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[BAIRD LOGO APPEARS HERE]
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BAIRD BLUE CHIP FUND, INC. 777 East Wisconsin Avenue
Milwaukee, WI 53202 414-765-3500
February 2, 1996
Dear Baird Blue Chip Fund Shareholder:
I am pleased to send this proxy statement/prospectus that describes and
seeks your approval of an Agreement and Plan of Reorganization (the "Agreement")
pursuant to which Baird Blue Chip Fund would be reorganized into AIM Blue Chip
Fund, a newly created fund in The AIM Family of Funds(R) managed by A I M
Advisors, Inc. ("AIM"). Under the Agreement, the assets of Baird Blue Chip Fund
would be transferred to AIM Blue Chip Fund and, in exchange therefor, you will
receive shares of AIM Blue Chip Fund. Upon the transfer, we expect that the
value of your account will remain the same. No sales charge will be imposed on
the transaction contemplated by the Agreement, and the transaction is structured
to be a tax-free reorganization for Federal income tax purposes. The Baird Blue
Chip Fund's Board of Directors carefully considered and unanimously approved the
Agreement on December 20, 1995 and recommends that you vote "FOR" the Agreement.
Your vote is essential to accomplish the transactions contemplated by the
Agreement. For a complete discussion of the Agreement and the transaction,
including a comparison of the funds, please read the enclosed Proxy
Statement/Prospectus in its entirety.
WHAT DOES THIS MEAN TO YOU? Upon completion of the transaction following
shareholder approval, you would become a shareholder of AIM Blue Chip Fund,
which is a member of The AIM Family of Funds(R). The investment objective and
policies of AIM Blue Chip Fund are similar to those of Baird Blue Chip Fund,
although there are certain differences as described in the Proxy
Statement/Prospectus. The AIM Family of Funds(R) consists of 21 open-end mutual
funds (the "AIM Funds") advised by AIM. AIM and its affiliates advise more than
$42 billion in assets. As part of a large mutual fund family, you would benefit
from AIM's large distribution network that could create greater efficiencies of
operations and cost savings by increasing the potential for asset growth. AIM
also offers various investment programs including the ability to exchange your
fund shares for securities of other AIM Funds.
YOUR VOTE IS IMPORTANT. I urge you to read the enclosed proxy
statement/prospectus carefully and vote as soon as possible. The transaction
cannot proceed without shareholder approval. Please exercise your right to vote
by completing, signing and returning the enclosed proxy ballot in the postage
paid envelope. Your prompt attention will allow us to achieve a quorum at the
special meeting of Baird Blue Chip Fund shareholders to be held on Friday, March
15, 1996.
Thank you for your consideration and support.
Sincerely,
/s/ MARCUS C. LOW JR.
President
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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, Wisconsin 53202 on Friday, 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
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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
Friday, 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. 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. As soon as reasonably practicable after
the closing of the transaction, Baird Blue Chip will pay or make provision for
payment of all of 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 as a
dividend, although none is expected.
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 22, 1996 is on
file with the Securities and Exchange Commission (the "SEC"). Such prospectus is
incorporated by reference herein. A statement of additional information of AIM
Blue Chip dated February 2, 1996 relating to this Proxy Statement/Prospectus
("Statement of Additional Information") has been filed with the SEC and is
incorporated by reference herein. The 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.
