990.
ADMINISTRATION OF BAIRD MUTUAL FUNDS - Each of the BCD Fund, BBC Fund and The
Baird Funds, Inc. has entered into an administration agreement with FMI
pursuant to which FMI supervises all aspects of each Fund's operations except
those performed by the investment advisers. FMI prepares and maintains the
books, accounts and other documents required by the 1940 Act, determines each
Fund's net asset value, responds to shareholder inquires, prepares the Funds'
financial statements and excise tax returns, prepares reports and filings with
the Securities and Exchange Commission, furnishes statistical and research
data, clerical, accounting and bookkeeping services and stationery and office
supplies, keeps and maintains the Funds' financial accounts and records and
generally assists in all aspects of the Funds' operations other than portfolio
decisions. FMI, at its own expense and without reimbursement from the Funds,
furnishes office space and all necessary office facilities, equipment and
executive personnel for supervising each Fund's operations. For the foregoing,
FMI receives from each of the BCD Fund and the BBC Fund a monthly fee of 1/12
of 0.1% (0.1% per annum) on the first $30,000,000 of each Fund's daily net
assets and 1/12 of 0.05% (0.05% per annum) on the daily net assets over
$30,000,000 and from the BQB Fund a monthly fee of 1/12 of 0.1% (0.1% per
annum) on the first $20,000,000 of the Fund's daily net assets and 1/12 of
0.05% (0.05% per annum) on the daily net assets over $20,000,000.
20
<PAGE> 26
DETERMINATION OF NET ASSET VALUE
The per share net asset value of each Fund is determined by dividing the total
value of its net assets (meaning its assets less its liabilities) by the total
number of its shares outstanding at that time. The net asset values of the BCD
Fund, the BBC Fund and the BQB Fund are determined as of the close of regular
trading (currently 4:00 p.m. Eastern time) on the New York Stock Exchange on
each day the New York Stock Exchange is open for trading. These determinations
are applicable to all transactions in shares of the Funds prior to that time
and after the previous time as of which net asset values were determined.
Equity securities traded on any national securities exchange or quoted on the
Nasdaq National Market System will ordinarily be valued on the basis of the
last sale price on the date of valuation, or, in the absence of any sales on
that date, the most recent bid price. Other equity securities will generally be
valued at the most recent bid price, if market quotations are readily
available. Debt securities will ordinarily be valued on the basis of
valuations provided by broker-dealers (including broker-dealers from whom such
securities may have been purchased) or by a pricing service, approved by the
respective Fund's Board of Directors, which may utilize information with
respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships among securities
and yield data in determining values. Securities for which there are no readily
available market quotations and other assets will be valued at their fair value
as determined in good faith in accordance with policies approved by the
respective Fund's Board of Directors. Debt securities having a remaining
maturity of sixty days or less when purchased and debt securities originally
purchased with maturities in excess of sixty days but which currently have
maturities of sixty days or less are valued at cost adjusted for amortization
of premiums and accretion of discounts. Odd lot differentials and brokerage
commissions will be excluded in calculating values.
PURCHASE OF SHARES
Baird serves as the distributor and principal underwriter of the Baird Mutual
Funds. Baird's principal business address is 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202. Shares of each Baird Mutual Fund are purchased from
Baird or other investment dealers, if any, who have entered into sales
agreements with Baird. Account application forms are included at the back of
this Prospectus. Applications are subject to acceptance by the Baird Mutual
Funds, and are not binding until so accepted. The Baird Mutual Funds reserve
the right to reject applications in whole or in part. The offering price per
share is the next determined per share net asset value after receipt of an
application plus a sales charge which is a percentage of the offering price and
varies based on the amount of the combined concurrent purchases of each Baird
Mutual Fund, together with current holdings under rights of accumulation and/or
purchases indicated under a Letter of Intent. The Board of Directors of each
Baird Mutual Fund has established $1,000 as the minimum initial purchase and
$100 as the minimum for any subsequent purchase (except pursuant to the
Automatic Investment Plan where the minimum monthly or quarterly purchase is
$50 or through dividend reinvestment), which minimum amounts are subject to
change at any time.
SALES CHARGES - The following sales charges are applicable to purchases of the
BCD Fund and the BBC Fund:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
PERCENTAGE PERCENTAGE
AMOUNT OF OF OFFERING OF NET
PURCHASE PRICE ASSET VALUE
--------- ----------- -----------
<S> <C> <C>
At least $100 but less than $50,000 5.75% 6.10%
At least $50,000 but less than $100,000 4.50% 4.71%
At least $100,000 but less than $250,000 3.50% 3.63%
At least $250,000 but less than $500,000 2.50% 2.56%
At least $500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 and over 0.00% 0.00%
</TABLE>
21
<PAGE> 27
The following sales charges are applicable to purchases of the BQB Fund:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
PERCENTAGE PERCENTAGE
AMOUNT OF OF OFFERING OF NET
PURCHASE PRICE ASSET VALUE
--------- ----------- -----------
<S> <C> <C>
At least $100 but less than $100,000 4.00% 4.16%
At least $100,000 but less than $250,000 3.50% 3.63%
At least $250,000 but less than $500,000 2.50% 2.56%
At least $500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 and over 0.00% 0.00%
</TABLE>
The Baird Mutual Funds impose a 1% contingent deferred sales charge with
respect to purchases of shares of the BCD Fund, BBC Fund, or the BQB Fund, of
$1,000,000 and over in the event of a redemption transaction occurring within
12 months following such purchase as described under ''Redemption and
Repurchase of Shares.'' In connection with purchases of $1,000,000 and over
Baird pays its investment officers a fee, which is not reimbursable under the
Plan. Baird receives, however, any contingent deferred sales charges paid in
connection with such purchase. Shares purchased at net asset value and subject
to the contingent deferred sales charge must be registered in the name of Baird
as nominee for the shareholder.
Each Baird Mutual Fund receives the net asset value of all of its shares sold.
Baird retains the sales charge from which it may allow discounts from the
applicable public offering price to investment dealers which are uniform for
all dealers. As of the date of this Prospectus, Baird is not party to any
agreement pursuant to which such discounts are allowed. Each Baird Mutual Fund
may pay to Baird a percentage of such Baird Mutual Fund's daily net assets to
reimburse Baird for costs incurred by it in distributing shares of such Baird
Mutual Funds' common stock. See ''Rule 12b-1 Plan'' below.
In effecting purchases and sales of each Baird Mutual Fund's portfolio
securities, FMI or Baird, as the case may be, may place orders with, and pay
brokerage commissions to, Baird or investment dealers, if any, with which Baird
executes sales agreements when they reasonably believe the commissions and the
transaction quality are comparable to that available from other qualified
brokers. In selecting among firms to handle a particular transaction the
investment advisers may take into account whether the firm has sold, or is
selling, shares of any of the Baird Mutual Funds.
