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[BAIRD LOGO APPEARS HERE]
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BAIRD CAPITAL DEVELOPMENT FUND, INC. 777 East Wisconsin Avenue
Milwaukee, WI 53202 414-765-3500
February 2, 1996
Dear Baird Capital Development 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 Capital Development Fund would be reorganized into AIM
Capital Development 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 Capital Development Fund would be transferred to AIM Capital Development
Fund and, in exchange therefor, you will receive shares of AIM Capital
Development 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 Capital
Development 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 Capital Development
Fund, which is a member of The AIM Family of Funds(R). The investment objective
and policies of AIM Capital Development Fund are similar to those of Baird
Capital Development 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 Capital Development 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 CAPITAL DEVELOPMENT 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 CAPITAL DEVELOPMENT FUND, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Baird
Capital Development Fund, Inc. (the "BCD Fund") 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 the BCD Fund 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 the BCD Fund will be transferred
to AIM Capital Development Fund ("Capital Development"), a newly created
portfolio of AEF. Upon such transfer, AEF will issue shares of Capital
Development directly to the shareholders of the BCD Fund. Shareholders of the
BCD Fund will receive shares of Capital Development with an aggregate net asset
value equal to the aggregate net value of the BCD Fund assets transferred in
connection with the Transaction. It is expected that the value of each
shareholder's account with Capital Development immediately after the Transaction
will be the same as the value of such shareholder's account with the BCD Fund
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 the BCD Fund in making suitable arrangements at the Special
Meeting, shareholders planning to attend the Special Meeting in person are
requested to notify the BCD Fund 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
THE BCD FUND. 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 THE BCD FUND 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 CAPITAL DEVELOPMENT FUND, INC.
AIM CAPITAL DEVELOPMENT 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 Capital Development Fund, Inc. (the "BCD Fund"), to be
held on Friday, March 15, 1996 (the "Special Meeting"). At the Special Meeting,
the shareholders of the BCD Fund are being asked to consider and approve a
proposed Agreement and Plan of Reorganization (the "Agreement") between the BCD
Fund and AIM Equity Funds, Inc. ("AEF") and the consummation of the transactions
contemplated therein (the "Transaction"). THE BOARD OF DIRECTORS OF THE BCD FUND
HAS UNANIMOUSLY APPROVED THE AGREEMENT AND TRANSACTION AS BEING FAIR TO, AND IN
THE BEST INTERESTS OF, THE BCD FUND SHAREHOLDERS.
Pursuant to the Agreement, substantially all of the assets of the BCD Fund
will be transferred to AIM Capital Development Fund ("Capital Development"), a
newly created portfolio of AEF. Upon such transfer, AEF will issue shares of
Capital Development directly to shareholders of the BCD Fund. Shareholders of
the BCD Fund will receive shares of Capital Development with an aggregate net
asset value equal to the aggregate net value of the BCD Fund assets transferred
in connection with the Transaction. It is expected that the value of each
shareholder's account with Capital Development immediately after the Transaction
will be the same as the value of such shareholder's account with the BCD Fund
immediately prior to the Transaction. As soon as reasonably practicable after
the closing of the Transaction, the BCD Fund will pay or make provision for
payment of all of its liabilities and dissolve its corporate existence. Any
assets held by the BCD Fund after the Transaction that are not used to discharge
debts of the BCD Fund 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.
CAPITAL DEVELOPMENT IS A DIVERSIFIED SERIES PORTFOLIO OF AEF, AN OPEN-END
SERIES MANAGEMENT INVESTMENT COMPANY. THE INVESTMENT OBJECTIVE OF CAPITAL
DEVELOPMENT IS SIMILAR TO THAT OF THE BCD FUND. THE INVESTMENT OBJECTIVE OF
CAPITAL DEVELOPMENT IS LONG-TERM CAPITAL APPRECIATION. IT SEEKS TO ACHIEVE THAT
OBJECTIVE BY INVESTING PRIMARILY IN COMMON STOCKS AND CONVERTIBLE SECURITIES.
THE INVESTMENT OBJECTIVE OF THE BCD FUND IS TO PRODUCE LONG-TERM CAPITAL
APPRECIATION. IT SEEKS TO ACHIEVE THAT OBJECTIVE THROUGH INVESTMENTS IN COMMON
STOCKS BELIEVED BY THE BCD FUND'S INVESTMENT ADVISER TO BE UNDERPRICED RELATIVE
TO FUTURE GROWTH PROSPECTS. CURRENT INCOME IS A SECONDARY OBJECTIVE OF THE BCD
FUND. SEE "COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES" BELOW.
The principal executive offices of the BCD Fund 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 the BCD Fund should
know before voting on the Agreement. It should be read and retained for future
reference.
The current Prospectus of the BCD Fund dated January 22, 1996 (the "BCD
Fund Prospectus") is on file with the Securities and Exchange Commission (the
"SEC"). Such prospectus is incorporated by reference herein. A statement of
additional information of Capital Development 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 BCD Fund
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.................................................................... 3
SYNOPSIS........................................................................................ 4
The Transaction............................................................................... 4
Comparison of the BCD Fund and Capital Development............................................ 4
RISK FACTORS.................................................................................... 10
COMPARISON OF INVESTMENT POLICIES AND OBJECTIVES................................................ 12
Investment Objectives......................................................................... 12
Investment Policies........................................................................... 12
Investment Restrictions....................................................................... 13
Additional Investment Policies of Capital Development......................................... 15
ADDITIONAL INFORMATION ABOUT CAPITAL DEVELOPMENT................................................ 17
Management of Capital Development............................................................. 17
Portfolio Managers............................................................................ 18
Distribution.................................................................................. 18
Custodial and Transfer Agency Fees............................................................ 19
Portfolio Brokerage........................................................................... 19
Shares of AEF................................................................................. 19
Shareholder Inquiries......................................................................... 20
Other Information............................................................................. 20
ADDITIONAL INFORMATION ABOUT THE AGREEMENT...................................................... 20
Terms of the Transaction...................................................................... 20
Transfer of Assets............................................................................ 20
Other Terms................................................................................... 21
Federal Tax Consequences...................................................................... 22
Accounting Treatment.......................................................................... 23
RIGHTS OF SHAREHOLDERS.......................................................................... 23
Election of Directors and Annual Shareholder Meetings......................................... 23
Terms of Directors............................................................................ 23
Vacancies of Directors........................................................................ 23
Removal of Directors.......................................................................... 24
Special Meetings of Shareholders.............................................................. 24
Liability of Directors and Officers........................................................... 24
Shareholder Liability......................................................................... 24
Supermajority Voting Provisions............................................................... 25
Dissenters' Rights............................................................................ 25
Amendment to Organizational Documents......................................................... 25
OWNERSHIP OF CAPITAL DEVELOPMENT AND BCD FUND SHARES............................................ 25
Ownership of Shares........................................................................... 25
Ownership of Officers and Directors........................................................... 26
CAPITALIZATION.................................................................................. 26
</TABLE>
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<TABLE>
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LEGAL MATTERS................................................................................... 26
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION................................... 26
ADDITIONAL INFORMATION ABOUT THE BCD FUND....................................................... 27
INVESTOR'S GUIDE........................................................................... Appendix I
AGREEMENT AND PLAN OF REORGANIZATION FOR BAIRD CAPITAL
DEVELOPMENT 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 the BCD Fund's Board of Directors from the
shareholders of the BCD Fund 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 referred to as the "Special Meeting").
The BCD Fund has engaged the services of Shareholder Communications
Corporation ("SCC") to assist it in the solicitation of proxies for the Special
Meeting. The BCD Fund expects to solicit proxies principally by mail, but the
BCD Fund or SCC may also solicit proxies by telephone, facsimile, telegraph or
personal interview. The BCD Fund's officers will not receive any additional or
special compensation for any such solicitation. Although the BCD Fund and
Capital Development will bear their respective costs and expenses incurred in
connection with the Transaction, Robert W. Baird & Co. Incorporated ("Baird"),
the investment adviser of the BCD Fund, has agreed with the BCD Fund 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 to
Capital Development, has agreed to pay to 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 outstanding shares of the BCD Fund at the Special Meeting will constitute a
quorum. Approval of the Agreement requires the affirmative vote of a majority of
the outstanding shares of the BCD Fund. 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 the BCD Fund. 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 2,276,201.844 shares of the BCD Fund. Each share is
entitled to one vote for each full share held, and a fractional vote for a
fractional share held.
The BCD Fund 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 the BCD Fund 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 BCD Fund agrees, that the
interests of shareholders of the BCD Fund, many of whom are brokerage clients of
Baird, would be well-served if the BCD Fund were part of a large, growing mutual
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 the BCD Fund to achieve
larger and wider distribution of shares, potentially resulting in economies of
scale which to date have not been achieved by the BCD Fund. Association with a
large fund complex could also facilitate the ability of the shareholders of the
BCD Fund 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 the BCD Fund, 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.
BCD Fund received proposals from several mutual fund complexes and
investment management firms, including AIM. Baird also received proposals for
the purchase of Baird's records, information and goodwill applicable to its
advisory relationship to the Baird Mutual Funds. Following their review of the
proposals, officers of the BCD Fund (each of which 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 the BCD Fund 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 the BCD Fund 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 the BCD Fund'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 the BCD Fund and Capital Development;
(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 Capital Development;
(vi) the distribution fees and expenses to be paid by Capital
Development and the services to be received for such fees and expenses,
together with a comparison of such attributes to the BCD Fund and other
comparable mutual funds;
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(vii) the various other services (including administrative,
accounting, custodial, transfer agency and legal services) provided to
Capital Development and the associated costs of such services, including a
comparison of such attributes to the BCD Fund and other comparable mutual
funds;
(viii) a comparison of the current and pro forma expense ratios for
the BCD Fund and Capital Development, together with a comparison of expense
ratios for other comparable mutual funds, and consideration of AIM's
agreement to waive certain fees or reimburse Capital Development as
necessary to assure that Capital Development's total operating expenses as
a percentage of average net assets for a two-year period commencing with
the consummation of the Transaction will not be greater than the BCD Fund'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 the BCD Fund shareholders to
exchange shares of Capital Development 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 (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 7
out of 9 members who are not interested persons of AIM or Baird. In addition,
the BCD Fund's 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 successor
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 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 Capital Development or
the BCD Fund as a result of the Transaction.
The Board of Directors of the BCD Fund concluded that the Agreement and the
Transaction are fair to, and in the best interests of, the BCD Fund
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 the BCD
Fund that they vote FOR the Agreement and the Transaction.
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 the BCD Fund and certain
other Baird Mutual Funds and all goodwill applicable to Baird's role as
investment adviser to
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those 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 date 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 Transaction as to which Robert W. Baird & Co.
Incorporated 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 anniversary date. Consummation of
the transaction described in the Acquisition Agreement is contingent upon, among
other things, approval of the Transaction by the BCD Fund shareholders and
approval of the reorganization of the 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 the BCD Fund with Capital Development, a newly created portfolio
of AEF, a Maryland corporation. In the event shareholders approve the Agreement
and other closing conditions are satisfied, the BCD Fund will transfer
substantially all of its portfolio securities and other assets to Capital
Development. In exchange, shareholders of the BCD Fund will receive shares of
Capital Development with an aggregate net asset value equal to the aggregate net
value of the BCD Fund 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 Capital Development immediately after the
Transaction will be the same as the value of such shareholder's account with the
BCD Fund immediately prior to the transaction. BCD Fund shareholders will pay no
sales charges in connection with the Transaction. Promptly after the acquisition
by Capital Development of such securities and other assets, the BCD Fund will
take steps to pay any outstanding liabilities and dissolve to corporate
existence. Any assets held by the BCD Fund after the Transaction that are not
used to discharge debts of the BCD Fund 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."
The BCD Fund 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."
Capital Development 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).
Capital Development was created initially for the purpose of acquiring the
investment portfolio of the BCD Fund, and currently has only nominal assets.
COMPARISON OF THE BCD FUND AND CAPITAL DEVELOPMENT
Discussed below is a brief comparison of the principal features of Capital
Development and the BCD Fund.
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of Capital Development is similar to that of the
BCD Fund. The investment objective of Capital Development is long-term capital
appreciation. It seeks to achieve that objective by investing primarily in
common stocks and convertible securities. Production of income is incidental to
the investment objective of Capital Development. The investment objective of the
BCD Fund is to produce long-term capital appreciation. It seeks to achieve that
objective through investments in common stocks believed by the BCD Fund's
investment adviser to be underpriced relative to future growth prospects.
Current income is a secondary objective of the BCD Fund.
In order to increase total return by taking greater advantage of market
opportunities as well as for hedging purposes, Capital Development will engage
to a greater extent in a number of investment practices which are not currently
used by the BCD Fund. Such practices include investments in foreign securities,
covered put and call options, stock index futures and related options, short
sales of securities against the box, fully collateralized securities lending,
purchases of warrants, investments in joint trading accounts, purchase 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 Capital Development described above may result
in risk which are different from those currently associated with the investment
practices of the BCD Fund. For a more detailed discussion of Capital
Development's investment practices, see "Risk Factors" and "Comparison of
Investment Objectives and Policies" below.
ADVISORY AND ADMINISTRATIVE SERVICES
Capital Development
AIM serves as the investment advisor to Capital Development 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
Capital Development, of which 23 portfolios comprise "The AIM Family of
Funds(R)" listed in the attached Investors 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 million of Capital
Development's average daily net assets and 0.625% of the average daily net
assets over $350 million. The total advisory fee paid by Capital Development 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, Capital Development 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 and reimburse Capital Development as
necessary to ensure that Capital Development's total operating expenses as a
percentage of average net assets for the next two years will not be greater than
the BCD Fund's expense ratio of 1.34% for its fiscal year ended September 30,
1995. Such waivers and reimbursements will have the effect of increasing Capital
Development's yield to investors.