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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
Related Party Transactions.......................................................... 4
SYNOPSIS.............................................................................. 4
The Transaction..................................................................... 4
Comparison of AIM Blue Chip and Baird Blue Chip..................................... 5
RISK FACTORS.......................................................................... 10
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES...................................... 12
Investment Objectives............................................................... 12
Investment Policies................................................................. 12
Investment Restrictions............................................................. 14
Additional Investment Policies of AIM Blue Chip..................................... 17
ADDITIONAL INFORMATION ABOUT AIM BLUE CHIP............................................ 19
Management of AIM Blue Chip......................................................... 19
Portfolio Managers.................................................................. 19
Distribution........................................................................ 20
Custodial and Transfer Agency Fees.................................................. 20
Portfolio Brokerage................................................................. 21
Shares of AEF....................................................................... 21
Shareholder Inquiries............................................................... 22
Other Information................................................................... 22
ADDITIONAL INFORMATION ABOUT THE AGREEMENT............................................ 22
Terms of the Transaction............................................................ 22
Transfer of Assets.................................................................. 22
Other Terms......................................................................... 22
Federal Tax Consequences............................................................ 23
Accounting Treatment................................................................ 24
RIGHTS OF SHAREHOLDERS................................................................ 24
Election of Directors and Annual Shareholder Meetings............................... 24
Terms of Directors.................................................................. 25
Vacancies of Directors.............................................................. 25
Removal of Directors................................................................ 25
Special Meetings of Shareholders.................................................... 25
Liability of Directors and Officers................................................. 25
Shareholder Liability............................................................... 26
Supermajority Voting Provisions..................................................... 26
Dissenters' Rights.................................................................. 26
Amendment to Organizational Documents............................................... 26
OWNERSHIP OF AIM BLUE CHIP AND BAIRD BLUE CHIP SHARES................................. 27
</TABLE>
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<TABLE>
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CAPITALIZATION........................................................................ 27
LEGAL MATTERS......................................................................... 28
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION......................... 28
ADDITIONAL INFORMATION ABOUT BAIRD BLUE CHIP.......................................... 28
INVESTOR'S GUIDE................................................................. Appendix I
AGREEMENT AND PLAN OF REORGANIZATION FOR BAIRD BLUE CHIP
FUND, INC..................................................................... Appendix II
</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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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 Friday, 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 the proxies shall in their
discretion, vote on such other matters as may properly come before the meeting
or in any adjournment thereof. 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. 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 3,085,577.461 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 of Baird Blue Chip 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 proposals for
the purchase of Baird's records, account information and goodwill applicable to
its advisory relationship to the Baird Mutual Funds. Following their review of
the proposals, officers of Baird Blue Chip (each of whom is an interested person
of Baird) presented AIM's proposal to the Board of Directors for its
consideration and approval.
APPROVAL BY, AND RECOMMENDATION OF, BOARD OF DIRECTORS
The Board of Directors of Baird Blue Chip considered and unanimously
approved the Agreement and the 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;
(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 Baird and
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;
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(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.
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
dated December 20, 1995 (the "Acquisition Agreement"), 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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RELATED PARTY TRANSACTIONS
Baird and AIM have entered into 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 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.
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 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. Baird Blue Chip shareholders will pay no
sales charges in connection with the Transaction. Promptly after the acquisition
by AIM Blue Chip of such securities and other assets, 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 II 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.
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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 are
market leaders and typically have strong financial fundamentals). 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.
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 from 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 together with its affiliates advises
or manages 41 investment company portfolios, including AIM Blue Chip, of which
23 portfolios 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 December 31, 1995, the total assets advised or managed by AIM and its
affiliates were approximately $41.5 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
5
<PAGE> 11
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.
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 inquiries,
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.
6
<PAGE> 12
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 CHIP BLUE CHIP
--------- ---------
<S> <C> <C>
Maximum sales load imposed on purchase of shares (as a % of the
offering price)............................................... 5.50% 5.75%
</TABLE>
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 AVERAGE NET ASSETS)
(AFTER FEE WAIVERS OR EXPENSE REIMBURSEMENTS)
<TABLE>
<CAPTION>
AIM BAIRD
BLUE BLUE
CHIP(1) CHIP(2)
------- -------
<S> <C> <C>
Management fee (after waivers)(3)................................. 0.68% 0.74%
Rule 12b-1 distribution plan payments............................. 0.35 0.27
Other expenses
Administration fees............................................. 0.05 0.07
All other expenses.............................................. 0.23 0.23
---- ----
Total fund operating expenses (after waivers)..................... 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" for AIM Blue Chip would be 0.75% and
"Total fund operating expenses" for AIM Blue Chip would be 1.38%.