RULE 12B-1 PLAN - Each Baird Mutual Fund has adopted a Distribution Plan (the
''Plan'') pursuant to Rule 12b-1 under the 1940 Act. Each Plan provides that
the Baird Mutual Funds may incur certain costs which may not exceed a maximum
monthly percentage of each respective Baird Mutual Funds' daily net assets. The
applicable maximum monthly percentage is 1/12 of 0.45% (0.45% per annum).
Amounts paid under each Plan are paid to Baird as compensation for its services
as distributor of the shares of each Baird Mutual Fund pursuant to Distribution
Assistance Agreements between each Baird Mutual Fund and Baird and may be spent
by Baird on any activities or expenses primarily intended to result in the sale
of shares, including but not limited to, compensation to, and expenses
(including overhead and telephone expenses) of, employees of Baird who engage
in or support distribution of the shares, printing of prospectuses and reports
for other than existing shareholders, advertising and preparation and
distribution of sales literature. Allocation of overhead (rent, utilities,
etc.) and salaries will be based on the percentage of utilization in, and time
devoted to, distribution activities. (The Plans for the BCD Fund and the BBC
Fund permit these Funds to incur distribution costs up to 0.75% per annum but
Baird has determined to limit payments pursuant to such Plans to 0.45% per
annum.) From such amounts Baird will pay to each of its investment officers an
amount equal to 0.25% of the average daily net assets of the BCD, BBC and BQB
Fund attributable to shares of such Funds sold by such investment officer.
Baird will directly bear all sales and promotional expenses of the Baird Mutual
Funds, other than expenses incurred in complying with laws regulating the issue
or sale of securities.
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<PAGE> 28
(The Baird Mutual Funds will indirectly bear sales and promotional expenses to
the extent they make payments under the Plans.) If payments made by Baird for
such activities or expenses during any fiscal year exceed the maximums under
the Distribution Plan for such year, a Fund will not be liable for any such
difference.
NET ASSET VALUE PURCHASES - Shares of each Baird Mutual Fund may be purchased
at net asset value (without a sales charge) by such Baird Mutual Fund's
employees, present and former directors, employees and directors of Baird and
employees and directors of such Baird Mutual Fund's investment adviser, by
licensed investment officers of Baird and by members of the immediate family of
any of the foregoing. The term ''employee'' includes an employee's spouse
(including the surviving spouse of a deceased employee), children of the
employee and retired employees. The term ''members of the immediate family'' is
defined to mean a person's parents, brothers and sisters, children and
grandchildren. Subject to certain limitations, each Baird Mutual Fund may also
issue shares without a sales charge in connection with any merger or
consolidation with, or acquisition of the assets of, any investment company and
pursuant to the exchanges described under ''Exchange Privileges.'' Shares of
each Baird Mutual Fund may also be purchased at net asset value (without a
sales charge) by retirement plans (i.e. plans qualifying under Sections
401(a), 401(k), 403(a) and 457 of the Internal Revenue Code, as amended (the
''Code''), but not Individual Retirement Accounts or Simplified Employee
Pension Plans) which purchase at least $500,000 of shares of the Baird Mutual
Funds.
CONTINGENT DEFERRED SALES CHARGE - The Baird Mutual Funds impose a 1%
contingent deferred sales charge upon the redemption of certain shares
initially purchased without a front-end sales load in the event of a redemption
transaction occurring within 12 months following such purchase. See
''Redemption and Repurchase of Shares'' for a discussion of the application of
the contingent deferred sales charge, including circumstances under which the
contingent deferred sales charge is waived. In connection with purchases
described in the following paragraph on which no front-end sales load is
imposed Baird pays its investment officers a fee, which is not reimbursable
under the Plan. Baird receives, however, any contingent deferred sales charge
paid in connection with such purchases.
No front-end sales load is imposed on purchases of shares of the Baird Mutual
Funds by investment advisory clients (or affiliates of investment advisory
clients) of Baird and by shareholders using the proceeds from the redemption of
shares of an unrelated mutual fund provided the following conditions are met.
If the unrelated mutual fund imposes a front-end sales load, the redemption
must have been made within 90 days of the purchase of the shares of the Baird
Mutual Funds and the account application must be accompanied either by the
redemption check (or a copy of such check) or a copy of the account activity
statement reflecting the redemption. If the unrelated mutual fund does not
impose a front-end sales load, the redemption must have been made within 90
days of the purchase of the shares of the Baird Mutual Funds and the account
application must be accompanied by (i) the redemption check (or a copy of such
check) or a copy of the account activity statement reflecting the redemption,
and (ii) an account activity statement or statements or other evidence
indicating (A) that the shareholder had previously owned the unrelated mutual
fund, if other than a money market fund, for at least 60 days or (B) if the
unrelated mutual fund is a money market fund, that the shares of the money
market fund were purchased with the proceeds of a mutual fund, other than a
money market fund, that either had been owned by the shareholder for at least
60 days or for which a front-end sales load had been paid. Shares purchased at
net asset value as described above and subject to the contingent deferred sales
charge must be registered in the name of Baird as nominee for the shareholder.
RIGHT OF ACCUMULATION - Reduced sales charges are applicable through a right
of accumulation under which purchasers may add to their investments in the
Baird Mutual Funds by purchasing shares at the offering price applicable to the
total of (a) the dollar amount then being purchased of all Baird Mutual Funds
plus (b) an amount equal to the then current net asset value of the shares of
all Baird Mutual Funds then held by the purchaser. (A ''purchaser'' is defined
to include an individual, as well as certain employee benefit plans for such
individual such as the individual's Individual Retirement Accounts,
individual-type 403(b) plan or a single participant Keogh-type plan, his or her
spouse and their children.)
23
<PAGE> 29
LETTER OF INTENT - Reduced sales charges also apply to the aggregate amount of
purchases of shares of the Baird Mutual Funds made by any purchaser within a
13-month period beginning with a date not earlier than 90 days prior to the
date of receipt by Baird of an executed Letter of Intent (''Letter'') provided
by Baird. After execution of the Letter each purchase of shares of any Baird
Mutual Fund will be entitled to the sales charge applicable to the total
investment indicated in the Letter. If the actual total investments under the
Letter exceed the intended amount and thereby qualify for a lower sales charge,
a retroactive price adjustment will be made with respect to each purchase of
shares of any of the Baird Mutual Funds and the difference will be used to
purchase additional shares of such Fund(s). If the total amount of shares
purchased during the thirteen month period does not equal the amount stated in
the Letter, the purchaser will be notified and required to pay within 20 days
of the expiration of the Letter the difference between the sales charge
applicable to the shares of the Baird Mutual Funds purchased at the reduced
rate and the sales charge applicable to the shares actually purchased pursuant
to the Letter. Pursuant to the Letter, which imposes no obligation to purchase
additional shares, the first purchase following execution of the Letter must be
at least 5% of the amount of the intended purchase and 5% of the amount of the
intended purchase will be held in escrow in the form of shares pending
completion of the intended purchase. The escrowed shares may be redeemed to
cover additional sales charges payable if the intended purchases are not
completed and an additional sales charge not paid within the aforementioned 20
day period. (Again a ''purchaser'' is defined to include an individual, as well
as certain employee benefit plans for such individual such as the individual's
Individual Retirement Accounts, individual-type 403(b) plan or a single
participant Keogh-type plan, his or her spouse, and their children.)