5
<PAGE> 11
The BCD Fund
Pursuant to an investment advisory agreement (the "BCD Advisory Agreement")
with the BCD Fund, Fiduciary Management, Inc. ("FMI"), 225 East Mason Street,
Milwaukee, Wisconsin 53202, furnishes continuous investment advisory services to
the BCD Fund. FMI is an investment adviser to individuals and institutional
clients (including investment companies) with substantial investment portfolios.
Under the BCD Advisory Agreement, FMI, at its own expense and without
reimbursement from the BCD Fund, furnishes office space, and all necessary
office facilities, equipment, and executive personnel for the performance of the
services required to be performed by it under the BCD Advisory Agreement. For
the foregoing, FMI receives a monthly fee of 1/12 of 0.4125% (0.4125% per annum)
of the daily net assets of the BCD Fund.
Pursuant to a sub-advisory agreement (the "Sub-Advisory Agreement") with
the BCD Fund, Baird furnishes regular advice to FMI regarding the value of
securities and the advisability of the BCD Fund purchasing or selling specific
securities as well as regular analyses and reports to FMI concerning issuers,
industries, securities, economic factors and portfolio strategy. Although Baird
furnishes regular advice to FMI, FMI makes the final decision as to the
securities to be purchased and sold for the BCD Fund and the timing of such
purchases and sales. Baird is a securities broker-dealer and investment adviser
providing brokerage, research, investment banking and investment advisory
services to individuals, trusts, estates, corporations and other institutional
clients.
In addition to the services referred to above, Baird pays the salaries and
fees of all officers and directors of the BCD Fund (except the fees to directors
who are not interested persons of the BCD Fund). For the foregoing, Baird
receives a monthly fee of 1/12 of 0.3275% (0.3275% per annum) of the daily net
assets of the BCD Fund.
The BCD Fund has entered into an administration agreement with FMI pursuant
to which FMI supervises all aspects of the BCD Fund's operations except those
performed by the investment advisers. FMI prepares and maintains the books,
accounts and other documents required by the 1940 Act, determines the BCD Fund's
net asset value, responds to shareholder inquiries, prepares the BCD Fund's
financial statements and excise tax returns, prepares reports and filings with
the Securities and Exchange Commission ("SEC"), furnishes statistical and
research data, clerical, accounting and bookkeeping services and stationery and
office supplies, keeps and maintains the BCD Fund financial accounts and records
and generally assists in all aspects of the BCD Fund's operations other than
portfolio decisions. FMI, at its own expense and without reimbursement from the
BCD Fund, furnishes office space and all necessary office facilities, equipment
and executive personnel for supervising the BCD Fund's operations. For the
foregoing, FMI receives from the BCD Fund a monthly fee of 1/12 of 0.1% (0.1%
per annum) on the first $30,000,000 of the BCD Fund's daily net assets and 1/12
of 0.05% (0.05% per annum) on the daily net assets over $30,000,000.
DISTRIBUTION
Capital Development
Capital Development'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 the BCD Fund
Shareholders by increasing the size of Capital Development with attendant lower
expense ratios and greater potential for diversification as compared with the
BCD Fund. AIM Distributors, a registered broker-dealer and a wholly owned
subsidiary of AIM, acts as the distributor of the shares of Capital Development.
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 Capital Development on an annualized basis for the purpose
of financing any activity that is intended to result in the sale of shares of
Capital Development.
6
<PAGE> 12
The BCD Fund
Baird acts as distributor of the BCD Fund pursuant to a Distribution
Assistance Agreement with the BCD Fund. Substantially all of the shares of the
BCD Fund have been sold through Baird to its clients and customers. The BCD Fund
has adopted a Distribution Plan (the "the BCD Fund Plan") pursuant to Rule 12b-1
under the 1940 Act. The BCD Fund Plan provides that the BCD Fund shall pay Baird
from its assets a distribution fee calculated as the lesser of (a) 0.45% per
year of the BCD Fund's average daily net assets, or (b) Baird's total costs
incurred during the year for distribution of the BCD Fund's shares. Amounts paid
under the BCD Fund Plan may be spent by Baird on any activities or expenses
primarily intended to result in the sale of shares.
EXPENSE LEVELS
Set forth below are the expenses a shareholder would incur in purchasing
shares of Capital Development and the BCD Fund. No sales charges are applicable
to the Transaction.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CAPITAL BCD
DEVELOPMENT FUND
----------- -----
<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 BCD Fund
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 Capital Development by accounts of market timers. Broker-dealers,
including Baird, may charge a service fee for redemptions or repurchases of BCD
Fund or Capital Development 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. See also the BCD Fund prospectus. Reinvestment dividends of both
Capital Development and BCD Fund are exempt from sales loads.
Set forth below is a comparison of annual operating expenses as a
percentage of net assets ("Expense Ratio") for Capital Development and for the
BCD Fund.
ANNUAL OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
(AFTER FEE WAIVERS OR EXPENSE REIMBURSEMENTS)
<TABLE>
<CAPTION>
CAPITAL BCD
DEVELOPMENT(1) FUND(2)
-------------- -------
<S> <C> <C>
Management fees (after waivers)(3)................................. 0.68% 0.74%
Rule 12b-1 distribution plan payments.............................. 0.35 0.27
Other expenses
Administration fees.............................................. 0.06 0.08
All other expenses............................................... 0.25 0.25
---- ----
Total fund operating expenses (after waivers)...................... 1.34% 1.34%
==== ====
</TABLE>
- ---------------
(1) Expenses are estimates and are based upon the assumption that the value of
the assets acquired by Capital Development at the closing of the
Transaction is the same as the net asset value of the BCD Fund on September
30, 1995.
(2) Information presented for the BCD Fund 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 expense ratio at 1.34% for such period. Without such
waiver, Capital Development's management fees would be 0.75% and its "Total
fund operating expenses" would be 1.41%.
7
<PAGE> 13
As a result of 12b-1 distribution plan payments, a long-term shareholder of
either Capital Development or BCD Fund 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.
SALES CHARGES
Capital Development
No sales charges are applicable to the Transaction.
Shares of Capital Development 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. Capital Development's sales charge is lower than
BCD Fund's sales charge for purchases of less than $50,000, but higher for
purchases between $50,000 and $500,000.
Certain categories of investors 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 Capital Development, purchases 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).
The BCD Fund
Shares of the BCD Fund 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 the BCD Fund ranges from 5.75% to 2.00% of
the offering price on purchases of under $1,000,000. The BCD Fund imposes a 1%
contingent deferred sales charge (but no initial sales load) in the event of a
redemption occurring within 12 months of a purchase of shares of the BCD Fund
(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 BCD Fund Prospectus.
Shares of Capital Development received in the Transaction which correspond
to shares of the BCD Fund purchased in an amount of $1,000,000 or over and
subject to the 12 month CDSC period will continue to be subject to a CDSC for
the remainder of such period.
The BCD Fund also permits certain categories of investors to purchase
shares of Baird Mutual Funds at net asset value without the imposition of a
sales charge. Some of these categories differ from the categories of investors
who may purchase shares of The AIM Family of Funds(R) at net asset value. As a
result, certain shareholders of the BCD Fund who are presently permitted to
purchase shares of the Baird Mutual Funds at net asset value without the
imposition of a sales charge, including the investment advisory clients of
Baird, may be subject to sales charge 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
Capital Development
The minimum initial investment in Capital Development 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).
8
<PAGE> 14
The BCD Fund
The BCD Fund 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 BCD Fund Prospectus.
EXCHANGES
Capital Development
Capital Development 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. Capital Development shareholders (including former BCD Fund shareholders)
may exchange their Capital Development 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).
The BCD Fund
Shareholders of each of the four Baird Mutual Funds (including the BCD
Fund) 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 BCD Fund Prospectus.
REDEMPTION PROCEDURES
Capital Development
Shares of Capital Development 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 Capital Development 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 Capital Development will be issued at the time of the Transaction
to shareholders of the BCD Fund. Such Capital Development shares will be issued
in book entry form, and will accrue dividends and confer all other shareholder
rights. However, Capital Development shareholders who held their corresponding
BCD Fund shares in certificated form may not redeem or exchange their Capital
Development shares, and may not receive Capital Development share certificates
(if they have so requested), until such BCD Fund certificates have been
physically surrendered to AIM.
Shares of Capital Development 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 Capital Development shares subject to the
contingent deferred sales charge 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).
The BCD Fund
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
9
<PAGE> 15
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 the BCD Fund, (ii) by an investment advisory client (or affiliate of
an investment advisory client) of Baird, or (iii) with the proceeds of a
redemption of shares of an unrelated mutual fund. The CDSC is imposed in the
event of a redemption transaction occurring within 12 months following such a
purchase. This CDSC is equal to 1% of the lesser of the net asset value of such
shares at the time of purchase or at the time of redemption. For more
information, see the BCD Fund Prospectus.
RISK FACTORS
INVESTMENT POLICIES AND RESTRICTIONS. The policies followed by Baird in
selecting investments for the BCD Fund are different from those followed by AIM
in selecting investments for Capital Development. Additionally, Capital
Development may invest more of its total assets in foreign securities than the
BCD Fund, and may purchase and sell covered put and call options, which the BCD
Fund may not use. See "Comparison Of Investment Objectives And Policies --
Investment Policies." The investment limitations applicable to the BCD Fund are
more restrictive than those applicable to Capital Development, and fewer of the
investment limitations applicable to Capital Development are fundamental
policies of Capital Development, meaning they can be changed by the board of
directors of Capital Development without shareholder approval. See "Comparison
Of Investment Objectives and Policies -- Investment Restrictions" and
"Additional Investment Policies of Capital Development." For these reasons, an
investment in Capital Development presents different risks than an investment in
the BCD Fund.
FOREIGN SECURITIES. Capital Development may invest up to 25% of its total
assets in foreign securities, including American Depository Receipts ("ADRs")
and European Depository Receipts ("EDRs"). Foreign securities include securities
issued and sold primarily outside the United States. Investments by Capital
Development in foreign securities, whether denominated in U.S. currencies 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 Capital Development'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 Capital Development 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
Capital Development's investments.
Regulatory Risk. Foreign companies are not registered with the SEC and are
generally not subject to the regulatory controls imposed on the 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
Capital Development may be reduced by a withholding tax at the source, which tax
would reduce dividend income payable to Capital Development's shareholders.
Market Risk. The securities markets in many of the countries in which
Capital Development 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
10
<PAGE> 16
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.
Emerging Markets. Capital Development may purchase securities issued by
foreign companies located in developing countries in various regions of the
world. A "developing country" is a country in the initial stages of its
industrial cycle. As compared to investment in the securities markets of
developed countries, investment in the securities markets of developing
countries involves exposure to markets that may have substantially less trading
volume and greater price volatility, economic structures that are less diverse
and mature, and political systems that may be less stable. See "Comparison of
Investment Objectives and Policies -- Additional Information about Capital
Development."
COVERED PUT AND CALL OPTION CONTRACTS. Capital Development may engage in
transactions in covered put and call options comprising no more than 25% of the
value of its assets. Options are subject to certain risks, including the risk of
imperfect correlation between the option and Capital Development's other
investments and the risk that there might not be a liquid secondary market for
the option when Capital Development 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 Capital
Development."
SHORT SELLING AGAINST THE BOX. Although it does not currently intend to do
so, Capital Development may engage in short sales against the box. Capital
Development 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, Capital Development 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, Capital Development 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 Capital Development maintains short positions in securities rising with
the market, the net asset value of Capital Development 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. Capital Development 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 Capital Development."
RULE 144A SECURITIES. Capital Development 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
Capital Development, 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 Capital
Development'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 Capital Development."
11
<PAGE> 17
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The investment objective of Capital Development is long-term capital
appreciation. Production of income is incidental to Capital Development's
investment objective.
The primary investment objective of the BCD Fund is long-term capital
appreciation. Current income is a secondary objective.
INVESTMENT POLICIES
The investment policies of Capital Development and the BCD Fund, while
similar, differ in some important respects.
Capital Development seeks to achieve its investment objectives by investing
in common stock, convertible securities and bonds. In selecting securities for
investment by Capital Development, AIM may consider a variety of factors
including (1) the growth prospects for a company's products, (2) the economic
outlook for its industry, (3) a company's new product development, (4) its
operating management capabilities, (5) the relationship between the price of the
security and its estimated fundamental value, (6) relevant market, economic and
political environments and (7) financial characteristics, such as balance sheet
analysis and return on assets. Capital Development will invest primarily in
securities of small and medium-sized companies, and may invest in issuers making
initial public offerings of their securities if AIM determines that the issuer
has good prospects for growth.
Capital Development may invest up to 25% of its net assets in the
securities of issuers domiciled in foreign countries and may engage in the
purchase and sale of put and call options in an amount up to 25% of its net
assets. Capital Development may also invest up to 10% of its total assets in
securities or other registered investment companies.
The BCD Fund seeks to achieve its primary investment objective of long-term
capital appreciation and its secondary objective of current income by investing
principally in common stock believed by its investment adviser to be underpriced
relative to future growth prospects. Such common stocks frequently will be
issued by smaller and medium capitalization companies in the growth stage of
development. The BCD Fund also purchases common stocks when the price is
significantly below the estimated market value of the issuing corporation's
assets less its liabilities on a per share basis. In making a determination that
the above criteria is met with respect to a particular common stock, the BCD
Fund's investment adviser generally studies the financial statements of the
issuing corporation and other companies in the same industry, market trends and
economic conditions in general. Since current income is only a secondary
objective in the selection of investments for the BCD Fund, a particular
issuer's dividend history is not a primary consideration. As a consequence
shares of the BCD Fund are not suitable investments for investors needing
current income.