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 AIM
estimates that it would require a substantial number of years to exceed such
maximum charges.
7
<PAGE> 13
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 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 5.75% to
2.00% 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. Minimum subsequent
investments are $50. 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 set
forth in the Baird Blue Chip prospectus.
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<PAGE> 14
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 (including former Baird 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) at net asset
value (without payment of a sales charge). Exchanges may be made by mail or,
subject to certain conditions, by telephone.
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).
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
9
<PAGE> 15
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
INVESTMENT POLICIES AND RESTRICTIONS. The policies followed by AIM in
selecting investments for AIM Blue Chip are different from 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.
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.
10
<PAGE> 16
Market Risk. The securities markets in many of the countries in which AIM
Blue Chip may invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies may
be less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States. 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 close out a position or 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 -- Additional 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 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."
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<PAGE> 17
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:
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.
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<PAGE> 18
AIM Blue Chip will diversify among industry sectors and therefore will not
invest 25% or more of its total assets in any 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 will limit its
investments in convertible securities to those in which the underlying common
stock is a suitable investment for AIM Blue Chip without regard to debt rating
category, but will not invest more than 10% of its total assets in convertible
securities. 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 secondary investment objective of producing
current income. 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.
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
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<PAGE> 19
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 is a comparison of 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 not fundamental policies of AIM Blue Chip, and certain investment
restrictions of AIM Blue Chip are less restrictive than those of Baird Blue
Chip, which provides 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 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>
<CAPTION>
INVESTMENT RESTRICTION AIM BLUE CHIP BAIRD BLUE CHIP
- ---------------------------- ---------------------------------------- ----------------------------------------
<S> <C> <C>
Puts, Calls, Straddles, AIM Blue Chip may not write, purchase, Baird Blue Chip will not sell securities
Spreads, Commodities and or sell puts, calls, straddles, spreads short, or write or invest in put or call
Short Selling............... or combinations thereof (other than options. Baird Blue Chip will not
covered put and call options), or sell purchase or sell commodities or
securities short (except against the box commodities contracts.
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 than Repurchase agreements maturing in more
15% of its net assets in illiquid than seven days plus all other illiquid
securities, including repurchase securities will not exceed 10% of Baird
agreements with maturities in excess of Blue Chip's total assets.
seven days. This is not a fundamental
policy.
Borrowing................... AIM Blue Chip may not borrow money or Baird Blue Chip will not borrow money or
pledge its assets except that, as a issue senior securities, except for
temporary measure for extraordinary or temporary bank borrowings (not in excess
emergency purposes and not for of 5% of the value of its assets) for
investment or leverage purposes, it may emergency or extraordinary purposes, and
borrow from banks (including its will not pledge any of its assets except
custodian bank) amounts of up to 10% of to secure borrowings and only to an
the value of its total assets, and may extent not greater than 10% of the value
pledge amounts of up to 20% of its total of its net assets.
assets to secure such borrowings.
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
INVESTMENT RESTRICTION AIM BLUE CHIP BAIRD BLUE CHIP
- ---------------------------- ---------------------------------------- ----------------------------------------
<S> <C> <C>
Purchase of Securities on AIM Blue Chip may not purchase Baird Blue Chip will not purchase
Margin...................... securities on margin, except that it may warrants or securities on margin.
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).
Loans....................... AIM Blue Chip may not make loans, except Baird Blue Chip will not lend money
that the purchase of a portion of an (except by purchasing publicly
issue of publicly distributed bonds, distributed debt securities and other
debentures or other debt securities, or than entering into repurchase
purchasing short-term obligations, is agreements) and will not lend its
not considered to be a loan for purposes portfolio securities.
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. In
addition AIM Blue Chip, as a
nonfundamental policy, 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 warrants, Baird Blue Chip will not purchase
valued at the lower of cost or market, warrants on margin.