DIRECT PURCHASES BY MAIL OR WIRE - An account application is included at the
back of this Prospectus. Additional account applications may be obtained from
Baird. Account applications should be mailed directly to Baird Mutual Funds,
c/o Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. If
using overnight delivery use the following address: Baird Mutual Funds, c/o
Firstar Trust Company, 615 E. Michigan Street, 3rd Floor, Milwaukee, Wisconsin
53202. ALL APPLICATIONS MUST BE ACCOMPANIED BY PAYMENT IN THE FORM OF A CHECK
OR MONEY ORDER MADE PAYABLE TO BAIRD MUTUAL FUNDS, OR BY DIRECT WIRE TRANSFER.
All purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks. Neither cash nor 3rd party checks will be accepted. Firstar Trust
Company will charge a $15 fee against a shareholder's account for any payment
check returned to the custodian. THE SHAREHOLDER WILL ALSO BE RESPONSIBLE FOR
ANY LOSSES SUFFERED BY THE BAIRD MUTUAL FUNDS AS A RESULT. Funds should be
wired to Firstar Bank Milwaukee, N.A., 777 East Wisconsin Avenue, Milwaukee,
Wisconsin, ABA #0750 00022, Firstar Trust Company, Account #112-952-137, for
''name of Baird Mutual Fund'', ''name of shareholder and existing account
number, if any.'' The establishment of a new account by wire transfer should be
preceded by a phone call to Baird, (414) 765-3500, to provide information for
the setting up of the account. A follow up application should be sent for all
new accounts opened by wire transfer. Telephone orders for purchase of shares
may be placed with Baird in which event the purchase will be made at the
offering price next determined after the placement of the order.
AUTOMATIC INVESTMENT PLAN - Each Baird Mutual Fund has in effect an Automatic
Investment Plan pursuant to which shareholders may invest a fixed dollar amount
automatically on or about the 5th day of each month or calendar quarter. The
minimum purchase per transaction is $50. To use this service a shareholder must
authorize Firstar Trust Company to transfer funds from the shareholder's bank
checking or NOW account by completing the Automatic Investment Plan application
included at the back of this Prospectus.
REDEMPTION AND REPURCHASE OF SHARES
A shareholder may require any Baird Mutual Fund to redeem the shareholder's
shares in whole or part at any time. Redemption requests must be made in
writing and directed to: Baird Mutual Funds, c/o Firstar Trust Company, P.O.
Box 701, Milwaukee, Wisconsin 53201-0701. If a redemption request is
inadvertently sent to the Baird Mutual Funds, it will be forwarded to Firstar
Trust Company, but the effective date of redemption will be delayed until the
request is received by Firstar Trust Company. Requests for redemption by
telephone or telegram and requests which
24
<PAGE> 30
are subject to any special conditions or which specify an effective date other
than as provided herein cannot be honored.
Redemption requests should specify the name of the Baird Mutual Fund, the
number of shares or dollar amount to be redeemed, shareholder's name, account
number, and the additional requirements listed below that apply to the
particular account.
<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
<S> <C>
Individual, Joint Tenants, Redemption request signed by person(s)
(Uniform Gift to Minors Act), required to sign for the account,
General Partners exactly as it is registered.
Corporations, Associations Redemption request and a corporate
resolution, signed by person(s)
required to sign for the account,
accompanied by signature guarantee(s)
Trusts Redemption request signed by the
trustee(s) with a signature guarantee.
(If the trustee's name is not registered
on the account, a copy of the
trust document certified within the last
60 days is also required.)
</TABLE>
Redemption requests from shareholders in an IRA must include instructions
regarding federal income tax withholding. Unless otherwise indicated, these
redemptions, as well as redemptions of other retirement plans not involving a
direct rollover to an eligible plan, will be subject to federal income tax
withholding.
If a shareholder is not included in any of the above registration categories
(e.g. executors, administrators, conservators or guardians), the shareholder
should call the transfer agent, Firstar Trust Company, (414-765-4124), for
further instructions. Signatures need not be guaranteed unless otherwise
indicated above or the proceeds of redemption are requested to be (a) sent by
wire transfer, (b) sent to a person other than the registered holder or holders
of the shares to be redeemed, or (c) mailed to other than the address of
record, in which cases each signature on the redemption request must be
guaranteed by a commercial bank or trust company in the United States, a member
firm of the New York Stock Exchange or other qualified guarantor. If
certificates have been issued for any of the shares to be redeemed, the
certificates, properly endorsed or accompanied by a properly executed stock
power, must accompany the request for redemption. Redemptions will not be
effective or complete until all of the foregoing conditions, including receipt
of all required documentation by Firstar Trust Company in its capacity as
transfer agent, have been satisfied.
The redemption price is the net asset value next determined after receipt by
Firstar Trust Company in its capacity as transfer agent of the written request
in proper form with all required documentation. The amount received will depend
on the market value of the investments in the Baird Mutual Fund's portfolio at
the time of determination of net asset value, and may be more or less than the
cost of the shares redeemed. A check in payment for shares redeemed will be
mailed to the holder no later than the seventh day (or such lesser period of
time as may be required by applicable regulation) after receipt of the
redemption request in proper form and all required documentation.
The Baird Mutual Funds impose a contingent deferred sales charge upon the
redemption of certain shares initially purchased without a sales charge. A
contingent deferred sales charge is imposed upon the redemption of shares
initially purchased without a sales charge because the purchase was (i)
$1,000,000 or more, (ii) by an investment advisory client (or affiliate of an
investment advisory client) of Baird, or (iii) with the proceeds of a
redemption of shares of an unrelated mutual fund, as described in ''Purchase of
Shares.'' The contingent deferred sales charge is imposed in the event of a
redemption transaction occurring within 12 months following such a purchase.
This contingent deferred sales charge is equal to 1% of the lesser of the net
asset value of such shares at the time of purchase or at the time of
redemption. No contingent deferred sales charge is imposed when an investor
redeems (a) shares held for longer than 12 months, (b) amounts representing an
increase in the value of Baird Mutual Fund shares due to capital appreciation,
or (c) shares purchased through reinvestment of dividends or capital gain
distributions. In
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determining whether a contingent deferred sales charge is payable, shares that
are not subject to any deferred sales charge are redeemed first, and other
shares are then redeemed in the order purchased.