Although the major portion of the BCD Fund's portfolio is ordinarily
invested in common stocks, no minimum or maximum percentage of the BCD Fund's
assets is required to be invested in common stocks or any other type of
security. When its investment adviser believes securities other than common
stocks offer opportunity for long-term capital appreciation, the BCD Fund
invests in publicly distributed corporate bonds and debentures, preferred
stocks, particularly those which are convertible into or carry rights to acquire
common stocks, and warrants. The BCD Fund limits its investments in corporate
bonds and debentures to those which have been assigned one of the highest three
ratings of either Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's") and invests in corporate bonds and debentures only
when its investment adviser believes interest rates on such investments may
decline thereby potentially increasing the market value of the corporate bonds
and debentures purchased by the BCD Fund. Under normal market conditions, the
BCD Fund expects at all times to have at least 65% of its total assets invested
in securities which its investment adviser believes offer opportunity for growth
of capital. The BCD Fund may invest up to 10% of its assets in securities of
foreign issuers.
12
<PAGE> 18
INVESTMENT RESTRICTIONS
Set forth below is a comparison of certain investment restrictions of the
BCD Fund and Capital Development. Several of the investment limitations of the
BCD Fund and Capital Development are substantially the same. Unless otherwise
noted, the following investment restrictions are applicable to both the BCD Fund
and Capital Development and 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 the BCD Fund
are not fundamental policies of Capital Development, and certain investment
restrictions of Capital Development are less restrictive than those of the BCD
Fund, which provides Capital Development 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 Capital Development to risks
to which the BCD Fund is not otherwise exposed. In addition, unless otherwise
noted, Capital Development 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.
Neither fund may (1) concentrate 25% or more of its total assets in the
securities of issuers principally engaged in the same industry (this restriction
does not apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities), (2) underwrite securities of
other issuers, (3) purchase any interest in any oil, gas or any other mineral
exploration or development program, (4) purchase or retain the securities of any
issuer if its officers and directors and the officer and directors of its
adviser or distributor who individually own more than 1/2 of 1% of the
securities of such issuer together own more than 5% of the securities of such
issuer, (5) invest in warrants, valued at the lower of cost or market, in excess
of 5% of the value of its net assets, and no more than 2% of such value may be
warrants which are not listed on the New York Stock Exchange or the American
Stock Exchange, (6) buy or sell commodities or commodity contracts, and (7)
invest more than 5% of its assets in the securities of issuers which have a
record of less than three years continuous operation, including the operation of
any predecessor business of a company which came into existence as a result of a
merger, consolidation, reorganization or purchase of substantially all of the
assets of such predecessor business. All of the foregoing investment limitations
are fundamental policies of the BCD Fund. Only those investment limitations
described in (1), (2) and (6) are fundamental policies of Capital Development.
The following chart summarizes the differences between the other investment
restrictions of the BCD Fund and Capital Development (policies are fundamental
policies except where noted):
<TABLE>
<CAPTION>
INVESTMENT RESTRICTION CAPITAL DEVELOPMENT THE BCD FUND
- ---------------------- ------------------- ------------
<S> <C> <C>
Illiquid and Restricted
Securities.................. May invest up to 15% of its net assets May only invest up to 10% of its assets
in illiquid securities, including in illiquid securities, including
repurchase agreements with maturities in repurchase agreements maturing in more
excess of seven days. Securities that than seven days. May not invest in
may be resold in accordance with Rule restricted securities. This policy is
144A under the Securities Act of 1933, not fundamental.
as amended, would not be considered
illiquid securities, provided that a
determination is made that such
securities have a readily available
trading market. This policy is not
fundamental.
Borrowing Money............. May borrow from banks (including its May not borrow money or issue senior
custodian bank) for temporary or securities, except that it may borrow
emergency purposes provided that from banks (not in excess of 5% of the
borrowings will not exceed 33 1/3% of value of its assets) for temporary or
the value of its total assets. emergency purposes and, if secured, will
be secured by not more than 10% of the
value of the BCD Fund's total assets.
</TABLE>
13
<PAGE> 19
<TABLE>
<CAPTION>
INVESTMENT RESTRICTION CAPITAL DEVELOPMENT THE BCD FUND
- ---------------------- ------------------- ------------
<S> <C> <C>
Make Loans.................. May not make loans except that the May not make loans of money or
purchase of a portion of an issue of securities other than the purchase of
publicly distributed bonds, debentures publicly traded debt securities or
or other debt securities, or purchasing entering into repurchase agreements.
short term obligations, is not
considered to be a loan, and it may lend
its portfolio securities provided the
value of such loaned securities does not
exceed 33 1/3% of its assets.
Margin Purchases; Short
Sales; Options ............. May not purchase securities on margin. May not purchase securities on margin.
Although it does not currently intend to May not make short sales of securities
do so, may make short sales of or write or invest in put or call
securities provided the aggregate market options.
value of all securities sold short may
not exceed 10% of its net assets and if
at all times when a short position is
open, it owns an equal amount of the
securities sold short. May invest in
covered put options, covered call
options or any combination thereof.
This policy is not fundamental.
Investment for control...... No corresponding restriction. May not invest in companies for the
purpose of exercising control of
management.
Investment in securities of
companies with common
officers and directors...... No corresponding restriction. May not purchase or hold securities if
its officers or directors, or if
officers or directors of its investment
adviser, are officers or directors of
such company.
Issuer Diversification...... With respect to 75% of the value of its May not invest more than 5% of the value
total assets, taken at market value, of its total assets in securities of a
will not purchase a security if, as a single issuer, and may not purchase
result, more than 5% of its total assets securities of any issuer if, as a result
would be invested in the securities of of such purchase, it would hold more
any one issuer, and may not purchase than 10% of any class of securities of
securities of any issuer if, as a result the issuer, other than obligations of
of such purchase, it would hold more the United States Government, its
than 10% of any class of securities of agencies or instrumentalities.
the issuer, except securities issued or
guaranteed by the U.S. Government or any
of its agencies or instrumentalities.
Investment Company
Securities.................. May invest up to 10% of its assets in May not purchase securities of other
securities issued by other investment investment companies except (a) as a
companies. This policy is not part of a plan of merger, consolidation
fundamental. or reorganization approved by its
shareholders, or (b) securities of
registered closed-end investment
companies purchased in the open market
under certain circumstances, provided
that less than 5% of its assets would be
invested in securities of closed-end
investment companies.
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
INVESTMENT RESTRICTION CAPITAL DEVELOPMENT THE BCD FUND
- ---------------------- ------------------- ------------
<S> <C> <C>
Real Estate; Real Estate
Interests................... May not purchase or sell real estate of May not purchase or sell real estate,
other interests in real estate including interests in real estate or real estate
real estate limited partnership mortgage loans and will not make any
interests, except that this restriction investments in real estate limited
does not preclude investments in partnerships.
marketable securities of companies
engaged in real estate activities or in
master limited partnership interests
that are traded on a national securities
exchange.
Forward Contracts........... May not deal in forward contracts. This No corresponding restriction.
policy is not fundamental.
</TABLE>
ADDITIONAL INVESTMENT POLICIES OF CAPITAL DEVELOPMENT
In pursuing its investment objectives, Capital Development may engage in
the following types of transactions and make the following investments. The
policies stated below are not fundamental policies of Capital Development 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. Capital Development may invest up to 25% of its total
assets in the securities of issuers domiciled in foreign countries. For purposes
of computing such limitation, American Depository Receipts, European Depository
Receipts and other securities representing underlying securities of foreign
issues 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. Capital Development has authority to deal
in foreign exchange between currencies of the different countries in which it
will invest as a hedge against possible variations in the foreign exchange rate
between those currencies. This may be accomplished through direct purchases or
sales of foreign currency, purchases of options on futures contracts with
respect to foreign currency, and contractual agreements to purchase or sell a
specified currency at a specified future date (up to one year) at a price set at
the time of the contract. Such contractual commitments may be forward contracts
entered into directly with another party or exchange-traded futures contracts.
Capital Development may purchase and sell options on futures contracts or
forward contracts which are denominated in a particular foreign currency to
hedge the risk of fluctuations in the value of another currency. Capital
Development's dealings in foreign exchange will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of Capital Development accruing in connection with the purchase or sale
of its portfolio securities, the sale and redemption of shares of Capital
Development, or the payment of dividends and distributions by Capital
Development. Position hedging is the purchase or sale of foreign currency with
respect to portfolio security positions denominated or quoted in a foreign
currency. Capital Development will not speculate in foreign exchange, nor commit
more than 10% of its total assets to foreign exchange hedges.
TEMPORARY DEFENSIVE MEASURES. Capital Development 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 Capital Development's investment
adviser deems it appropriate. Capital Development 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
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<PAGE> 21
that Capital Development invests to a significant degree in these instruments,
its ability to achieve its investment objective may be adversely effected.
REPURCHASE AGREEMENTS. Capital Development may enter into repurchase
agreements. A repurchase agreement is an instrument under which Capital
Development 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 Capital Development's holding
period. With regard to repurchase transactions, in the event of a bankruptcy or
other default of a seller of a repurchase agreement, Capital Development 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 Capital Development 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 Capital Development's restriction on lending.
SECURITIES LENDING. Capital Development may lend its portfolio securities
in amounts up to one-third of its total assets. Such loans could involve the
risks of delay in receiving additional collateral in the event the value of the
collateral decreases below the value of the securities loaned or of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrowers of the securities fail financially. However, loans will be made
only to borrowers deemed by AIM to be of good standing and only when, in AIM's
judgment, the income to be earned from the loans justifies the attendant risks.
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS. Capital Development 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. Capital Development 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 Capital Development
intends to purchase. Generally, Capital Development may elect to close a
position in a futures contract by taking an opposite position which will operate
to terminate Capital Development's position in the futures contract. See the
Statement of Additional Information for a description of Capital Development's
investments in futures contracts and options on futures contracts, including
certain related risks. Capital Development 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 Capital
Development's total assets.
OPTION CONTRACTS. Capital Development 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 Capital Development'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.
Capital Development will not engage in such transactions for speculative
purposes.
Capital Development 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 Capital Development owns the
underlying security covered by the call and a put option is "covered" if Capital
Development 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 upon the relationship between the market price of
the security and strike price of the option. Prior to its expiration, an option
may be closed out by means of a purchase of an identical option.
The investment policies of Capital Development permit the use of options
involving securities comprising no more than 25% of the value of Capital
Development's net assets. Capital Development's policies with
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<PAGE> 22
respect to the use options may be changed by the Company's Board of Directors,
without shareholder approval.
ILLIQUID SECURITIES. Capital Development 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. Capital Development 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, Capital Development 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, Capital Development's
holdings of illiquid securities will be reviewed to determine what, if any,
action is required to assure that Capital Development does not exceed its
applicable percentage limitation for investments in illiquid securities.
PORTFOLIO TURNOVER. Any particular security will be sold, and the proceeds
reinvested, whenever such action is deemed prudent from the viewpoint of Capital
Development's investment objectives, regardless of the holding period of that
security. Capital Development's estimated portfolio turnover rate is less than
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
Capital Development, the portion of Capital Development's distributions
constituting taxable capital gains may increase.
Reference is made to the Statement of Additional Information for additional
descriptions of Capital Development's investment policies and the risks
associated with the permitted investments of Capital Development.
ADDITIONAL INFORMATION ABOUT CAPITAL DEVELOPMENT
MANAGEMENT OF CAPITAL DEVELOPMENT
The overall management of the business and affairs of Capital Development
is vested with AEF's Board of Directors. The Board of Directors approves all
significant agreements between Capital Development and persons or companies
furnishing services to Capital Development, including the investment advisory
agreement with AIM, the administrative services agreement with AIM, the
agreement with AIM Distributors regarding distribution of Capital Development's
shares, the agreements with State Street Bank and Trust Company as custodian and
accounting agent, and the agreement with AFS as transfer agent. The day-to-day
operations of Capital Development are delegated to the officers of AEF and to
AIM, subject always to the objectives and policies of Capital Development 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 may be found in the Statement of
Additional Information.
Under the terms of the Master Advisory Agreement, AIM supervises all
aspects of Capital Development's operations and provides investment advisory
services to Capital Development. AIM obtains and evaluates economic, statistical
and financial information to formulate and implement investment programs for
Capital Development. AIM will not be liable to Capital Development 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.
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<PAGE> 23
PORTFOLIO MANAGERS
AIM uses a team approach and a disciplined investment process in providing
investment advisory services to all of its accounts, including Capital
Development. 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
Capital Development 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.
Robert M. Kippes, Robert A. Shelton and Kenneth A. Zschappel will be
primarily responsible for the day-to-day management of Capital Development. Mr.
Kippes is currently senior portfolio manager for AIM Aggressive Growth Fund, AIM
Constellation Fund, AIM Global Aggressive Growth Fund, AIM Growth Fund, AIM
Summit Fund, AIM Weingarten Fund, AIM V.I. Capital Appreciation Fund and AIM
V.I. Growth Fund. He has been associated with AIM and/or its affiliates since
1989 and has six years of experience as an investment professional. Mr. Shelton
joined AIM Management Group in 1995 as a portfolio analyst for equity
securities, and he serves as an investment officer of A I M Capital Management,
Inc. Mr. Shelton has been in the investment business since 1991. Prior to
joining AIM, he was a financial analyst for CS First Boston. Mr. Zschappel
joined AIM Management Group in 1990. In 1992, he became a portfolio analyst for
equity securities specializing in technology and healthcare. Mr. Zschappel
currently serves as an assistant vice president of A I M Capital Management,
Inc., and senior analyst for equity securities, working with small- and mid-cap
growth funds.