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 assets, Baird Blue Chip will not purchase
Issuer.................... AIM Blue Chip may not invest more than securities of any issuer (other than the
5% of its total assets in securities of United States or an instrumentality of
any one issuer (other than obligations the United States) if, as a result of
of the U.S. Government and its such purchase, it would hold more than
instrumentalities), or purchase more 10% of any class of securities,
than 10% of the outstanding securities including voting securities, of such
of any one issuer or more than 10% of issuer or more than 5% of Baird Blue
any class of securities of an issuer. Chip's assets, taken at current value,
These are not fundamental policies, would be invested in securities of such
although any change in investment issuer.
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.
Joint Trading Accounts...... AIM Blue Chip may participate in joint Baird Blue Chip will not participate in
trading accounts (under conditions set a joint-trading account.
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
companies, subject to the limitations except as part of a plan of merger,
imposed by the 1940 Act. This is not a consolidation or reorganization approved
fundamental policy. by the shareholders of Baird Blue Chip.
</TABLE>
15
<PAGE> 21
<TABLE>
<CAPTION>
INVESTMENT RESTRICTION AIM BLUE CHIP BAIRD BLUE CHIP
- ---------------------------- ---------------------------------------- ----------------------------------------
<S> <C> <C>
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 at continuous operation, including the
the time thereof would cause more than operation of any predecessor business of
5% of its total assets to be invested in a company which came into existence as a
the securities of such companies (with result of a merger, consolidation,
such period of three years to include reorganization or purchase of
the operation of any predecessor company substantially all of the assets of such
or companies, partnership or individual predecessor business.
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 securities.
Equity Securities...........
Industry Concentration...... AIM Blue Chip may not concentrate its Baird Blue Chip will not concentrate
investments -- that is, invest 25% or more than 25% of the value of its
more of the value of its total assets in assets, determined at the time the
issuers which conduct their business investment is made, exclusive of
operations in the same industry. government securities, in securities
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 and
estate investment trusts. 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 securities
issuers. 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 of AIM Blue Chip may not purchase or retain Baird Blue Chip will not acquire or
Issuers Owned by Officers or the securities of any issuer, if the retain any security issued by a company
Directors of Advisors or officers and directors of AEF, its in which directors or officers of Baird
Distributors................ advisors or distributor who own Blue Chip, or directors or officers of
individually more than 1/2 of 1% of the its investment adviser, individually own
securities of such issuer, together own more than 1/2 of 1% of such company's
more than 5% of the securities of such securities or in the aggregate own more
issuer. This is not a fundamental than 5% of the securities of such
policy. 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 mineral interest in any oil, gas or any other
exploration or development programs. mineral exploration or development
This is not a fundamental policy. program.
</TABLE>
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<PAGE> 22
<TABLE>
<CAPTION>
INVESTMENT RESTRICTION AIM BLUE CHIP BAIRD BLUE CHIP
- ---------------------- ------------- ---------------
<S> <C> <C>
Securities of Companies with No corresponding restriction. Baird Blue Chip will not acquire or
Overlapping Officers or retain any security issued by a company,
Directors of the Fund or its an officer or director of which is an
Investment Adviser.......... officer or director of Baird Blue Chip
or an officer, director or other
affiliated person of its investment
adviser.
Subsequent Changes in Value If a percentage restriction is adhered No corresponding restriction.
or Assets................... 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 pursuing its objectives, AIM Blue Chip may engage in the following types
of transactions and make the following investments. 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.
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.
TEMPORARY DEFENSIVE MEASURES. AIM Blue Chip has adopted a temporary
defensive policy which permits it to 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 temporary defensive measure during
abnormal market or economic conditions when AIM Blue Chip's investment adviser
deems it appropriate. AIM Blue Chip may also invest in short-term instruments as
a reserve for expenses or anticipated redemptions, as necessary, to the extent
permitted by its fundamental and non-fundamental investment policies. 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. Repurchase agreements are not included in AIM Blue Chip's
restrictions on lending.
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
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<PAGE> 23
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 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.
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<PAGE> 24
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 investment advisory agreement with AIM, the
administrative services agreement with AIM, the agreement with AIM Distributors
regarding distribution of the shares of AIM Blue Chip, the agreements with State
Street Bank and Trust Company as custodian and 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, AIM Distributors and AIM Management. 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 will be
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"), 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.