The contingent deferred sales charge is waived in connection with purchases
described under the captions ''Net Asset Value Purchases'' and ''Reinstatement
Privilege.'' In addition, the contingent deferred sales charge is waived in the
event of (a) the death or disability (as defined in Section 72(m)(7) of the
Code) of the shareholder, (b) a lump sum distribution from a benefit plan
qualified under the Employee Retirement Income Security Act of 1974
(''ERISA''), or (c) systematic withdrawals for ERISA plans if the shareholder
is at least 59-1/2 years old. The Baird Mutual Funds apply the waiver for
death or disability to shares held at the time of death or the initial
determination of disability of either an individual shareholder or one who owns
the shares as a joint tenant with the right of survivorship or as a tenant in
common.
No contingent deferred sales charge is imposed on an exchange of shares
described under ''Exchange Privileges.'' When shares of a Baird Mutual Fund
have been so exchanged, the date of the purchase of the shares of the fund
exchanged into, for purposes of any future deferred sales charge, will be
assumed to be the date on which the shares tendered for exchange were
originally purchased. If the shares being tendered for exchange have been held
for less than 12 months and are still subject to a deferred sales charge, such
charge will carry over to the shares being acquired in the exchange
transaction.
Each Baird Mutual Fund will also repurchase shares through Baird or investment
dealers, if any, with which Baird has executed sales agreements. The Baird
Mutual Funds will normally accept orders to repurchase shares by wire or
telephone from Baird or such other investment dealer at the net asset value
next computed after receipt of the order, provided the request for repurchase
is received prior to the close of business on the New York Stock Exchange. The
Baird Mutual Funds will not charge a fee for this transaction (other than the
contingent deferred sales charge, if applicable) but Baird will charge a $40
service fee. Other investment dealers may also charge service fees, which may
be different from the fee charged by Baird. Written redemption requests in
proper form must be sent to Baird or the investment dealer after making the
repurchase request. A check in payment for shares repurchased will be mailed to
the holder no later than the seventh day after receipt of the redemption
request in proper form and all required documentation.
The right to redeem or repurchase shares of the Baird Mutual Funds will be
suspended for any period during which the New York Stock Exchange is closed
because of financial conditions or any other extraordinary reason and may be
suspended for any period during which (a) trading on the New York Stock
Exchange is restricted pursuant to rules and regulations of the Securities and
Exchange Commission, (b) the Securities and Exchange Commission has by order
permitted such suspension or (c) an emergency, as defined by rules and
regulations of the Securities and Exchange Commission, exists as a result of
which it is not reasonably practicable for the Baird Mutual Funds to dispose of
their securities or fairly to determine the value of their net assets.
Additionally when the Baird Mutual Funds are requested to redeem or repurchase
shares for which they have not received good payment, any Baird Mutual Fund may
delay or cause to be delayed the mailing of a redemption check until it has
assured itself that good payment has been collected for the purchase of such
shares. (It will normally take up to 3 days to clear local personal or
corporate checks and up to 7 days to clear other personal and corporate
checks.)
REINSTATEMENT PRIVILEGE
Former shareholders of any of the Funds may reinvest the proceeds from a
redemption of any of the Funds or a dividend or capital gain distribution from
any of the Funds in shares of any of the Funds at net asset value; provided
such reinvestment is made within 90 days of the redemption, dividend or
distribution. When making a purchase at net asset value pursuant to the
Reinstatement Privilege the former shareholder's account application must be
accompanied by a copy of the account activity statement showing the prior
redemption, dividend or distribution. The tax status of any gain realized on a
redemption will not be affected by exercise of the Reinstatement Privilege,
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but a loss may be nullified if the former shareholder reinvests in the same Fund
within 30 days. See ''Dividends, Distributions and Taxes'' for additional tax
considerations in exercising the Reinstatement Privilege.
DIVIDEND REINVESTMENT
Each Baird Mutual Fund has in effect a dividend reinvestment plan pursuant to
which shareholders may elect to have all income dividends and/or capital gains
distributions reinvested. Shareholders may also elect to have dividends and/or
capital gains distributions paid in cash. See the account application forms
included at the back of this Prospectus for further information. If the
shareholder does not specify an election, all income dividends and capital
gains distributions will automatically be reinvested in full and fractional
shares, calculated to the nearest 1,000th of a share. Shares are purchased at
the net asset value in effect on the business day after the dividend record
date (without a sales charge) and are credited to the shareholder's account on
the dividend payment date. As in the case of normal purchases, stock
certificates are not issued unless requested. Shareholders will be advised of
the number of shares purchased and the price following each reinvestment. An
election to reinvest or receive dividends and distributions in cash will apply
to all shares registered in the same name, including those previously
purchased. See ''Dividends, Distributions and Taxes'' for a discussion of the
federal income tax consequences of participating in the dividend reinvestment
plan.
A shareholder may change an election at any time by notifying the appropriate
Baird Mutual Fund in writing. If such a notice is received between a dividend
declaration date and payment date, it will become effective on the day
following each payment date. Each Baird Mutual Fund may modify or terminate its
dividend reinvestment program at any time on thirty days' notice to
participants.
DIRECTED REINVESTMENT
In addition to having income dividends and/or capital gains distributions
reinvested in shares of the Baird Mutual Fund from which such distributions are
paid, shareholders may elect the directed reinvestment option and have
dividends and capital gains distributions automatically invested in one or more
of the other Baird Mutual Funds. Distributions can only be directed to an
existing Baird Mutual Fund account (which account must meet the minimum
investment requirement) with a registration identical to the account on which
the distributions are paid. Directed reinvestments may be used to invest funds
from a regular account to another regular account, from a qualified plan
account to another qualified plan account, or from a qualified plan account to
a regular account. Directed reinvestments from a qualified plan account to a
regular account may have adverse tax consequences including imposition of a
penalty tax and therefore shareholders should consult their own advisors before
commencing these transactions.
No service fee is currently charged by Baird for effecting directed
reinvestment transactions. There are also no sales charges payable on directed
reinvestment transactions. Additional information regarding this service may be
obtained from Baird. Directing distributions from either the BCD or BBC Fund to
the BQB Fund will ordinarily not be the most cost effective means to invest in
the BQB Fund because the sales charges applicable to investments in the BCD and
BBC Fund are generally higher than those applicable to investment in the BQB
Fund.
SYSTEMATIC WITHDRAWAL PLAN
Each Baird Mutual Fund has available to shareholders a Systematic Withdrawal
Plan pursuant to which a shareholder who owns shares worth at least $10,000 at
current net asset value may provide that a fixed sum will be distributed to the
shareholder at regular intervals. To participate in the Systematic Withdrawal
Plan, a shareholder deposits shares with the appropriate Baird Mutual Fund and
appoints it as the shareholder's agent to effect redemptions of the shares held
in the account for the purpose of making monthly or quarterly withdrawal
payments of a fixed amount to the shareholder out of the account. To utilize
the Systematic Withdrawal Plan, the shares cannot be held in certificate form.