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 shares of Capital Development. The Distribution Agreement provides that AIM
Distributors has the exclusive right to distribute the shares of Capital
Development through affiliated broker-dealers and through other broker-dealers
and financial institutions with whom AIM has entered into selected dealer
agreements.
AEF has adopted a Master Distribution Plan applicable to the shares of
Capital Development (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
Under the Plan, AEF may compensate AIM Distributors an aggregate amount of 0.35%
of the average daily net assets of Capital Development on an annualized basis
for the purpose of financing any activity that is intended to result in the sale
of shares of Capital Development. 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
Capital Development. 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 Capital Development's shares that are held in the customers
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
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<PAGE> 24
shareholder services to their customers who purchase and own shares of Capital
Development are characterized as service fees for amounts of up to 0.25% of the
average net assets of Capital Development attributable to the customers of such
dealers or financial institutions, and that 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 Capital Development. The Plan does not obligate
Capital Development to reimburse AIM Distributors for the actual expenses AIM
Distributors may incur in fulfilling its obligations under the Plan on behalf of
Capital Development. Thus, under the Plan, even if AIM Distributors' actual
expenses exceed the fee payable to AIM Distributors thereunder at any given
time, Capital Development 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 Capital Development.
CUSTODIAL AND TRANSFER AGENCY FEES
State Street Bank and Trust Company ("State Street Bank") serves as
custodian for Capital Development. For its custodial services to Capital
Development, 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, Capital Development pays 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 Capital Development. For these services, AFS receives a fee
calculated primarily on the basis of the aggregate open accounts of Capital
Development.
PORTFOLIO BROKERAGE
AIM may take into account sales of shares of Capital Development and other
funds advised by AIM in selecting broker-dealers to effect portfolio
transactions on behalf of Capital Development. AIM does not currently intend to
utilize an affiliated broker in effecting portfolio transactions for Capital
Development. 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.
Capital Development 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, Capital Development 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; AIM Aggressive Growth Fund, AIM Blue Chip Fund and AIM Capital
Development Fund, each of which have 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,
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<PAGE> 25
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 represent interests in that portfolio's assets and have 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 Capital Development will be entitled to receive pro rata, subject
to the rights of creditors, the net assets of AEF allocable to Capital
Development. Fractional shares of Capital Development the same rights as full
shares to the extent of their proportionate interest.
SHAREHOLDER INQUIRIES
The toll free number for access to routine account information and
shareholder assistance with respect to AEF 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 with respect to Capital Development 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
Capital Development will acquire substantially all of the assets of the BCD
Fund in exchange for shares of Capital Development. 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 Capital Development.
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<PAGE> 26
At the Closing, AEF will issue directly to the shareholders of the BCD Fund
that number of shares of Capital Development equal in aggregate net asset value
to the aggregate value of the BCD Fund's assets then transferred. The asset
value calculations will be made pursuant to procedures customarily used by
Capital Development. Securities for which there is no readily ascertainable
market value will be valued by mutual agreement of the BCD Fund and AEF,
provided that such value is consistent with AEF's pricing policies. It is
expected that the value of each shareholder's account with Capital Development
immediately after the Transaction will be the same as the value of such
shareholder's account with the BCD Fund immediately prior to the Transaction.
Promptly after the Closing, the BCD Fund will take steps to pay any outstanding
liabilities and dissolve its corporate existence. Any assets held by the BCD
Fund after the Transaction that are not used to discharge debts of the BCD Fund
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 the BCD Fund 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 the BCD Fund and AEF has made representations and warranties in the
Agreement that are customary in matters such as the Transaction. The obligations
of the BCD Fund and AEF pursuant to the Agreement are subject to various
conditions, including the following: (a) the assets of the BCD Fund to be
acquired by Capital Development 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 the BCD Fund immediately prior to the Transaction; (b) the
transactions contemplated by that certain Agreement and Plan of Reorganization
dated December 20, 1995 between Baird Blue Chip Fund, Inc. and AEF, acting on
behalf of AIM Blue Chip Fund, and that certain Agreement and Plan of
Reorganization dated December 20, 1995 between The Baird Funds, Inc., acting on
behalf of Baird Quality Bond Fund, and AIM Funds Group, acting on behalf of AIM
Income Fund, shall 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 on Form N-1A filed to register shares of Capital Development 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 Securities 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 the BCD Fund shall
have approved the Agreement; (g) upon written request by AEF, the BCD Fund
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 the BCD Fund shall have cooperated 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 the BCD Fund,
Capital Development or their shareholders.
The BCD Fund and Capital Development have each agreed to bear their
respective expenses in connection with the Transaction. Baird has agreed with
the BCD Fund 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 the BCD Fund are estimated to be $4,270. The costs and expenses of
Capital Development 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
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<PAGE> 27
fees and reimburse expenses so that total operating expenses as a percentage of
net assets will not exceed 1.34% for two years after the Closing.
The Board of Directors of the BCD Fund may waive without shareholder
approval any default by AEF or any failure by AEF to satisfy any of the
conditions to the BCD Fund'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 the BCD Fund. The Agreement may be terminated and the
Transaction may be abandoned by either the BCD Fund or AEF at any time by mutual
agreement of the BCD Fund and AEF, or by either party in the event that the BCD
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 the BCD Fund containing the appropriate number of shares of
Capital Development, which is expected to be the same as the number of shares of
the BCD Fund. Such accounts will contain certain information about the
shareholder that is identical to the account currently maintained for each
shareholder of the BCD Fund.
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 the BCD Fund
upon the transfer of its assets to Capital Development; (iii) in accordance with
Section 354(a)(1) of the Code, no gain or loss will be recognized by any
shareholder of the BCD Fund upon the exchange of shares of the BCD Fund solely
for shares of Capital Development; (iv) in accordance with Section 358(a) of the
Code, the tax basis of the shares of Capital Development to be received by a
shareholder of the BCD Fund will be the same as the tax basis of the shares of
the BCD Fund surrendered in exchange therefor; (v) in accordance with Section
1223(1) of the Code, the holding period of the shares of Capital Development to
be received by a shareholder of the BCD Fund will include the holding period for
which such shareholder held the shares of the BCD Fund exchanged therefor
provided that such shares of the BCD Fund are capital assets in the hands of
such shareholder as of the Closing; (vi) in accordance with Section 1032 of the
Code, no gain or loss will be recognized by Capital Development on the receipt
of assets of the BCD Fund in exchange for shares of Capital Development; (vii)
in accordance with Section 362(b) of the Code, the tax basis of the assets of
the BCD Fund in the hands of Capital Development will be the same as the tax
basis of such assets in the hands of the BCD Fund immediately prior to the
Transaction; (viii) in accordance with Section 1223(2) of the Code, the holding
period of the assets of the BCD Fund to be received by Capital Development will
include the holding period of such assets in the hands of the BCD Fund
immediately prior to the Transaction; and (ix) Capital Development will succeed
to and take into account the items of the BCD Fund described in Section 381(c)
of the Code, subject to the conditions and limitations specified in Sections 381
through 384 of the Code and the Treasury regulations thereunder.
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 the BCD Fund to sell, exchange, or otherwise dispose of a number
of the shares of Capital Development received by them in the Transaction that
would reduce the BCD Fund shareholder's ownership of Capital Development 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 the BCD Fund as of the
Closing Date; (B) following the Transaction, Capital Development will continue
the historic business of the BCD Fund (for this purpose "historic business"
shall mean the business most recently conducted by the BCD Fund which was not
entered into in connection with the Transaction) or use a significant portion of
the BCD Fund's historic business assets in a business; (C) at the direction of
the BCD Fund, Capital Development will issue directly to the BCD Fund's
shareholders pro rata the shares of Capital Development that the BCD Fund
constructively receives in
22
<PAGE> 28
the Transaction and the BCD Fund will distribute its other properties (if any)
to its shareholders on, or as promptly as practicable after, the Closing; (D)
Capital Development has no plan or intention to reacquire any of its shares
issued in the Transaction, except to the extent that Capital Development is
required by the 1940 Act to redeem any of its shares presented for redemption;
and (E) Capital Development does not plan or intend to sell or otherwise dispose
of any of the assets of the BCD Fund 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 THE BCD FUND. BCD FUND 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 Capital Development of the
assets of the BCD Fund will be the same as the book cost basis of such assets to
the BCD Fund.
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. The BCD Fund
has adopted the appropriate provisions in its Bylaws and is not required to hold
an annual meeting of shareholders to elect directors unless otherwise required
by the 1940 Act.
TERMS OF DIRECTORS
Maryland law provides that each director shall hold office until his or her
successor is duly elected and qualified. Wisconsin law provides that each
director shall hold office until the next annual meeting of shareholders and
until his or her successor shall have been elected and, if necessary, qualified,
or until there is a decrease in the number of directors. As discussed above,
Capital Development 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 of 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, the directors,
by the affirmative vote of a majority of all directors remaining in office.
23
<PAGE> 29
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 the BCD Fund'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 a corporation's Bylaws. The BCD Fund'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 directors.
Wisconsin law provides that the directors of the BCD Fund 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 the BCD Fund 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 the BCD Fund'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 received 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
24
<PAGE> 30
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 provision of Maryland law.
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. The
Baird Fund'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 the BCD Fund and
Capital Development -- Redemption Procedures."
AMENDMENT TO ORGANIZATIONAL DOCUMENTS
AEF has reserved in its Charter the right from time to time to amend,
alter, change, add to, or repeal any provision contained in its Charter,
including any amendment that alters the contract rights, as expressly set forth
in its Charter, of any outstanding stock, and all rights conferred on
shareholders and others therein granted subject to these reservations. The
directors of AEF may approve amendments to the Charter to increase authorized
capital, change AEF's name, classify or reclassify unissued shares or
redesignate the name of a class of stock without shareholder approval. Other
amendments to AEF's Charter will be adopted if approved by a majority of all the
votes entitled to be cast on the amendments.
The Board of Directors of the BCD Fund 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 the BCD Fund'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
relative rights thereof as authorized in the BCD Fund's Articles of
Incorporation.
OWNERSHIP OF CAPITAL DEVELOPMENT AND BCD FUND SHARES
OWNERSHIP OF SHARES
AIM provided the initial capitalization of Capital Development, which was
nominal as of the date of this Proxy Statement/Prospectus, and owned all the
outstanding shares of beneficial interest of Capital Development. Although
Capital Development 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 Capital Development that are outstanding, it may be presumed to be in
"control" of Capital Development, as defined in the 1940 Act.
25
<PAGE> 31
As of December 31, 1995, Robert W. Baird & Co. Incorporated, 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202 owned of record 49.0% of the
outstanding shares of the BCD Fund.
Listed below is the name, address and percent ownership of each person who
as of December 31, 1995, to the knowledge of the BCD Fund, owned beneficially 5%
or more of the outstanding shares of the BCD Fund:
<TABLE>
<CAPTION>
NUMBER OF PERCENT BENEFICIAL
NAME AND ADDRESS SHARES OWNED OWNERSHIP
- ----------------- ------------ ------------------
<S> <C> <C>
Baird Capital Participation Plan................................. 69,722 5.26%
777 East Wisconsin Avenue
Milwaukee, WI 53202
</TABLE>
OWNERSHIP OF OFFICERS AND DIRECTORS
To the best of the knowledge of the BCD Fund, the beneficial ownership of
shares of the BCD Fund by officers or directors of the BCD Fund as a group
constituted less than 1% of the outstanding shares of the BCD Fund as of the
date of this Proxy Statement/Prospectus. To the best of the knowledge of AEF,
the beneficial ownership of shares of Capital Development by officers and
directors of AEF as a group constituted less than 1% of the outstanding shares
of Capital Development as of the date of this Proxy Statement/Prospectus.
CAPITALIZATION
The following table sets forth as of September 30, 1995, (i) the
capitalization of the BCD Fund, and (ii) the pro forma capitalization of Capital
Development (i.e., assuming Capital Development was in existence on September
30, 1995) as adjusted to give effect to the transactions contemplated by the
Agreement.
<TABLE>
<CAPTION>
PRO FORMA
CAPITAL
BCD FUND DEVELOPMENT
----------- -----------
<S> <C> <C>
Net Assets....................................................... $58,645,724 $58,645,724
Shares Outstanding............................................... 2,234,499 2,234,499
Net Asset Value Per Share........................................ $26.25 $26.25
</TABLE>
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Capital
Development 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 the BCD
Fund 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 BCD
Fund's registration statement containing the BCD Fund's Prospectus relating to
the BCD Fund is Registration No. 2-89614. Such Prospectus is incorporated herein
by reference. The registration statement of AEF relating to Capital Development,
Registration No. 2-25469, has been filed with the SEC but has not yet been
declared effective.
The BCD Fund 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 the BCD Fund 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. Copies of
26
<PAGE> 32
such material may also be obtained from the Public Reference Section of the SEC
at 450 Fifth Street, NW, Washington, DC 20549 at the prescribed rates.