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<PAGE> 25
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 and financial
institutions 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. 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 1/30 of 1% of the first
$50 million of such fund's assets, plus 1/60 of 1% of the next $50 million of
such fund's net assets, plus 1/100 of 1% of the next $175 million of such fund's
assets, plus 1/150 of 1% of the next $1.75 billion of such fund's net assets,
plus 1/250 of 1% of such fund's assets over $2 billion. In addition, AIM Blue
Chip pays the
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<PAGE> 26
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 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.
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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.
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. 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. 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. 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 has 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 the Transaction; (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
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<PAGE> 28
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.
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 between $15,000 and $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
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<PAGE> 29
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, or otherwise dispose of a
number of the shares of AIM Blue Chip received by them in the Transaction that
would reduce Baird Blue Chip shareholder's ownership of AIM Blue Chip Shares to
a number of shares having a value, as of the Closing Date, of less than 50% of
the value of the formerly outstanding shares of Baird Blue Chip as of 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 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; and (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
24
<PAGE> 30
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.
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.
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.
25
<PAGE> 31
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) willful 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) willful
misconduct. Neither Wisconsin corporate law nor Baird Blue Chip's Articles or
Bylaws specifically limits 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.
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. Wisconsin courts have interpreted "par value" to mean
the amount paid by a shareholder for his or her shares. There is no similar
Maryland provision.
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 to 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.
26
<PAGE> 32
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.
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 December 31, 1995, Baird owned of record 54.8% of the outstanding
shares of Baird Blue Chip. To the best of the knowledge of Baird Blue Chip, no
other person owned of record or 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
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>
BAIRD PRO FORMA
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>
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<PAGE> 33
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. 33-9500. 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. 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 "Management's 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.
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<PAGE> 34
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> 35
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
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<PAGE> 36
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>
DEALER
INVESTOR'S SALES CHARGE CONCESSION
-------------------------- -----------
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ----- -------- -----
<S> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
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>
DEALER
INVESTOR'S SALES CHARGE CONCESSION
-------------------------- -----------
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ----- -------- -----
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
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>
DEALER
INVESTOR'S SALES CHARGE CONCESSION
-------------------------- -----------
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ----- -------- -----
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/ or advance a service fee on such
transactions.
BF 12/95
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<PAGE> 37
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-
BF 12/95
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<PAGE> 38
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.
BF 12/95
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<PAGE> 39
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.
BF 12/95
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<PAGE> 40
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
BF 12/95
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<PAGE> 41
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
BF 12/95
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<PAGE> 42
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).
BF 12/95
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<PAGE> 43
- --------------------------------------------------------------------------------
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 --------------
FUND -- CLASS A AIM INTERNATIONAL EQUITY AIM MONEY MARKET FUND -- CLASS C
AIM CHARTER FUND -- CLASS A FUND -- CLASS A AIM TAX-EXEMPT CASH FUND
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 Applicable
Funds........... for at least 30 days; or if shares
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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<PAGE> 44
<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 Applicable
directly purchased. Net Asset Value Load shares were
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 Applicable
Funds........... acquired upon exchange of any Load
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 Applicable
directly purchased. Net Asset Value Load shares were
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> 45
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 if they do not
follow reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security Number and current address, and mailings of confirmations
promptly after the transaction.
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> 46
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."
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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 pro vide 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 if they do not follow reasonable
procedures for verification of telephone transactions. Such reasonable
procedures may include recordings of telephone transactions (maintained for six
months), requests for confirmation of the shareholder's Social Security Number
and current address, and mailings of confirmations promptly after the
transaction.