The Systematic Withdrawal Plan does not apply to shares held in Individual
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Retirement Accounts or defined contribution retirement plans. An application
for participation in the Systematic Withdrawal Plan is provided in the account
application or may be obtained by writing to the Baird Mutual Funds or by
calling (414) 765-3500.
The minimum amount of a withdrawal payment is $100. These payments will be made
from the proceeds of periodic redemption of shares in the account at net asset
value. Redemptions will be made on the 19th day of each month or, if that day
is a holiday, on the preceding business day. Participation in the Systematic
Withdrawal Plan constitutes an election by the shareholder to participate in
the dividend reinvestment plan and shares acquired pursuant to the reinvestment
of dividends on shares held in the account will be added to such account. The
shareholder may deposit additional shares in the account at any time. However,
the periodic purchase of additional shares while participating in the
Systematic Withdrawal Plan will ordinarily be disadvantageous to the
shareholder because the shareholder will be paying a sales charge on the
purchase of such shares at the same time the shareholder is redeeming shares
upon which a sales charge may have already been paid. Withdrawal payments cannot
be considered as yield or income on the shareholder's investment, since
portions of each payment will normally consist of a return of capital.
Depending on the size or the frequency of the disbursements requested, and the
fluctuation in the value of the applicable Baird Mutual Fund's portfolio,
redemptions for the purpose of making such disbursements may reduce or even
exhaust the shareholder's account. Withdrawals, as in the case of other
redemptions, are sales of shares for federal income tax purposes, and may
result in capital gains or losses. See ''Dividends, Distributions and Taxes.''
The shareholder may vary the amount or frequency of withdrawal payments,
temporarily discontinue them, or change the designated payee or payee's
address, by notifying Firstar Trust Company.
AUTOMATIC EXCHANGE PLAN
Each Baird Mutual Fund also has available to shareholders an Automatic Exchange
Plan pursuant to which a shareholder who owns shares worth at least $10,000 at
current net asset value may provide that a fixed sum will be exchanged from
such Fund to one or more other Baird Mutual Funds at regular intervals. The
Automatic Exchange Plan operates in a manner similar to the Systematic
Withdrawal Plan (See ''Systematic Withdrawal Plan'' above) except that a fixed
sum is exchanged for shares of another Baird Mutual Fund rather than
distributed in cash to the shareholder at regular intervals. The minimum
exchange transaction is $50. Exchanges will be made on the 19th day of each
month, or, if that day is a holiday, on the preceding business day. The
shareholder may deposit additional shares in the shareholder's account of the
Fund from which exchanges are to be made at any time. Exchanging shares
pursuant to the Automatic Exchange Plan from either the BCD or BBC Fund to the
BQB Fund will ordinarily not be the most cost effective means to invest in the
BQB Fund because the sales charges applicable to investments in the BCD and BBC
Fund are generally higher than those applicable to investment in the BQB Fund.
Exchanges may only be made to an existing Baird Mutual Fund Account with a
registration identical to the account from which the exchanges are made.
Exchanges pursuant to the Automatic Exchange Plan may only be made if shares of
the Baird Mutual Fund to which the exchanges are to be made are offered in the
shareholder's state of residence. An exchange transaction is a sale and
purchase of shares for federal income tax purposes and may result in a capital
gain or loss. Both the redemption and purchase of shares will be effected at
the respective net asset values of the Baird Mutual Funds.
EXCHANGE PRIVILEGES
Shareholders of a Baird Mutual Fund may redeem all of their shares or a portion
of their shares having a net asset value of at least $1,000 and use the
proceeds to purchase shares of any other Baird Mutual Fund, if such shares are
offered in the shareholder's state of residence. Both the redemption and
purchase of shares will be effected at the respective net asset values of the
Baird Mutual Funds. An exchange transaction is a sale and purchase of shares
for federal income tax purposes and may result in a capital gain or loss. The
registration of both the account from which the exchange is being made and the
account to which the exchange is made must be identical.
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<PAGE> 34
Exchange requests must be made in writing. Requests should include the account
numbers for both Baird Mutual Funds if an account is already opened, and the
amount of the exchange. If a new account is to be opened by the exchange, the
registration must be identical to that of the original account. If certificates
for shares are held, they must be delivered properly endorsed as described in
''Redemption and Repurchase of Shares.''
Each Baird Mutual Fund reserves the right, at any time without prior notice, to
suspend, limit, modify or terminate this exchange privilege or its use in any
manner by any person or class. In particular, since an excessive number of
exchanges may be disadvantageous to the Baird Mutual Funds, each Baird Mutual
Fund reserves the right to terminate the exchange privilege of any shareholder
who makes more than four exchanges of shares in a year or three in a calendar
quarter (except for exchanges pursuant to the Automatic Exchange Plan).
Each Baird Mutual Fund has entered into an arrangement with Portico Money
Market Fund pursuant to which shareholders may exchange their shares of the
Baird Mutual Funds for those of the Portico Money Market Fund at their net
asset values, and, at a later date, exchange such shares and shares purchased
with reinvested dividends for shares of any Baird Mutual Fund at net asset
value (without a sales charge). The minimum amount of exchange transactions
with the Portico Money Market Fund is $1,000. Exchanges of shares of the Baird
Mutual Funds for shares of Portico Money Market Fund and exchanges of shares of
Portico Money Market Fund for shares of the Baird Mutual Funds may only be made
on days both the New York Stock Exchange is open for trading and the Federal
Reserve Banks' Fedline System is open. Such exchanges must comply with the
applicable initial and subsequent purchase minimums as established by the fund
whose shares are being acquired pursuant to the exchange. Refer to the
prospectus of the Portico Money Market Fund and under the heading ''Purchase of
Shares'' in this prospectus for the current minimum amounts for initial and
subsequent purchases. Additional information about this exchange privilege is
contained in the Statement of Additional Information. Baird receives certain
payments from Portico Money Market Fund in connection with exchanges of shares
of the Baird Mutual Funds for those of the Portico Money Market Fund. Refer to
the prospectus of the Portico Money Market Fund for information regarding these
payments.
INDIVIDUAL RETIREMENT ACCOUNT AND SIMPLIFIED EMPLOYEE PENSION PLAN
INDIVIDUAL RETIREMENT ACCOUNTS - Individual shareholders may establish their
own tax-sheltered Individual Retirement Account (''IRA''). The Baird Mutual
Funds have a prototype IRA plan using IRS Form 5305-A. An individual may
contribute to the IRA an annual amount equal to the lesser of 100% of annual
earned income or $2,000 ($2,250 maximum in the case of a married couple where
one spouse is not working and certain other conditions are met in which event
two IRAs are established).
Earnings on amounts held under the IRA accumulate free of federal income taxes.
Distributions from the IRA may begin at age 59-1/2, and must begin by April 1
following the calendar year end in which a person reaches age 70-1/2. Excess
contributions, certain distributions prior to age 59-1/2 and failure to begin
distributions after age 70-1/2 may result in adverse tax consequences.