ADDITIONAL INFORMATION ABOUT THE BCD FUND
For more information with respect to the BCD Fund concerning the following
topics, please refer to the BCD Fund Prospectus as indicated: (i) see the
"Introduction," "Investment Objectives and Policies of Baird Capital
Development" and "Portfolio Securities and Practices" for further general
information regarding the BCD Fund; (ii) see the discussion "Management of the
Funds -- Baird Capital Development Fund," " -- Administration of Baird Mutual
Funds," "Expense Information," and "Purchase of Shares" for further information
regarding management of the BCD Fund; (iii) see the discussion "Management's
Discussion of Performance of the Funds -- Baird Capital Development" for further
information regarding management's discussion of the BCD Fund's performance;
(iv) see "Dividend Reinvestment" and "Dividends, Distributions and Taxes" for
further information regarding the capital stock of the BCD Fund; (v) see the
discussion "Management of the Funds -- Baird Capital Development Fund" and " --
Administration of Baird Mutual Funds," "Determination of Net Asset Value,"
"Purchase of Shares," "Redemption and Repurchase of Shares," "Reinstatement
Privilege," "Dividend Reinvestment" and "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 shares of the BCD Fund.
27
<PAGE> 33
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> 34
Shares of any AIM Funds not named on the cover of this Prospectus are offered
pursuant to separate prospectuses. Copies of other prospectuses may be obtained
by calling (713) 626-1919, Extension 5001 (in Houston) or (800) 347-4246
(elsewhere).
HOW TO PURCHASE ADDITIONAL SHARES. The minimum investment for subsequent
purchases is $50. The minimum employee salary deferral investment for
participants in money-purchase/profit sharing plans, 401(k), IRA/SEP, 403(b) or
457 plans is $25. There are no such minimum investment requirements for
investment of dividends and distributions of any of the AIM Funds into any other
existing AIM Funds account.
Additional shares may be purchased directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors.
Direct investments may be made by mail or by wiring payment to AFS as follows:
SUBSEQUENT PURCHASES BY MAIL: Investors must indicate their account number and
the name of the Fund being purchased. The remittance slip from a confirmation
statement should be used for this purpose, and sent to AFS.
PURCHASES BY WIRE: To insure prompt credit to his account, an investor or his
dealer should call AFS' Client Services Department at (800) 959-4246 prior to
sending a wire to receive a reference number for the wire. The following wire
instructions should be used:
<TABLE>
<S> <C>
Beneficiary Bank ABA/Routing #: 113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: AIM Fund Services, Inc.
RFB: Fund name, Reference Number (16 character limit)
OBI: Shareholder Name, Shareholder Account Number
(70 character limit)
</TABLE>
If wires are received after 4:00 p.m. Eastern Time or during a bank holiday,
purchases will be confirmed at the price determined on the next business day of
the applicable AIM Fund.
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF PURCHASE OF THE AIM FUNDS
Shares of the AIM Funds, including Class A shares (the "Class A shares") of
AIM AGGRESSIVE GROWTH FUND, AIM BALANCED FUND, AIM BLUE CHIP FUND, AIM CAPITAL
DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM GLOBAL
AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM
GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM HIGH YIELD FUND, AIM INCOME FUND,
AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM MONEY
MARKET FUND, AIM MUNICIPAL BOND FUND, AIM VALUE FUND and AIM WEINGARTEN FUND,
(other than AIM AGGRESSIVE GROWTH FUND, AIM BLUE CHIP FUND, AIM CAPITAL
DEVELOPMENT FUND and AIM CONSTELLATION FUND, collectively, the "Multiple Class
Funds") may be purchased at their respective net asset value plus a sales charge
as indicated below, except that shares of AIM TAX-EXEMPT CASH FUND and Class C
shares (the "Class C shares") of AIM MONEY MARKET FUND are sold without a sales
charge and Class B shares (the "Class B shares") of the Multiple Class Funds are
sold at net asset value subject to a contingent deferred sales charge payable
upon certain redemptions. These contingent deferred sales charges are described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Securities dealers and other persons entitled to receive compensation for
selling or servicing shares of a Multiple Class Fund may receive different
compensation for selling or servicing one particular class of shares over
another class in the same Multiple Class Fund. Factors an investor should
consider prior to purchasing Class A or Class B shares (or, if applicable, Class
C shares) of a Multiple Class Fund are described below under "Special
Information Relating to Multiple Class Funds." For information on purchasing any
of the AIM Funds and to receive a prospectus, please call (713) 626-1919,
Extension 5001 (in Houston) or (800) 347-4246 (elsewhere). As described below,
the sales charge otherwise applicable to a purchase of shares of a fund may be
reduced if certain conditions are met. In order to take advantage of a reduced
sales charge, the prospective investor or his dealer must advise AIM
Distributors that the conditions for obtaining a reduced sales charge have been
met. Net asset value is determined in the manner described under the caption
"Determination of Net Asset Value." The following tables show the sales charge
and dealer concession at various investment levels for the AIM Funds.
BF 12/95
A-2
<PAGE> 35
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 AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF THE PUBLIC OF THE NET OF THE 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 AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF THE PUBLIC OF THE NET OF THE 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 AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF THE PUBLIC OF THE NET OF THE 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> 36
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> 37
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
A-5
<PAGE> 38
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
A-6
<PAGE> 39
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> 40
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> 41
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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- --------------------------------------------------------------------------------
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
Funds......... Net Asset Value if shares were held Net Asset Value Net Asset Value Not Applicable
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> 43
<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
Funds......... Net Asset Value if shares were Net Asset Value Net Asset Value Not Applicable
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> 44
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> 45
In determining whether a contingent deferred sales charge is applicable, it
will be assumed that a redemption is made first, of any shares held in the
shareholder's account that are not subject to such charge; second, of shares
derived from reinvestment of dividends and distributions; third, of shares held
for more than six years from the date such shares were purchased; and fourth, of
shares held less than six years from the date such shares were purchased. The
applicable sales charge will be applied against the lesser of the current market
value of shares redeemed or their original cost.
Contingent deferred sales charges on Class B shares will be waived on
redemptions (1) following the registered shareholder's (or in the case of joint
accounts, all registered joint owners') death or disability, as defined in
Section 72(m)(7) of the Code (provided AIM Distributors is notified of such
death or disability at the time of the redemption request and is provided with
satisfactory evidence of such death or disability), (2) in connection with
certain distributions from individual retirement accounts, custodial accounts
maintained pursuant to Code Section 403(b), deferred compensation plans
qualified under Code Section 457 and plans qualified under Code Section 401
(collectively, "Retirement Plans"), (3) pursuant to a Systematic Withdrawal
Plan, provided that amounts withdrawn under such plan do not exceed on an annual
basis 12% of the value of the shareholder's investment in Class B shares at the
time the shareholder elects to participate in the Systematic Withdrawal Plan,
(4) effected pursuant to the right of a Multiple Class Fund to liquidate a
shareholder's account if the aggregate net asset value of shares held in the
account is less than the designated minimum account size described in the
prospectus of such Multiple Class Fund and (5) effected by AIM of its investment
in Class B shares. Waiver category (1) above applies only to redemptions: (i)
made within one year following death or initial determination of disability and
(ii) of Class B shares held at the time of death or initial determination of
disability. Waiver category (2) above applies only to redemptions resulting
from: (i) required minimum distributions to plan participants or beneficiaries
who are age 70 1/2 or older, and only with respect to that portion of such
distributions which does not exceed 12% annually of the participant's or
beneficiary's account value; (ii) in kind transfers of assets where the
participant or beneficiary notifies AIM Distributors of such transfer no later
than the time such transfer occurs; (iii) tax-free rollovers or transfers of
assets to another Retirement Plan invested in Class B shares of one or more
Multiple Class Funds; (iv) tax-free returns of excess contributions or returns
of excess deferral amounts; and (v) distributions upon the death or disability
(as defined in the Code) of the participant or beneficiary.
CONTINGENT DEFERRED SALES CHARGE PROGRAM FOR LARGE PURCHASES. Except for
purchases of Class B shares of a Multiple Class Fund and purchases of shares of
the No Load Funds and Lower Load Funds, a contingent deferred sales charge of 1%
applies to purchases of $1,000,000 or more that are redeemed within 18 months of
the date of purchase. For a description of the AIM Funds participating in this
program, see "Terms and Conditions of Purchase of the AIM Funds -- Sales Charges
and Dealer Concessions." This charge will be 1% of the lesser of the value of
the shares redeemed (excluding reinvested dividends and capital gain
distributions) or the total original cost of such shares. In determining whether
a contingent deferred sales charge is payable, and the amount of any such
charge, shares not subject to the contingent deferred sales charge are redeemed
first (including shares purchased by reinvested dividends and capital gains
distributions and amounts representing increases from capital appreciation), and
then other shares are redeemed in the order of purchase. No such charge will be
imposed upon exchanges unless the shares acquired by exchange are redeemed
within 18 months of the date the shares were originally purchased. For purposes
of computing this 18-month period (i) shares of any Load Fund or Class C shares
of AIM MONEY MARKET FUND which were acquired through an exchange of shares which
previously were subject to the 1% contingent deferred sales charge will be
credited with the period of time such exchanged shares were held, and (ii)
shares of any Load Fund which are subject to the 1% contingent deferred sales
charge and which were acquired through an exchange of shares of a Lower Load
Fund or a No Load Fund which previously were not subject to the 1% contingent
deferred sales charge will not be credited with the period of time such
exchanged shares were held. The charge will be waived in the following
circumstances: (1) redemptions of shares by employee benefit plans ("Plans")
qualified under Sections 401 or 457 of the Code, or Plans created under Section
403(b) of the Code and sponsored by nonprofit organizations as defined under
Section 501(c)(3) of the Code, where (a) the initial amount invested by a Plan
in one or more of the AIM Funds is at least $1,000,000, (b) the sponsor of a
Plan signs a letter of intent to invest at least $1,000,000 in one or more of
the AIM Funds, or (c) the shares being redeemed were purchased by an
employer-sponsored Plan with at least 100 eligible employees; provided, however,
that Plans created under Section 403(b) of the Code which are sponsored by
public educational institutions shall qualify under (a), (b) or (c) above on the
basis of the value of each Plan participant's aggregate investment in the AIM
Funds, and not on the aggregate investment made by the Plan or on the number of
eligible employees; (2) redemptions of shares following the registered
shareholder's (or in the case of joint accounts, all registered joint owners')
death or disability, as defined in Section 72(m)(7) of the Code; (3) redemptions
of shares purchased at net asset value by private foundations or endowment funds
where the initial amount invested was at least $1,000,000; and (4) redemptions
of shares purchased by an investor in amounts of $1,000,000 or more where such
investor's dealer of record, due to the nature of the investor's account,
notifies AIM Distributors prior to the time of investment that the dealer waives
the payments otherwise payable to the dealer as described in the third paragraph
under the caption "Terms and Conditions of Purchase of the AIM Funds -- All
Groups of AIM Funds."
REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to the
Transfer Agent. Upon receipt of a redemption request in proper form, payment
will be made as soon as practicable, but in any event will normally be made
within seven days after receipt. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders."
BF 12/95
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<PAGE> 46
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
BF 12/95
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<PAGE> 47
handling (such as wiring of funds or expedited delivery services) may be made by
the Transfer Agent. The right of redemption may not be suspended or the date of
payment upon redemption postponed except under unusual circumstances such as
when trading on the NYSE is restricted or suspended. Payment of the proceeds of
redemptions relating to shares for which checks sent in payment have not yet
cleared will be delayed until it is determined that the check has cleared, which
may take up to ten business days from the date that the check is received.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect the
investor, the AIM Funds, AIM Distributors, and their agents by verifying the
signature of each investor seeking to redeem, transfer, or exchange shares of an
AIM Fund. Examples of when signature guarantees are required are: (1)
redemptions by mail in excess of $50,000; (2) redemptions by mail if the
proceeds are to be paid to someone other than the name(s) in which the account
is registered; (3) written redemptions requesting proceeds to be sent by wire to
other than the bank of record for the account; (4) redemptions requesting
proceeds to be sent to a new address or an address that has been changed within
the past 30 days; (5) requests to transfer the registration of shares to another
owner; (6) telephone exchange and telephone redemption authorization forms; (7)
changes in previously designated wiring instructions; and (8) written
redemptions or exchanges of shares previously reported as lost, whether or not
the redemption amount is under $50,000 or the proceeds are to be sent to the
address of record. These requirements may be waived or modified upon notice to
shareholders.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the Securities and
Exchange Commission ("SEC"), and further provided that such guarantor
institution is listed in one of the reference guides contained in the Transfer
Agent's current Signature Guarantee Standards and Procedures, such as certain
domestic banks, credit unions, securities dealers, or securities exchanges. The
Transfer Agent will also accept signatures with either: (1) a signature
guaranteed with a medallion stamp of the STAMP Program, or (2) a signature
guaranteed with a medallion stamp of the NYSE Medallion Signature Program,
provided that in either event, the amount of the transaction involved does not
exceed the surety coverage amount indicated on the medallion. For information
regarding whether a particular institution or organization qualifies as an
"eligible guarantor institution," an investor should contact the Client Services
Department of AFS.
REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY). Within 90 days of a redemption,
a shareholder may invest all or part of the redemption proceeds in shares of the
AIM Fund from which the redemption was made at the net asset value next computed
after receipt by the Transfer Agent of the funds to be reinvested. The
shareholder must ask the Transfer Agent for such privilege at the time of
reinvestment. A realized gain on the redemption is taxable, and reinvestment
will not alter any capital gains payable. If there has been a loss on the
redemption, all of the loss may not be tax deductible, depending on the timing
and amount reinvested. Under the Code, if the redemption proceeds of fund shares
on which a sales charge was paid are reinvested in (or exchanged for) shares of
the same fund within 90 days of the payment of the sales charge, the
shareholder's basis in the fund shares redeemed may not include the amount of
the sales charge paid, thereby reducing the loss or increasing the gain
recognized from the redemption. Each AIM Fund may amend, suspend or cease
offering this privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation. This privilege may only be exercised once
each year by a shareholder with respect to each AIM Fund.