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
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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-
BF 12/95
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<PAGE> 49
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 quarterly annually annually
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 quarterly annually annually
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 monthly annually annually
AIM GLOBAL UTILITIES FUND............... declared daily; paid monthly annually annually
AIM GROWTH FUND......................... declared and paid annually annually annually
AIM HIGH YIELD FUND..................... declared daily; paid monthly annually annually
AIM INCOME FUND......................... declared daily; paid monthly annually annually
AIM INTERMEDIATE GOVERNMENT FUND........ declared daily; paid monthly annually annually
AIM INTERNATIONAL EQUITY FUND........... declared and paid annually annually annually
AIM LIMITED MATURITY TREASURY SHARES.... declared daily; paid monthly quarterly annually
AIM MONEY MARKET FUND................... declared daily; paid monthly at least annually annually
AIM MUNICIPAL BOND FUND................. declared daily; paid monthly annually annually
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT.. declared daily; paid monthly annually annually
AIM TAX-EXEMPT CASH FUND................ declared daily; paid monthly at least annually annually
AIM TAX-FREE INTERMEDIATE SHARES........ declared daily; paid monthly annually annually
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> 50
(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> 51
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
A-18
<PAGE> 52
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>
- ------------------------------------------------------------------------------------------------------------------------------
GIVE SOCIAL SECURITY GIVE TAXPAYER I.D.
ACCOUNT TYPE NUMBER OF: ACCOUNT TYPE NUMBER OF:
<S> <C> <C> <C>
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
B-1
<PAGE> 53
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
B-2
<PAGE> 54
APPENDIX II
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
BAIRD BLUE CHIP FUND, INC.
<PAGE> 55
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS.............................................................. 1
SECTION 1.1. Definitions........................................................... 1
ARTICLE II
TRANSFER OF ASSETS....................................................... 3
SECTION 2.1. Reorganization of Baird Blue Chip..................................... 3
SECTION 2.2. Computation of Net Asset Value........................................ 3
SECTION 2.3. Excluded Assets....................................................... 3
SECTION 2.4. Valuation Date........................................................ 4
SECTION 2.5. Delivery.............................................................. 4
SECTION 2.6. Dissolution........................................................... 4
SECTION 2.7. Issuance of AIM Equity Shares......................................... 4
SECTION 2.8. Investment Securities................................................. 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BAIRD BLUE CHIP........................ 5
SECTION 3.1. Incorporation: Qualification and Corporate Authority.................. 5
SECTION 3.2. Registration and Regulation of Baird Blue Chip........................ 5
SECTION 3.3. Financial Statements.................................................. 5
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities................... 6
SECTION 3.5. BBC Shares; Liabilities............................................... 6
SECTION 3.6. Accountants........................................................... 6
SECTION 3.7. Binding Obligation.................................................... 6
SECTION 3.8. No Breaches or Defaults............................................... 6
SECTION 3.9. Authorizations or Consents............................................ 7
SECTION 3.10. Permits............................................................... 7
SECTION 3.11. No Actions, Suits or Proceedings...................................... 7
SECTION 3.12. Contracts............................................................. 7
SECTION 3.13. Properties and Assets................................................. 8
SECTION 3.14. Ineligible Persons.................................................... 8
SECTION 3.15. Rule 17e-1............................................................ 8
SECTION 3.16. Taxes................................................................. 8
SECTION 3.17. Benefit and Employment Obligations.................................... 8
SECTION 3.18. Brokers............................................................... 9
SECTION 3.19. Voting Requirements; Dissenter's Rights............................... 9
SECTION 3.20. State Takeover Statutes............................................... 9
SECTION 3.21. Books and Records..................................................... 9
SECTION 3.22. Prospectus............................................................ 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AIM EQUITY............................. 9
SECTION 4.1. Incorporation: Qualification and Corporate Authority.................. 9
SECTION 4.2. Binding Obligation.................................................... 9
SECTION 4.3. No Breaches or Defaults............................................... 9
SECTION 4.4. Authorizations or Consents............................................ 10
SECTION 4.5. Permits............................................................... 10
SECTION 4.6. No Actions, Suits or Proceedings...................................... 10
SECTION 4.7. Ineligible Persons.................................................... 10
SECTION 4.8. Brokers............................................................... 10
SECTION 4.9. Registration and Regulation........................................... 11
</TABLE>
i
<PAGE> 56
<TABLE>
<S> <C> <C>
SECTION 4.10. Registration of Portfolio Shares...................................... 11
SECTION 4.11. Representations Concerning the Reorganization......................... 11
SECTION 4.12. Prospectus............................................................ 12
ARTICLE V
COVENANTS............................................................. 12
SECTION 5.1. Conduct of Business................................................... 12
SECTION 5.2. Confidentiality and Announcements..................................... 13
SECTION 5.3. Expenses.............................................................. 14
SECTION 5.4. Further Assurances.................................................... 14
SECTION 5.5. Notice of Events...................................................... 14
SECTION 5.6. Access to Information................................................. 14
SECTION 5.7. Consents, Approvals and Filings....................................... 14
SECTION 5.8. Submission of Agreement to Shareholders............................... 15