Under current IRS regulations an IRA applicant must be furnished a disclosure
statement containing information specified by the IRS. The applicant has the
right to revoke the applicant's account within seven days after receiving the
disclosure statement in accordance with IRS regulations and obtain a full
refund of the applicant's contribution should the applicant so elect. The
custodian may, in its discretion, hold the initial contribution uninvested
until the expiration of the seven-day revocation period. The custodian
anticipates that it will not so exercise its discretion but reserves the right
to do so.
Firstar Trust Company, Milwaukee, Wisconsin, serves as custodian and furnishes
the services provided for in the IRA plan as required by ERISA. The custodian
invests all cash contributions, dividends and capital gains distributions in
shares. For such services, the following fees, which are subject to change,
will be charged against each
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account of the participants: $12.50 annual maintenance fee; $15 for transferring
to a successor trustee; $15 for distribution(s) to a participant; and $15 for
refunding any contribution in excess of the deductible limit.
SIMPLIFIED EMPLOYEE PENSION PLAN - The Baird Mutual Funds' prototype IRA plan
may also be used to establish a Simplified Employee Pension Plan (''SEP/IRA'').
The SEP/IRA is available to employers and employees, including self-employed
individuals, who wish to purchase shares with tax deductible contributions not
exceeding annually for any one participant the lesser of $30,000 or 15% of
earned income; provided that no more than $9,240 annually (as adjusted for
cost-of-living increases) may be contributed through elective deferrals.
Requests for information and forms concerning the IRA and SEP/IRA should be
directed to Baird. Included with the forms is a disclosure statement which the
IRS requires to be furnished to individuals who are considering an IRA or
SEP/IRA. Consultation with a competent financial and tax adviser regarding the
IRA and SEP/IRA is recommended.
DEFINED CONTRIBUTION RETIREMENT AND 401(k) PLAN
A prototype defined contribution retirement plan is available for employers who
wish to purchase shares of the Baird Mutual Funds with tax-deductible
contributions not exceeding annually the lesser of $30,000 or 25% of earned
income. This plan includes a cash or deferred 401(k) arrangement for employers
who wish to allow employees to elect to reduce their compensation and have such
amounts contributed to the plan, not to exceed $9,240 annually (as adjusted for
cost-of-living increases). The Baird Mutual Funds have received an opinion
letter from the Internal Revenue Service that the prototype defined
contribution retirement plan is acceptable for use under Section 401 of the
Code.
Firstar Trust Company, Milwaukee, Wisconsin, serves as custodian and furnishes
the services provided for in the retirement plan. The custodian invests all
cash contributions, dividends and capital gains distributions in shares. For
such services, the following fees, which are subject to change, will be charged
against each account of the participants: $12.50 for annual maintenance fee per
participant account; $15 for a transfer to successor trustee; $15 for
distribution(s) to a participant; and $15 for a refund of an excess
contribution.
Requests for information and forms concerning the retirement plan should be
directed to Baird. Consultation with a competent financial and tax adviser
regarding the retirement plan is recommended.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Baird Mutual Funds intend to qualify annually as, and elect tax treatment
as, a regulated investment company under Subchapter M of the Code. Pursuant to
the requirements of the Code, the Baird Mutual Funds intend to distribute
substantially all of their net investment income and net capital gain, if any,
to their shareholders annually so as not to be required to pay significant
amounts of federal income or excise tax on their net investment income or net
realized capital gain. Net investment income and net realized capital gain will
typically be paid by the BCD Fund and the BBC Fund in October and December. Net
realized capital gain will typically be paid by the BQB Fund in October and
December and net investment income will be paid as described in the following
paragraph. For federal income tax purposes, the amount of the distributions
paid by the Baird Mutual Funds to shareholders, whether invested in additional
shares pursuant to the dividend reinvestment plan or received in cash, will be
taxable to each Baird Mutual Fund's shareholder except those shareholders that
are not subject to tax on their income.
The daily net investment income of the BQB Fund is declared as a dividend each
day to shareholders of record and paid monthly. Shares of the BQB Fund will
begin earning dividends the day the purchase becomes effective and will not
participate in the dividend declared on the date of redemption. For these
purposes, the date of purchase and the date of redemption is the settlement
date of the transaction. If all shares in an account (other than an account
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<PAGE> 36
registered in the name of Baird's nominee) are redeemed, dividends credited to
the account since the beginning of the dividend period through the date of
redemption will be paid with the redemption proceeds. If less than all such
shares are redeemed (or if all shares of an account registered in the name of
Baird's nominee are redeemed), all dividends accrued but unpaid on the redeemed
shares will be distributed on the next payment date. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Income earned on weekends, holidays
and other days on which the net asset value is not calculated will be declared
as a dividend in advance on the preceding business day.
Shareholders will be notified annually as to the sources of dividends and
distributions. For federal income tax purposes, the original cost for a
shareholder's shares constitutes the shareholder's basis in the shares and on
redemption (including redemptions pursuant to the Exchange Privilege and the
Systematic Withdrawal Plan) the shareholder will recognize gain or loss equal
to the difference between such basis and the redemption price; provided, that
if shares of a Baird Mutual Fund are exchanged within 90 days of purchase
pursuant to the Exchange Privilege or redeemed within 90 days of purchase and
the proceeds reinvested pursuant to the Reinstatement Privilege, for federal
income tax purposes (a) the basis of the shares initially purchased will not
include the sales charge paid with respect thereto and (b) such sales charge
will be added to the basis of the shares purchased pursuant to the Exchange
Privilege or the Reinstatement Privilege. Furthermore, any loss recognized on a
sale of shares will be disallowed if the shares sold are replaced within a
61-day period beginning 30 days before and ending 30 days after the disposition
of the shares. In such case, the basis of the acquired shares will be adjusted
to reflect the disallowed loss. Shares purchased pursuant to the dividend
reinvestment plan will have a basis equal to the amount of the dividends and/or
capital gains distributions reinvested. Distributions and redemptions may also
be subject to tax under state or local tax laws the provisions of which may
differ from those of the Code.