Shareholders who are assessed a contingent deferred sales charge in connection
with the redemption of Class A shares of the Multiple Class Funds or shares of
any other AIM Fund, and who subsequently reinvest a portion or all of the value
of the redeemed shares in shares of the same AIM Fund within 90 days after such
redemption may do so at net asset value if such privilege is claimed at the time
of reinvestment. Such reinvested proceeds will not be subject to either a
front-end sales charge at the time of reinvestment or an additional contingent
deferred sales charge upon subsequent redemption. In order to exercise this
reinvestment privilege, the shareholder must notify the Transfer Agent of his or
her intent to do so at the time of reinvestment. This reinvestment privilege
does not apply to Class B shares.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each AIM Fund is determined
as of 4:00 p.m. Eastern Time (12:00 noon and 4:00 p.m. Eastern Time with respect
to AIM MONEY MARKET FUND), on each "business day" of a fund as previously
defined. In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time)
on a particular day, the net asset value of an AIM Fund's share will be
determined as of the close of the NYSE on such day. For purposes of determining
net asset value per share, futures and options contract closing prices which are
available 15 minutes after the close of trading of the NYSE will generally be
used. The net asset value per share is calculated by subtracting a fund's
liabilities from its assets and dividing the result by the total number of fund
shares outstanding. The determination of each fund's net asset value per share
is made in accordance with generally accepted accounting principles. Among other
items, a fund's liabilities include accrued expenses and dividends payable, and
its total assets include portfolio securities valued at their market value, as
well as income accrued but not yet received. Securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the supervision of the fund's officers and in accordance
with methods which are specifically authorized by its governing Board of
Directors or Trustees. Short-term obligations with maturities of 60 days or
less, and the securities held by the Money Market Funds, are valued at amortized
cost as reflecting fair value. AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND
OF CONNECTICUT and AIM TAX-FREE INTERMEDIATE SHARES value variable rate se-
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<PAGE> 48
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 OFCONNECTICUT.. 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> 49
(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-
BF 12/95
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<PAGE> 50
quired to report the receipt of exempt-interest dividends and other tax-exempt
interest on their federal income tax returns. Moreover, exempt-interest
dividends from the Tax-Exempt Funds may be subject to state income taxes, may
give rise to a federal alternative minimum tax liability, may affect the amount
of social security benefits subject to federal income tax, may affect the
deductibility of interest on certain indebtedness of the shareholder, and may
have other collateral federal income tax consequences. The Tax-Exempt Funds may
invest in Municipal Securities the interest on which will constitute an item of
tax preference and which therefore could give rise to a federal alternative
minimum tax liability for shareholders, and may invest up to 20% of their net
assets in such securities and other taxable securities. For additional
information concerning the alternative minimum tax and certain collateral tax
consequences of the receipt of exempt-interest dividends, see the Statements of
Additional Information applicable to the Tax-Exempt Funds.
The Tax-Exempt Funds may pay dividends to shareholders which are taxable, but
will endeavor to avoid investments which would result in taxable dividends. The
percentage of dividends which constitute exempt-interest dividends, and the
percentage thereof (if any) which constitute an item of tax preference, will be
determined annually. This percentage may differ from the actual percentages for
any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains, whether received in cash or additional shares, and regardless of
the length of time a particular shareholder may have held his shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Tax-Exempt Funds to pay exempt-interest dividends might be adversely affected.
AIM INTERMEDIATE GOVERNMENT FUND and AIM LIMITED MATURITY TREASURY
SHARES -- SPECIAL TAX INFORMATION. Certain states exempt from state income taxes
dividends paid by mutual funds out of interest on U.S. Treasury and certain
other U.S. Government obligations, and investors should consult with their own
tax advisors concerning the availability of such exemption.
AIM INTERNATIONAL EQUITY FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL INCOME FUND AND AIM GLOBAL UTILITIES FUND -- SPECIAL TAX
INFORMATION. For taxable years in which it is eligible to do so, each of these
funds may elect to pass through to shareholders credits for foreign taxes paid.
If the fund makes such an election, a shareholder who receives a distribution
(1) will be required to include in gross income his proportionate share of
foreign taxes allocable to the distribution and (2) may claim a credit or
deduction for such share for his taxable year in which the distribution is
received, subject to the general limitations imposed on the allowance of foreign
tax credits and deductions. Shareholders should also note that certain gains or
losses attributable to fluctuations in exchange rates or foreign currency
forward contracts may increase or decrease the amount of income of the fund
available for distribution to shareholders, and should note that if such losses
exceed other income during a taxable year, the fund would not be able to pay
ordinary income dividends.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110, serves as custodian for the
portfolio securities and cash of the AIM Funds other than AIM MUNICIPAL BOND
FUND and AIM LIMITED MATURITY TREASURY SHARES, for which The Bank of New York,
110 Washington Street, New York, New York 10286, serves as custodian. Texas
Commerce Bank National Association, P.O. Box 2558, Houston, Texas 77252-8084,
serves as Sub-Custodian for retail purchases of the AIM Funds.
A I M Fund Services, Inc., P.O. Box 4739, Houston, Texas 77210-4739, a
wholly-owned subsidiary of AIM, serves as each AIM Fund's transfer agent and
dividend payment agent.
LEGAL COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
Philadelphia, Pennsylvania, serves as counsel to the AIM Funds and has passed
upon the legality of the shares offered pursuant to this Prospectus.
SHAREHOLDER INQUIRIES. Shareholder inquiries concerning their accounts should
be directed to an A I M Fund Services, Inc. Client Services Representative by
calling (713) 626-1919 (extension 5224) (in Houston), or toll-free at (800)
959-4246 (elsewhere). The Transfer Agent may impose certain copying charges for
requests for copies of shareholder account statements and other historical
account information older than the current year and the immediately preceding
year.
OTHER INFORMATION. This Prospectus sets forth basic information that investors
should know about the fund(s) named on the cover page prior to investing.
Recipients of this Prospectus will be provided with a copy of the annual report
of the fund(s) to which this Prospectus relates, upon request and without
charge. A Statement of Additional Information has been filed with the SEC and is
available upon request and without charge, by writing or calling AIM
Distributors. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration statement,
including items omitted from this Prospectus, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
BF 12/95
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<PAGE> 51
APPLICATION INSTRUCTIONS
SOCIAL SECURITY OR TAXPAYER ID NUMBER. Investors should make sure that the
social security number or taxpayer identification number ("TIN") which appears
in Section 1 of the Application complies with the following guidelines:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GIVE SOCIAL SECURITY GIVE TAXPAYER I.D.
ACCOUNT TYPE NUMBER OF: ACCOUNT TYPE NUMBER OF:
------------ -------------------- ------------ ------------------
Individual Individual Trust, Estate, Pension Trust, Estate, Pension
Plan Trust Plan Trust and not
personal TIN of fiduciary
Joint Individual First individual listed in the
"Account Registration" portion
of the Application
Unif. Gifts to Minor Corporation, Partnership, Corporation, Partnership,
Minors/Unif. Transfers Other Organization Other Organization
to Minors
Legal Guardian Ward, Minor or
Incompetent
Sole Proprietor Owner of Business Broker/Nominee Broker/Nominee
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Applications without a certified TIN will not be accepted unless the applicant
is a nonresident alien, foreign corporation or foreign partnership and has
attached a completed IRS Form W-8.
BACKUP WITHHOLDING. Each AIM Fund, and other payers, must, according to IRS
regulations, withhold 31% of redemption payments and reportable dividends
(whether paid or accrued) in the case of any shareholder who fails to provide
the Fund with a TIN and a certification that he is not subject to backup
withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect TIN, or
(3) the investor is notified by the IRS that the investor is subject to backup
withholding because the investor failed to report all of the interest and
dividends on such investor's tax return (for reportable interest and
dividends only), or
(4) the investor fails to certify to the Fund that the investor is not subject
to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to reportable
interest, dividend, broker or barter exchange accounts opened after 1983,
or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting and such entities should check the box "Exempt from Backup
Withholding" on the Application. A complete listing of such exempt entities
appears in the Instructions accompanying Form W-9 (which can be obtained from
the IRS) and includes, among others, the following:
o a corporation
o an organization exempt from tax under Section 501(a), an individual retirement
plan (IRA), or a custodial account under Section 403(b)(7)
o the United States or any of its agencies or instrumentalities
o a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
o a foreign government or any of its political subdivisions, agencies or
instrumentalities
o an international organization or any of its agencies or instrumentalities
o a foreign central bank of issue
o a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
o a futures commission merchant registered with the Commodity Futures Trading
Commission
o a real estate investment trust
o an entity registered at all times during the tax year under the Investment
Company Act of 1940
o a common trust fund operated by a bank under Section 584(a)
o a financial institution
o a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
o a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
BF 12/95
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NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
appropriate withholding as described in the Prospectus under "Dividends,
Distributions and Tax Matters."
SPECIAL INFORMATION REGARDING TELEPHONE EXCHANGE PRIVILEGE. By signing the new
Account Application form, an investor appoints the Transfer Agent as his true
and lawful attorney to surrender for redemption any and all unissued shares held
by the Transfer Agent in the designated account(s), or in any other account with
any of the AIM Funds, present or future, which has the identical registration as
the designated account(s), with full power of substitution in the premises. The
Transfer Agent and AIM Distributors are thereby authorized and directed to
accept and act upon any telephone redemptions of shares held in any of the
account(s) listed, from any person who requests the redemption proceeds to be
applied to purchase shares in any one or more of the AIM Funds, provided that
such fund is available for sale and provided that the registration and mailing
address of the shares to be purchased are identical to the registration of the
shares being redeemed. An investor acknowledges by signing the form that he
understands and agrees that the Transfer Agent and AIM Distributors may not be
liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction. The Transfer Agent
reserves the right to cease to act as agent subject to this appointment, and AIM
Distributors reserves the right to modify or terminate the telephone exchange
privilege at any time without notice.
SPECIAL INFORMATION REGARDING TELEPHONE REDEMPTION PRIVILEGE. By signing the
new Account Application form, an investor appoints the Transfer Agent as his
true and lawful attorney to surrender for redemption any and all unissued shares
held by the Transfer Agent in the designated account(s), present or future, with
full power of substitution in the premises. The Transfer Agent and AIM
Distributors are thereby authorized and directed to accept and act upon any
telephone redemptions of shares held in any of the account(s) listed, from any
person who requests the redemption. An investor acknowledges by signing the form
that he understands and agrees that the Transfer Agent and AIM Distributors may
not be liable for any loss, expense or cost arising out of any telephone
redemption requests effected in accordance with the authorization set forth in
these instructions if they reasonably believe such request to be genuine, but
may in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. The Transfer
Agent reserves the right to cease to act as agent subject to this appointment,
and AIM Distributors reserves the right to modify or terminate the telephone
redemption privilege at any time without notice. An investor may elect not to
have this privilege by marking the appropriate box on the application. Then any
exchanges must be effected in writing by the investor (see the applicable Fund's
prospectus under the caption "Exchange Privilege -- Exchanges by Mail").
BF 12/95
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APPENDIX II
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
BAIRD CAPITAL DEVELOPMENT FUND, INC.
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS............................................................................ 2
Section 1.1. Definitions................................................... 2
ARTICLE II
TRANSFER OF ASSETS..................................................................... 3
Section 2.1. Reorganization of Baird Capital Development................... 3
Section 2.2. Computation of Net Asset Value................................ 4
Section 2.3. Excluded Assets............................................... 4
Section 2.4. Valuation Date................................................ 4
Section 2.5. Delivery...................................................... 4
Section 2.6. Dissolution................................................... 5
Section 2.7. Issuance of AIM Equity Shares................................. 5
Section 2.8. Investment Securities......................................... 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BAIRD CAPITAL DEVELOPMENT............................ 6
Section 3.1. Incorporation: Qualification and Corporate Authority.......... 6
Section 3.2. Registration and Regulation of Baird Capital Development...... 6
Section 3.3. Financial Statements.......................................... 6
Section 3.4. No Material Adverse Changes; Contingent Liabilities........... 6
Section 3.5. BCD Shares; Liabilities....................................... 6
Section 3.6. Accountants................................................... 7
Section 3.7. Binding Obligation............................................ 7
Section 3.8. No Breaches or Defaults....................................... 7
Section 3.9. Authorizations or Consents.................................... 7
Section 3.10. Permits....................................................... 8
Section 3.11. No Actions, Suits or Proceedings.............................. 8
Section 3.12. Contracts..................................................... 8
Section 3.13. Properties and Assets......................................... 8
Section 3.14. Ineligible Persons............................................ 8
Section 3.15. Rule 17e-1.................................................... 8
Section 3.16. Taxes......................................................... 9
Section 3.17. Benefit and Employment Obligations............................ 9
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............................................. 10
Section 3.22. Prospectus.................................................... 10
</TABLE>
i
<PAGE> 55
<TABLE>
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AIM EQUITY........................................... 10
Section 4.1. Incorporation: Qualification and Corporate Authority.......... 10
Section 4.2. Binding Obligation............................................ 10
Section 4.3. No Breaches or Defaults....................................... 10
Section 4.4. Authorizations or Consents.................................... 10
Section 4.5. Permits....................................................... 10
Section 4.6. No Actions, Suits or Proceedings.............................. 11
Section 4.7. Ineligible Persons............................................ 11
Section 4.8. Brokers....................................................... 11
Section 4.9. Registration and Regulation................................... 11
Section 4.10. Registration of Portfolio Shares.............................. 11
Section 4.11. Representations Concerning the Reorganization................. 12
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............................................ 15
Section 5.5. Notice of Events.............................................. 15
Section 5.6. Access to Information......................................... 15
Section 5.7. Consents, Approvals and Filings............................... 15
Section 5.8. Submission of Agreement to Shareholders....................... 15
Section 5.9. Acquisition Proposals......................................... 15
Section 5.10. Fiduciary Duties.............................................. 16
Section 5.11. Section 15(f) of the 1940 Act................................. 16
Section 5.12. Sales Charges................................................. 17
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION............................................. 17
Section 6.1. Conditions Precedent of AIM Equity............................ 17
Section 6.2. Mutual Conditions............................................. 17
Section 6.3. Conditions Precedent of Baird Capital Development............. 19
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VII
TERMINATION OF AGREEMENT............................................................... 19
Section 7.1. Termination................................................... 19
Section 7.2. Survival After Termination.................................... 20
ARTICLE VIII
MISCELLANEOUS.......................................................................... 20
Section 8.1. Nonsurvival of Representations and Warranties................. 20
Section 8.2. Law Governing................................................. 20
Section 8.3. Binding Effect, Persons Benefiting, No Assignment............. 20
Section 8.4. Obligation of AIM Equity Portfolio............................ 20
Section 8.5. Amendments.................................................... 20
Section 8.6. Enforcement................................................... 20
Section 8.7. Interpretation................................................ 20
Section 8.8. Counterparts.................................................. 21
Section 8.9. Entire Agreement; Schedules................................... 21
Section 8.10. Notices....................................................... 21
Schedule 3.12(a) -- Contracts
Schedule 6.1(d) -- Opinion of Counsel to Baird Capital Development
Schedule 6.2(g) -- Tax Opinions
Schedule 6.3(d) -- Opinion of Counsel to AIM Equity
</TABLE>
iii
<PAGE> 57
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of December 20, 1995 (this
"Agreement"), by and between Baird Capital Development Fund, Inc., a Wisconsin
corporation ("Baird Capital Development"), and AIM Equity Funds, Inc., a
Maryland corporation ("AIM Equity"), acting on behalf of AIM Capital Development
Fund (the "Portfolio").