SECTION 5.9. Acquisition Proposals................................................. 15
SECTION 5.10. Fiduciary Duties...................................................... 15
SECTION 5.11. Section 15(f) of the 1940 Act......................................... 15
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION............................ 16
SECTION 6.1. Conditions Precedent of AIM Equity.................................... 16
SECTION 6.2. Mutual Conditions..................................................... 16
SECTION 6.3. Conditions Precedent of Baird Blue Chip............................... 18
ARTICLE VII
TERMINATION OF AGREEMENT.............................................. 18
SECTION 7.1. Termination........................................................... 18
SECTION 7.2. Survival After Termination............................................ 19
ARTICLE VIII
MISCELLANEOUS......................................................... 19
SECTION 8.1. Nonsurvival of Representations and Warranties......................... 19
SECTION 8.2. Law Governing......................................................... 19
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment..................... 19
SECTION 8.4. Obligation of AIM Equity Portfolio.................................... 19
SECTION 8.5. Amendments............................................................ 19
SECTION 8.6. Enforcement........................................................... 19
SECTION 8.7. Interpretation........................................................ 20
SECTION 8.8. Counterparts.......................................................... 20
SECTION 8.9. Entire Agreement; Schedules........................................... 20
SECTION 8.10. Notices............................................................... 20
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>
ii
<PAGE> 57
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:
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.
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<PAGE> 58
"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
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.
"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.
2
<PAGE> 59
"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.
"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
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
3
<PAGE> 60
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 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 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.
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<PAGE> 61
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.
SECTION 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.
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.
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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 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 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
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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 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
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
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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.
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, 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,
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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 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
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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.
(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.
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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.
(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.
(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.
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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;
(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 in the
ordinary course and substantially in accordance with past practices, and shall
use its
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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 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.
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(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.
(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
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
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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 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.
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.
(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
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"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."
(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 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.
(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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(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 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.
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(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
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
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;
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(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
(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.
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
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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
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
20
<PAGE> 77
Attn: Conrad G. Goodkind, Esq.
Fax: (414) 271-3552
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
---------------------------
21
<PAGE> 78
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.
<PAGE> 79
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.
<PAGE> 80
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.
(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.
<PAGE> 81
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.
<PAGE> 82
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY!
Please detach at perforation before mailing.
_______________________________________________________________________________
BAIRD BLUE CHIP FUND, INC.
REVOCABLE PROXY FOR
SPECIAL MEETING OF SHAREHOLDERS - MARCH 15, 1996
The undersigned hereby appoints Marcus C. Low, Jr. and Glen F. Hackmann, and
each of them individually, as proxy, with full power of substitution, to
represent and vote, as designated on the reverse side of this card, 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 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 Friday, March 15, 1996, or at any
adjournment thereof, with respect to the matters set forth on the reverse side
of this card and described in the accompanying Notice of Special Meeting and
Proxy Statement/Prospectus, receipt of which is hereby acknowledged.