CAPITAL STRUCTURE
Each of the BCD Fund and the BBC Fund have authorized capital stock consisting
of 20,000,000 shares of common stock. The authorized capital stock of The Baird
Funds, Inc. consists of 10,000,000,000 shares, of which 300,000,000 are
allocated to the BQB Fund. Shareholders of the BCD Fund and the BBC Fund are
entitled: (i) to one vote per full share of common stock; (ii) to such
distributions as may be declared by the Fund's Board of Directors out of funds
legally available; and (iii) upon liquidation, to participate ratably in the
assets available for distribution. With respect to the BQB Fund, each share
outstanding entitles a holder to one vote. Generally shares of the BQB Fund and
of any other portfolios of The Baird Funds, Inc. are voted in the aggregate and
not by each Fund, except when class voting by the BQB Fund and any such other
portfolios is required by Wisconsin law or the Investment Company Act of 1940
(e.g., change in investment policy or approval of an investment advisory
agreement). The shares of each of the BQB Fund and any such other portfolios
have the same preferences, limitations and rights, except that all
consideration received from the sale of shares of each of the BQB Fund and any
such other portfolios, together with all other income, earnings, profits and
proceeds thereof, belong to the respective fund and are charged with the
liabilities in respect to that fund and of that fund's share of the general
liabilities of The Baird Funds, Inc., in the proportion that the total net
assets of the respective fund bears to the aggregate net assets of The Baird
Funds, Inc. The net asset value per share of each of the BQB Fund and the other
portfolios of The Baird Funds, Inc. is based on the assets belonging to that
fund less the liabilities charged to that fund, and dividends are paid on
shares of each fund only out of lawfully available assets belonging to that
fund. In the event of liquidation or dissolution of The Baird Funds, Inc., the
shareholders of the BQB Fund and the other portfolios of The Baird Funds, Inc.
will be entitled, out of the assets of The Baird Funds, Inc. available for
distribution, to the assets belonging to such fund. As of the date of this
prospectus, The Baird Funds, Inc. consisted of the BQB Fund and one other
portfolio, the Baird Adjustable Rate Income Fund, which is not accepting new
investments.
There are no conversion or sinking fund provisions applicable to the shares of
the Baird Mutual Funds and the holders have no preemptive rights and may not
accumulate their votes in the election of directors. Consequently the
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holders of more than 50% of the shares of the BCD Fund, the BBC Fund and The
Baird Funds, Inc. voting for the election of directors of the respective
corporation can elect the entire Board of Directors of the respective
corporation and in such event the holders of the remaining shares voting for the
election of directors will not be able to elect any person or persons to the
Board of Directors. The Wisconsin Business Corporation Law permits registered
investment companies to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the Investment
Company Act of 1940. The Baird Mutual Funds have adopted the appropriate
provisions in their Bylaws and do not anticipate holding an annual meeting of
shareholders to elect directors unless otherwise required by the Investment
Company Act of 1940. The Baird Mutual Funds have also adopted provisions in
their Bylaws for the removal of directors by their shareholders.
The shares are redeemable and are transferable. All shares issued and sold by
each Baird Mutual Fund will be fully paid and non-assessable except as
provided in Section 180.0622(2)(b) of the Wisconsin Business Corporation Law.
Fractional shares entitle the holder to the same rights as whole shares, on a
proportionate basis. Firstar Trust Company, 615 East Michigan Street,
Milwaukee, Wisconsin 53202 acts as each Baird Mutual Fund's transfer agent and
dividend disbursing agent.
The BCD Fund and the BBC Fund will not issue certificates evidencing shares
purchased unless so requested in writing. Shares of the BQB Fund will be
evidenced only by bookkeeping entries. Where certificates are not issued, the
shareholder's account will be credited with the number of shares purchased,
relieving shareholders of responsibility for safekeeping of certificates and
the need to deliver them upon redemption. Written confirmations are issued for
all purchases. Any shareholder may deliver certificates to Firstar Trust
Company and direct that the shareholder's account be credited with the shares.
A shareholder of the BCD Fund or the BBC Fund may direct Firstar Trust Company
at any time to issue a certificate for the shareholder's shares without charge.
The BCD Fund, the BBC Fund and The Baird Funds, Inc. are separately
incorporated investment companies. Each Baird Mutual Fund is described in this
Prospectus in order to help investors understand the similarities and
differences between the Baird Mutual Funds. Because the Baird Mutual Funds
share this Prospectus there is a possibility that one Baird Mutual Fund might
become liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other Baird Mutual Fund.
SHAREHOLDER REPORTS
Shareholders will be provided at least semi-annually with a report showing the
applicable Baird Mutual Funds' portfolio and other information and annually
after the close of the Baird Mutual Funds' fiscal year, which ends September
30, with an annual report containing audited financial statements. Shareholders
who have questions about the Baird Mutual Funds should call Firstar Trust
Company at (414) 765-4124 or write to Baird Mutual Funds, 777 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, Attention: Corporate Secretary.
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ACCOUNT APPLICATION My Baird Investment Officer is:
Name___________________________
Number_________________________
Check One:
/ / BAIRD CAPITAL DEVELOPMENT FUND
/ / BAIRD BLUE CHIP FUND
/ / BAIRD QUALITY BOND FUND
NAME ACCOUNT REGISTRATION Please print or type
In case of two or more co-owners, the account will be registered ''Joint
Tenants with Right of Survivorship'' unless otherwise specified.
SHAREHOLDER / / / /
- - --------------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL SOCIAL SECURITY NO.**<F16> DATE OF BIRTH
CO-OWNER/OTHER / / / /
- - --------------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL SOCIAL SECURITY NO.**<F16> DATE OF BIRTH
- - --------------------------------------------------------------------------------
ADDRESS
- - --------------------------------------------------------------------------------
STREET
- - --------------------------------------------------------------------------------
CITY STATE ZIP CODE
TELEPHONE
- - --------------------------------------------------------------------------------
BUSINESS HOME
MAIL TO: FOR OVERNIGHT OR EXPRESS MAIL:
Baird Mutual Funds
c/o Firstar Trust Co. Baird Mutual Funds
P.O. Box 701 c/o Firstar Trust Co.
Milwaukee, Wisconsin 53201-0701 615 East Michigan St., 3rd Floor
(414) 765-4124 Milwaukee, Wisconsin 53202
Enclosed is my check or money order made payable to the ''Baird Mutual Funds''
for $____________ (Initial purchase $1,000 minimum, except for Automatic
Investment Plans, $50 minimum per transaction.) made payable to Baird Capital
Development Fund, Baird Blue Chip Fund or Baird Quality Bond Fund, for the
purchase of shares in accordance with the provisions in the Baird Mutual Funds'
Prospectus, the receipt of which is hereby acknowledged. I represent that I am
of legal age and have legal capacity to make this purchase.
DISTRIBUTION OPTION
If none checked, Option A will be assigned.
o A.Dividends reinvested; capital gains in additional shares.
o B.Dividends in cash; capital gains in additional shares.
o C.Dividends reinvested; capital gains in cash.
o D.Dividends in cash; capital gains in cash.
o E.Reinvest dividends and capital gains into (name of Fund) _________________
Directed reinvestment is available only when the minimum investment requirement
of the receiving Fund has been met.
AUTOMATIC EXCHANGES
Automatic exchanges are available only on account balances of $10,000 or more
at the time automatic exchanges are commenced.
Exchange $______________________($50 minimum)
into (name of Fund)___________________________________________________
Account Number________________________________________________________
from (name of Fund)___________________________________________________
Account Number________________________________________________________
Please make exchanges / / Monthly
/ / Quarterly (M, J, S, D)
Exchanges will be made on the (*)<F15>or preceding business day.
*<F15> Date to be determined by Firstar.