WITNESSETH
WHEREAS, Baird Capital Development is an investment company registered with
the Securities and Exchange Commission (the "SEC") under the Investment Company
Act (as defined below); and
WHEREAS, AIM Equity is an investment company registered with the SEC under
the Investment Company Act that offers separate classes of its shares
representing interests in several investment portfolios for sale to the public;
and
WHEREAS, Baird Capital Development owns securities in which the Portfolio
is permitted to invest; and
WHEREAS, Baird Capital Development desires to provide for its
reorganization through the transfer of substantially all of its assets to the
Portfolio in exchange for shares of the Portfolio issued in the manner set forth
in this Agreement; and
WHEREAS, this Agreement is intended to be and is adopted as a Plan of
Reorganization and Liquidation within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings of AIM Equity and Baird Capital Development
contained in this Agreement, AIM Equity and Baird Capital Development agree as
follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. (a) For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Acquisition Proposal" means, except for the transactions contemplated
hereby, any proposal with respect to a merger, reorganization, consolidation,
share exchange or similar transaction involving Baird Capital Development, or
any purchase of all or any significant portion of the assets of Baird Capital
Development, or any equity interest in Baird Capital Development.
"AEF Registration Statement" means the registration statement on Form N-1A
of AIM Equity, as amended, Registration No. 2-25469/811-1424, that is applicable
to the Portfolio.
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization together with
all schedules and exhibits attached hereto and all amendments hereto and
thereof.
"AIM Equity" means AIM Equity Funds, Inc., a Maryland corporation.
"Baird Capital Development" means Baird Capital Development Fund, Inc., a
Wisconsin corporation.
"BCD Financial Statements" shall have the meaning set forth in Section 3.3
of this Agreement.
"BCD Shareholders" means the holders of record as of the Closing Date of
the issued and outstanding shares of the capital stock of Baird Capital
Development.
"BCD Shareholders Meeting" means a meeting of the shareholders of Baird
Capital Development convened in accordance with applicable law and the articles
of incorporation of Baird Capital Development to consider and vote upon the
approval of this Agreement and the transactions contemplated by this Agreement.
"BCD Shares" means the issued and outstanding shares of the capital stock
of Baird Capital Development.
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Baird Capital Development, or
otherwise providing benefits to any current or former employee, officer or
director of Baird Capital Development.
"Closing" means the transfer of the assets of Baird Capital Development
against the delivery of Portfolio Shares directly to the shareholders of Baird
Capital Development as described in Section 2.1 of this Agreement.
"Closing Date" means March 29, 1996, or such other date as the parties may
mutually determine.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall have the meaning set forth in Section
5.2(a) of this Agreement.
"Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of the Portfolio.
"Effective Time" shall mean 2:00 p.m. Central Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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<PAGE> 59
"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 Capital Development Fund, an investment portfolio of
AIM Equity.
"Portfolio Shares" means shares of common stock of AIM Equity, par value
$.001, each representing an interest in the Portfolio.
"Reorganization" means the acquisition of certain of the assets of Baird
Capital Development by the Portfolio in consideration of the issuance of
Portfolio Shares directly to BCD Shareholders as described in this Agreement.
"Required BCD Shareholder Vote" shall have the meaning set forth in Section
3.19 of this Agreement.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted by the SEC pursuant thereto.
"Tax" means any tax or similar governmental charge, impost or levy
(including, without limitation, income taxes (including, without limitation,
alternative minimum tax and estimated tax), franchise taxes, transfer taxes or
fees, sales taxes, use taxes, gross receipts taxes, value added taxes,
employment taxes, excise taxes, ad valorem taxes, property taxes, withholding
taxes, payroll taxes, minimum taxes, or windfall profit taxes), together with
any related penalties, fines, additions to tax or interest, imposed by the
United States or any state, county, local or foreign government or subdivision
or agency thereof.
"Valuation Date" shall have the meaning set forth in Section 2.4 of this
Agreement.
ARTICLE II
TRANSFER OF ASSETS
SECTION 2.1. REORGANIZATION OF BAIRD CAPITAL DEVELOPMENT. At the
Effective Time, all of the assets of Baird Capital Development, except the
Excluded Assets, shall be delivered to the Custodian for the account of the
Portfolio in exchange for, and against delivery by AIM Equity directly to the
BCD Shareholders at the opening of business on the Closing Date of a number of
Portfolio Shares (including, if applicable, fractional shares rounded to the
nearest thousandth) having an aggregate net asset value equal to the net value
of the
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<PAGE> 60
assets of Baird Capital Development so transferred, assigned and delivered, all
determined and adjusted as provided in Section 2.2 below. Upon delivery of such
assets, the Portfolio will receive good and marketable title to such assets free
and clear of all Liens.
SECTION 2.2. COMPUTATION OF NET ASSET VALUE.
(a) The net asset value of the Portfolio Shares and the net value of the
assets of Baird Capital Development subject to this Agreement shall, in each
case, be determined as of the close of business on the NYSE on the Valuation
Date.
(b) The net asset value of the Portfolio Shares shall be computed in the
manner set forth in accordance with the policies and procedures of the Portfolio
as described in the AEF Registration Statement.
(c) The net value of the assets of Baird Capital Development subject to
this Agreement shall be computed by AIM Equity and shall be subject to
adjustment by the amount, if any, agreed to by Baird Capital Development and AIM
Equity. In determining the value of the securities transferred by Baird Capital
Development to the Portfolio, each security shall be priced in accordance with
the policies and procedures of the Portfolio as described in the AEF
Registration Statement. For such purposes, market quotes and the security
characteristics relating to establishing such quotes shall be determined by AIM
Equity, with the approval of Baird Capital Development. Securities for which
market quotes are not available shall be valued as mutually agreed by AIM Equity
and Baird Capital Development, provided that such value is consistent with the
pricing procedures adopted by AIM Equity. All computations shall be made by AIM
Equity in cooperation with the auditors of AIM Equity and the auditors of Baird
Capital Development, who will apply certain procedures agreed to by AIM Equity
and Baird Capital Development to test such computations.
SECTION 2.3. EXCLUDED ASSETS. There shall be deducted from the assets of
Baird Capital Development described in Section 2.1 all organizational expenses,
any prepaid expenses that would not have value to the Portfolio and cash in an
amount estimated by Baird Capital Development to be sufficient to pay all the
liabilities of Baird Capital Development, including, without limitation, (i)
amounts owed or to be owed to any BCD Shareholder, including declared but unpaid
dividends, (ii) accounts payable, taxes and other accrued and unpaid expenses,
if any, incurred in the normal operation of its business up to and including the
Closing Date and (iii) the costs and expenses incurred by Baird Capital
Development in making and carrying out the transactions contemplated by this
Agreement.
SECTION 2.4. VALUATION DATE. The assets of Baird Capital Development and
the net asset value per share of the Portfolio Shares shall be valued as of the
close of business on the NYSE on the business day next preceding the Closing
Date (the "Valuation Date"). The stock transfer books of Baird Capital
Development will be permanently closed as of the close of business on the
Valuation Date and only requests for the redemption of shares of Baird Capital
Development received in proper form prior to the close of trading on the NYSE on
the Valuation Date shall be accepted by Baird Capital Development. Redemption
requests thereafter received by Baird Capital Development shall be deemed to be
redemption requests for Portfolio Shares (assuming that the transactions
contemplated by this Agreement have been consummated) to be distributed to BCD
Shareholders under this Agreement.
SECTION 2.5. DELIVERY.
(a) Assets held by Baird Capital Development shall be delivered by Baird
Capital Development to the Custodian on the Closing Date. No later than three
(3) business days preceding the Closing Date Baird Capital Development shall
instruct its custodian to make such delivery to the Custodian. Baird Capital
Development shall further instruct its custodian that any trade made by Baird
Capital Development during the three day period before the Closing Date shall
settle at the Custodian. The assets so delivered shall be duly endorsed in
proper form for transfer in such condition as to constitute a good delivery
thereof, in accordance with the custom of brokers, and shall be accompanied by
all necessary state stock transfer stamps, if any, or a check for the
appropriate purchase price thereof. Cash held by Baird Capital Development
(other than cash held as part of the Excluded Assets) shall be delivered at the
Effective Time and shall be in the form of currency or wire transfer in Federal
funds, payable to the order of the account of the Portfolio at the Custodian.
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(b) If, on the Closing Date, Baird Capital Development is unable to make
delivery in the manner contemplated by Section 2.5(a) of securities held by
Baird Capital Development for the reason that any of such securities purchased
prior to the Closing Date have not yet been delivered to Baird Capital
Development, its broker or brokers, then, AIM Equity shall waive the delivery
requirements of Section 2.5(a) with respect to said undelivered securities, if
Baird Capital Development has delivered to the Custodian by or on the Closing
Date and with respect to said undelivered securities, executed copies of an
agreement of assignment and escrow agreement and due bills executed on behalf of
said broker or brokers, together with such other documents as may be required by
AIM Equity or the Custodian, including brokers' confirmation slips.
SECTION 2.6. DISSOLUTION. As soon as reasonably practicable after the
Closing Date, Baird Capital Development shall pay or make provisions for all of
its debts, liabilities and taxes and distribute all remaining assets to the BCD
Shareholders, and Baird Capital Development shall be dissolved and deregistered
under the Investment Company Act and under applicable state laws, provided that,
in the event that the transactions contemplated herein are not approved by the
BCD Shareholders, Baird Capital Development shall not be obligated to so
dissolve and deregister.
SECTION 2.7. ISSUANCE OF AIM EQUITY SHARES. At the Closing Date, Baird
Capital Development shall instruct AIM Equity that the pro rata interest of each
of BCD Shareholders of record as of the close of business on the Valuation Date,
as certified by Baird Capital Development's transfer agent, in the Portfolio
Shares be registered on the books of AIM Equity in full and fractional shares in
the name of each BCD Shareholder, and AIM Equity agrees promptly to comply with
said instruction. All issued and outstanding shares of Baird Capital
Development's capital stock shall thereupon be canceled on the books of Baird
Capital Development. AIM Equity shall have no obligation to inquire as to the
validity, propriety or correctness of any such instruction, but shall, in each
case, assume that such instruction is valid, proper and correct. AIM Equity
shall record on its books the ownership of the Portfolio Shares by BCD
Shareholders and shall forward a confirmation of such ownership to the BCD
Shareholders. No redemption or repurchase of such shares credited to former BCD
Shareholders in respect of Baird Capital Development shares represented by
unsurrendered stock certificates shall be permitted until such certificates have
been surrendered to AIM Equity for cancellation, or if such certificates are
lost or misplaced, until lost certificate affidavits have been executed and
delivered to AIM Equity.
SECTION 2.8. INVESTMENT SECURITIES.
(a) It is expressly understood that Baird Capital Development may hereafter
sell any securities owned by it in the ordinary course of its business as a
diversified, open-end, management investment company. Upon written request by
AIM Equity, Baird Capital Development shall (i) prior to the Closing Date,
dispose of equity securities held by it to assure that AIM Equity does not own
ten percent (10%) or more of the outstanding voting securities of any issuer as
a result of the Reorganization, or (ii) cooperate with and assist AIM Equity in
preparing and filing on the Closing Date the notification and report form
required by the Hart-Scott-Rodino Antitrust Improvements Act, in which case the
Closing shall be delayed until the end of the waiting period prescribed by such
act.
(b) On or prior to the Valuation Date, Baird Capital Development shall
deliver a list setting forth the securities it then owns together with the
respective Federal income tax bases thereof. Baird Capital Development shall
provide to AIM Equity on or before the Valuation Date, detailed tax basis
accounting records for each security to be transferred to it pursuant to this
Agreement. Such records shall be prepared in accordance with the requirements
for specific identification tax lot accounting and clearly reflect the bases
used for determination of gain and loss realized on the partial sale of any
security transferred to the Portfolio hereunder. Such records shall be made
available by Baird Capital Development prior to the Valuation Date for
inspection by the Treasurer (or his designee) or the auditors of AIM Equity upon
reasonable request.