IT IS AGREED THAT UNLESS OTHERWISE MARKED HEREON, SAID PROXIES ARE APPOINTED
WITH AUTHORITY TO VOTE FOR THE PROPOSAL LISTED ON THE REVERSE HEREOF, AND IN THE
DISCRETION OF THE PROXIES, ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
PLEASE SIGN, DATE AND RETURN PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
Please sign exactly as name appears on this
card. When shares are held by joint tenants,
all should sign. When signing as
executor, administrator, trustee or guardian,
please give title. If corporation or
partnership, sign in entity's name and by
authorized person.
---------------------------------------------
Signature
---------------------------------------------
Signature (if held jointly)
Dated: ______________________________, 1996
<PAGE> 83
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY!
Please detach at perforation before mailing.
- -------------------------------------------------------------------------------
TO VOTE FILL IN BOX COMPLETELY
1. PROPOSAL TO APPROVE an Agreement and Plan
of Reorganization (the "Agreement") between FOR AGAINST ABSTAIN
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 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 will 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.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR PROPOSAL 1.
(TO BE DATED AND SIGNED ON THE REVERSE SIDE)
<PAGE> 84
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 DATED FEBRUARY 2, 1996
RELATING TO THE AIM BLUE CHIP FUND PROXY STATEMENT/PROSPECTUS
DATED FEBRUARY 2, 1996
<PAGE> 85
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
General Brokerage Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 28(e) Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Rule 144A Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Risks as to Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Additional Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Investment Advisory, and Administrative Services Agreements . . . . . . . . . . . . . . . . . . . . . . . . 20
THE DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
HOW TO PURCHASE AND REDEEM SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
NET ASSET VALUE DETERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Reinvestment of Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Qualification as a Regulated Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Excise Tax on Regulated Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Fund Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Sale or Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Effect of Future Legislation; Local Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
i
<PAGE> 86
<TABLE>
<S> <C>
MISCELLANEOUS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Shareholder Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Principal Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Description of Commercial Paper Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Description of Corporate Bond Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .FS-1
</TABLE>
ii
<PAGE> 87
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 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.
1
<PAGE> 88
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]
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.
2
<PAGE> 89
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.
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
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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 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 funds 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
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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 funds 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 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
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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.
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
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Fund by improving the quality of the investment advice. The advisory fees paid
by the Fund are not reduced because AIM receives 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."
TEMPORARY DEFENSIVE MEASURES - The Fund may invest, for temporary or
defensive purposes pursuant to its temporary defensive policy, 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 to the extent permitted by the Funds
fundamental and non-fundamental investment policies 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.
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
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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
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
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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.
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.
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FOREIGN SECURITIES
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
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normal settlement period for purchases and sales of such securities in such
foreign markets. The Fund 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 a decline in the price of a
security owned by the Fund. It may be sold at a profit or loss depending upon
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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 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
11
<PAGE> 98
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.
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.
12
<PAGE> 99
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 25% or more of the
value of its total 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 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.
13
<PAGE> 100
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.
14
<PAGE> 101
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
________________________
* 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.
15
<PAGE> 102
President, Bell Atlantic Corporation (parent of seven telephone companies);
and Vice President and Chief Financial Officer, Bell Telephone Company of
Pennsylvania and Diamond State Telephone Company.
LOUIS S. SKLAR, 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,
________________________
*** Mr. Arthur and Ms. Relihan are married to each other.
16
<PAGE> 103
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.
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.
17
<PAGE> 104
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.
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.
18
<PAGE> 105
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>
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
ANNUAL COMPENSATION
PAID BY ALL AIM FUNDS
---------------------
<S> <C> <C>
$60,000 $65,000
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 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
19
<PAGE> 106
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 together with its affiliates advises or
manages 41 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. 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
20
<PAGE> 107
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,
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
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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 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
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<PAGE> 109
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 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 the Class A shares 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.
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<PAGE> 110
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 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.
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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,
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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.
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
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more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses.**
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of 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"
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<PAGE> 115
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
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.
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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.
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
30
<PAGE> 117
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.
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.
31
<PAGE> 118
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., 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.
32
<PAGE> 119
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.
33
<PAGE> 120
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
<PAGE> 121
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> 122
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> 123
<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> 124
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> 125
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> 126
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> 127
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> 128
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
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[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