**<F16>The Fund is required to withhold taxes if a Social Security number or
Tax Identification number is not delivered to the Fund within 7 days.
<PAGE> 39
RIGHT OF ACCUMULATION DISCOUNTS ACCOUNT NUMBERS:
/ / I qualify for the Right of Accumulation as
described in the Baird Mutual Funds' Prospectus. -----------------------
Below are listed all the accounts in Baird
Capital Development Fund, Baird Blue Chip Fund and -----------------------
Baird Quality Bond Fund which should be credited
to my Statement of Intention or combined with the -----------------------
account listed above.
-----------------------
LETTER OF INTENT (OPTIONAL)
/ / I agree to be bound by the description of the Letter of Intent in the
Prospectus and to escrow certain of my shares in accordance herewith.
Although I am not obligated to do so, it is my intention to invest over a
13- month period in shares of Baird Capital Development Fund, Baird Blue
Chip Fund and/or Baird Quality Bond Fund an aggregate amount (including
shares currently held) at least equal to that which is checked below:
/ / $50,000 to $99,999 / / $100,000 to $249,999
/ / $250,000 to$499,999 / / $500,000 to $999,999
/ / $1,000,000 or more
If a previous purchase has been made within 90 days, please
check this box and provide account number.
/ / Account number __________________________
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) Systematic withdrawals are available only
on account balances of $10,000 or more at the time systematic withdrawals
are commenced.
/ / Mail a check for $_____________($100 or more) prior to
the last day of each:
/ / Month
/ / Quarter
First check to be mailed in month of ______________________ to person(s) and
address shown in account registration.
SHAREHOLDER AUTHORIZATION AND CERTIFICATION
(Must be certified by first shareholder, signing below)
I authorize any instruction contained herein and
certify, under penalties of perjury
<TABLE>
<S> <C>
1. That the social security or other taxpayer
identification number is correct, and -----------------------------------
Signature of the Shareholder Date
(Strike if not true)
-----------------------------------
2. That I am not subject to backup withholding Signature of Co-Owner (if any)
either because I have not been notified that
I am subject to backup withholding as a -----------------------------------
result of a failure to report all interest Corp. Officer/partner/Trustee Title
or dividends, or I was subject to backup
witholding and the Internal Revenue Service -----------------------------------
has notified me that I am no longer subject Corp. Officer/partner/Trustee Title
to backup withholding.
-----------------------------------
Corp. Officer/partner/Trustee Title
</TABLE>
<PAGE> 40
APPLICATION My Baird Investment Officer is:
Name_________________________
Number_______________________
AUTOMATIC INVESTMENT PLAN
$50 minimum per month or quarter
Use this form to establish your automatic investment plan with The Baird Mutual
Funds. You can purchase shares regularly by requesting electronic transfer of
assets from your checking or NOW account to any of the Baird Mutual Funds.
GUIDELINES
o Your bank must be a member of Automated Clearing House (ACH).
o The application MUST be accompanied by a ''voided'' check.
o Application must be received at least 14 days prior to the initial
transaction.
o Your Baird Mutual Fund account must be established before the Plan goes into
effect. ($50 minimum)
o A $15 service fee will be assessed, if the automatic purchases
cannot be made for any reason.
o The Plan will be terminated upon redemption of all shares. (This includes
exchanges to other Funds.)
o Termination must be in writing to the Firstar Trust Company. Allow 5
business days to become effective.
o All contributions made to a Baird Mutual Fund IRA through the Automatic
Investment Plan will be recorded as current year contributions.
o Contributions will be made on or about the 5th day of each month or quarter
depending on the option selected.
o Complete this form and return to: Baird Mutual Funds, c/o Firstar Trust
Company, P.O. Box 701, Milwaukee, WI 53201-0701
AUTHORIZATION TO MY BANK
I (we) authorize you via the ACH Network to honor all debit entries initiated
by me from time to time through Firstar Bank of Milwaukee, N.A. on behalf of
the Firstar Trust Company. All such debits are subject to sufficient collected
funds in my account to pay the debit when presented.
I (we) agree that your treatment of each entry, and your rights to respect it,
shall be the same as if it were signed personally by me (or either of us). I
(we) further agree that if any such entries are dishonored with good and
sufficient cause, you shall be under no liability whatsoever.
<PAGE> 41
I (we) have read and understand the conditions of The Baird Mutual Fund
Automatic Investment Plan. I (we) also understand that the Plan may be
terminated or modified at any time without notice by The Baird Mutual Funds or
Firstar Trust Company.
MONTHLY OPTION
Monthly amount to be invested $______ ($50 minimum) commencing ________, 199__.
QUARTERLY OPTION (APRIL, JULY, OCTOBER AND JANUARY)
Quarterly amount to be invested $_____ ($50 minimum) commencing ________, 199__.
Check One:
/ / BAIRD CAPITAL DEVELOPMENT FUND / / BAIRD QUALITY BOND FUND
/ / BAIRD BLUE CHIP FUND
- - -------------------------------- ------------------------------------
FUND NAME NAME OF YOUR BANK
- - -------------------------------- ------------------------------------
ACCOUNT NUMBER NAME(S) ON YOUR BANK OR NOW ACCOUNT
- - -------------------------------- ------------------------------------
NAME(S) ON ACCOUNT YOUR BANK ADDRESS
- - -------------------------------- ------------------------------------
YOUR ADDRESS CITY STATE ZIP
( )
- - -------------------------------- ------------------------------------
CITY STATE ZIP YOUR DAYTIME PHONE NUMBER
- - -------------------------------- ------------------------------------
SIGNATURE OF OWNER DATE SIGNATURE OF JOINT OWNER (IF ANY)
DO NOT DETACH
AUTHORIZATION TO MY BANK
- - ---------------------------------------------------------------------------
NAME(S) ON YOUR BANK ACCOUNT ACCOUNT NUMBER SIGNATURE(S) OF OWNER
---------------------
SIGNATURE(S) OF OWNER
- - ------------------------------------
BANK NAME
- - ------------------------------------
BANK ADDRESS
- - ------------------------------------
CITY STATE ZIP
<PAGE> 42
DISTRIBUTOR
ROBERT W. BAIRD & CO.
INCORPORATED
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INVESTMENT ADVISERS
INVESTMENT MANAGEMENT
SERVICES GROUP
ROBERT W. BAIRD & CO. INCORPORATED
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
CUSTODIAN, TRANSFER,
DIVIDEND DISBURSING AND
SHAREHOLDER SERVICING AGENT
FIRSTAR TRUST COMPANY
615 East Michigan Street
Milwaukee, Wisconsin 53202
414-765-4124
(Baird Logo)
A NORTHWESTERN
MUTUAL COMPANY
Robert W. Baird & Co. Incorporated
777 E. Wisconsin Avenue, Milwaukee, WI 53202
Phone 414-765-3500. Toll Free 1-800-RW-BAIRD
Copyright 1992 Robert W. Baird & Co. Incorporated