2.9. LIABILITIES AND EXPENSES. The Portfolio shall not assume any
liabilities of Baird Capital Development and Baird Capital Development shall use
its reasonable best efforts to discharge all known liabilities, as far as may be
possible, prior to the Closing Date.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BAIRD CAPITAL DEVELOPMENT
Baird Capital Development represents and warrants to AIM Equity that:
SECTION 3.1. INCORPORATION: QUALIFICATION AND CORPORATE AUTHORITY. Baird
Capital Development has been duly incorporated and is validly existing and in
active status under the laws of the State of Wisconsin with all requisite
corporate power and authority to conduct its business as presently conducted.
SECTION 3.2. REGISTRATION AND REGULATION OF BAIRD CAPITAL
DEVELOPMENT. Baird Capital Development is duly registered with the SEC as an
investment company under the Investment Company Act and all BCD Shares which
have been or are being offered for sale have been duly registered under the
Securities Act and have been duly registered, qualified or are exempt from
registration or qualification under the securities laws of each state or other
jurisdiction in which such shares have been or are being offered for sale, and
no action has been taken by Baird Capital Development to revoke or rescind any
such registration or qualification. Baird Capital Development is in compliance
in all material respects with all applicable laws, rules and regulations,
including, without limitation, the Investment Company Act, the Securities Act,
the Exchange Act and all applicable state securities laws. Baird Capital
Development is in compliance in all material respects with the applicable
investment policies and restrictions set forth in its registration statement
currently in effect. The value of the net assets of Baird Capital Development is
determined using portfolio valuation methods that comply in all material
respects with the requirements of the Investment Company Act and the policies of
Baird Capital Development and all purchases and redemptions of BCD Shares have
been effected at the net asset value per share calculated in such manner.
SECTION 3.3. FINANCIAL STATEMENTS. The books of account and related
records of Baird Capital Development fairly reflect in reasonable detail its
assets, liabilities and transactions in accordance with generally accepted
accounting principles applied on a consistent basis. The audited financial
statements dated September 30, 1995 of Baird Capital Development previously
delivered to AIM Equity (the "BCD Financial Statements") present fairly in all 9
material respects the financial position of Baird Capital Development as at the
dates indicated and the results of operations and cash flows for the periods
then ended in accordance with generally accepted accounting principles applied
on a consistent basis for the periods then ended.
SECTION 3.4. NO MATERIAL ADVERSE CHANGES; CONTINGENT LIABILITIES. Since
September 30, 1995, no material adverse change has occurred in the financial
condition, results of operations, business, assets or liabilities of Baird
Capital Development or the status of Baird Capital Development as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Baird Capital Development or occurring in the
ordinary course of business of Baird Capital Development. There are no
contingent liabilities of Baird Capital Development not disclosed in the BCD
Financial Statements which are required to be disclosed in accordance with
generally accepted accounting principles.
SECTION 3.5. BCD SHARES; LIABILITIES.
(a) The BCD Shares have been duly authorized and validly issued and are
fully paid and non-assessable (except as provided in Wisconsin Business
Corporation Law Section 180.0622(2)(b)).
(b) There is no plan or intention by the shareholders of Baird Capital
Development who own five percent (5%) or more of the BCD Shares, and to the
knowledge of Baird Capital Development's management, the remaining BCD
Shareholders have no present plan or intention of selling, exchanging, redeeming
or otherwise disposing of a number of the Portfolio Shares received by them in
connection with the Reorganization that would reduce the BCD Shareholders'
ownership of Portfolio Shares to a number of shares having a value, as of the
Closing Date, of less than fifty percent (50%) of the value of all of the
formerly outstanding BCD Shares as of the same date. For purposes of this
Section 3.5, BCD Shares exchanged for cash or other property or exchanged for
cash in lieu of fractional shares of the Portfolio will be treated as
outstanding BCD Shares on the date of the Reorganization. Moreover, BCD Shares
and Portfolio Shares held by BCD Shareholders and otherwise sold, redeemed or
disposed of prior or subsequent to the Reorganization will be considered in
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making this representation, except for BCD Shares or Portfolio Shares which have
been, or will be, redeemed by Baird Capital Development or the Portfolio in the
ordinary course of its business as an open-end, diversified management
investment company (or a series thereof) under the Investment Company Act.
(c) At the time of the Reorganization, Baird Capital Development shall not
have outstanding any warrants, options, convertible securities or any other type
of right pursuant to which any Person could acquire BCD Shares, except for the
right of investors to acquire BCD Shares at net asset value in the normal course
of its business as an open-end diversified management investment company
operating under the Investment Company Act.
(d) Throughout the five-year period ending on the Closing Date, Baird
Capital Development will have conducted its historic business within the meaning
of Section 1.368-1(d) of the Income Tax Regulations under the Code in a
substantially unchanged manner. In anticipation of the Reorganization, Baird
Capital Development will not dispose of assets that, in the aggregate, will
result in less than fifty percent (50%) of its historic business assets being
transferred to the Portfolio.
(e) Baird Capital Development does not have, and has not had during the six
(6) months prior to the date of this Agreement, any employees, and shall not
hire any employees from and after the date of this Agreement through the Closing
Date.
SECTION 3.6. ACCOUNTANTS. Price Waterhouse, LLP, which has reported upon
BCD Financial Statements for the period ended September 30, 1995, are
independent public accountants as required by the Securities Act and the
Exchange Act.
SECTION 3.7. BINDING OBLIGATION. This Agreement has been duly authorized,
executed and delivered by Baird Capital Development and, assuming this Agreement
has been duly executed and delivered by AIM Equity and approved by the BCD
Shareholder, constitutes the legal, valid and binding obligation of Baird
Capital Development, enforceable against Baird Capital Development in accordance
with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency, reorganization or similar laws relating to or affecting
creditors' rights generally or by general equity principles (whether applied in
a court of law or a court of equity and including limitations on the
availability of specific performance or other equitable remedies).
SECTION 3.8. NO BREACHES OR DEFAULTS. The execution and delivery of this
Agreement by Baird Capital Development and performance by Baird Capital
Development of its obligations hereunder has been duly authorized by all
necessary corporate action on the part of Baird Capital Development, other than
BCD Shareholder approval, and (i) does not and, on the Closing Date, will not
result in any violation of the articles of incorporation or by-laws of Baird
Capital Development and (ii) does not and, will not on the Closing Date, result
in a breach of any of the terms or provisions of, or constitute (with or without
the giving of notice or the lapse of time or both) a default under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation or imposition of
any Lien upon any property or assets of Baird Capital Development (except for
such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Baird Capital Development is a party or by which it may be
bound or to which any of its properties may be subject; (B) any Permit; or (C)
any existing applicable law, rule, regulation, judgment, order or decree of any
Governmental Authority having jurisdiction over Baird Capital Development or any
of its properties. Baird Capital Development is not under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
SECTION 3.9. AUTHORIZATIONS OR CONSENTS. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with Section 2.6 of this Agreement, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by Baird
Capital Development in connection with the due execution and delivery by Baird
Capital Development of this Agreement and the consummation by Baird Capital
Development of the transactions contemplated hereby.
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SECTION 3.10. PERMITS. Baird Capital Development has in full force and
effect all Federal, state, local and foreign governmental approvals, consents,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights (collectively, "Permits") necessary for it to conduct its business as
presently conducted, and there has occurred no default under any Permit, except
for the absence of Permits and for defaults under Permits the absence or default
of which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Baird Capital
Development there are no proceedings relating to the suspension, revocation or
modification of any Permit, except for such that would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. NO ACTIONS, SUITS OR PROCEEDINGS.
(a) There is no pending action, litigation or proceeding, nor, to the
knowledge of Baird Capital Development, has any litigation been overtly
threatened in writing or orally, against Baird Capital Development before any
Governmental Authority which questions the validity or legality of this
Agreement or of the actions contemplated hereby or which seeks to prevent the
consummation of the transactions contemplated hereby, including the
Reorganization.
(b) There are no legal, administrative or arbitration actions, suits, or
proceedings instituted or pending or, to the knowledge of Baird Capital
Development, threatened in writing or, if probable of assertion, orally against
Baird Capital Development or affecting any property, asset, interest, or right
of Baird Capital Development, that could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. There are not in
existence on the date hereof any plea agreements, judgments, injunctions,
consents, decrees, exceptions or orders that were entered by, filed with or
issued by Governmental Authority relating to the conduct of the business of
Baird Capital Development affecting in any significant respect the conduct of
its business. Baird Capital Development is not, and has not been, to the
knowledge of Baird Capital Development, the target of any investigation by the
SEC or any state securities administrator.
SECTION 3.12. CONTRACTS.
(a) Except for the contracts and agreements listed on Schedule 3.12(a),
Baird Capital Development is not a party to any material contract, debt
arrangement, futures contract, plan, lease, franchise or permit of any kind or
nature whatsoever.
(b) Baird Capital Development is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party, by which its assets, business, or operations may be
bound or affected, or under which it or its assets, business or operations
receives benefits, and which default could reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect, and, to the knowledge of
Baird Capital Development, there has not occurred any event that, with the lapse
of time or the giving of notice or both, would constitute such a default.
SECTION 3.13. PROPERTIES AND ASSETS. Baird Capital Development has good
and marketable title to all properties and assets reflected in BCD Financial
Statements as owned by it, free and clear of all Liens except as described in
the BCD Financial Statements.
SECTION 3.14. INELIGIBLE PERSONS. Except as previously disclosed to AIM
Equity, neither Baird Capital Development nor any "Affiliated Person" of Baird
Capital Development has been convicted of any felony or misdemeanor, described
in Section 9(a)(1) of the Investment Company Act, nor has any Affiliated Person
of Baird Capital Development been subject, or presently is subject, to any
disqualification that would be a basis for denial, suspension or revocation of
registration of an investment adviser under Section 203(e) of the Advisers Act
or Rule 206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the
Exchange Act, or for disqualification as an investment adviser, employee,
officer or director of an investment company under Section 9 of the Investment
Company Act, and, to Baird Capital Development's knowledge, there is no
proceeding or investigation that is reasonably likely to become the basis for
any such disqualification, denial, suspension or revocation.
SECTION 3.15. RULE 17E-1. Baird Capital Development has duly adopted
procedures pursuant to Rule 17e-1 under the Investment Company Act, to the
extent applicable, and Baird Capital Development
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currently complies and will comply with the requirements of Section 17(e) of the
Investment Company Act and Rule 17e-1 thereunder, to the extent applicable.
SECTION 3.16. TAXES.
(a) Baird Capital Development has elected to be treated as a regulated
investment company under Subchapter M of the Code. Baird Capital Development has
qualified as such for each taxable year since inception and that has ended prior
to the Closing Date and will have satisfied the requirements of Section 851(b)
of the Code for the period beginning on the first day of its current taxable
year and ending on the Closing Date. In order to (i) insure continued
qualification of Baird Capital Development as a "regulated investment company"
for tax purposes and (ii) eliminate any tax liability of Baird Capital
Development arising by reason of undistributed investment company taxable income
or net taxable gain, Baird Capital Development will declare to the BCD
Shareholders of record on or prior to the Valuation Date a dividend or dividends
that, together with all such previous dividends shall have the effect of
distributing (A) all of its investment company taxable income (determined
without regard to any deductions for dividends paid) for the taxable year ended
September 30, 1995 and for the short taxable year beginning on October 1, 1995
and ending on the Closing Date and (B) all of its net capital gains realized in
its taxable year ended September 30, 1995 and in such short taxable year (after
reduction for any capital loss carryover).
(b) Baird Capital Development has timely filed all Returns required to be
filed by it and all Taxes with respect thereto have been paid, except where the
failure so to file or so to pay, would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. Adequate provision has
been made in the financial statements of Baird Capital Development for all Taxes
in respect of all periods ending on or before the date of such financial
statements, except where the failure to make such provisions would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No deficiencies for any Taxes have been proposed, assessed or
asserted in writing by any taxing authority against Baird Capital Development,
and no deficiency has been proposed, assessed or asserted, in writing, where
such deficiency would reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect. No waivers of the time to assess any such
Taxes are outstanding nor are any written requests for such waivers pending and
no Return of Baird Capital Development is currently being or has been audited
since September 30, 1990 with respect to income taxes (and since September 30,
1992 with respect to all other Taxes) by any Federal, state, local, or foreign
Tax authority.
(c) Baird Capital Development's fiscal year has not been changed for tax
purposes since September 30, 1990.
SECTION 3.17. BENEFIT AND EMPLOYMENT OBLIGATIONS. Baird Capital
Development has no obligation to provide any post-retirement or post-employment
benefit to any Person, including but not limited to under any Benefit Plan, and
has no obligation to provide unfunded deferred compensation or other unfunded or
self-funded benefits to any Person.
SECTION 3.18. BROKERS. No broker, finder or similar intermediary has
acted for or on behalf of Baird Capital Development in connection with this
Agreement or the transactions contemplated hereby, and no broker, finder, agent
or similar intermediary is entitled to any broker's, finder's or similar fee or
other commission in connection therewith based on any agreement, arrangement or
understanding with Baird Capital Development or any action taken by it.
SECTION 3.19. VOTING REQUIREMENTS; DISSENTER'S RIGHTS. The affirmative
votes of a majority of the holders of the outstanding BCD Shares (the "Required
BCD Shareholder Vote") are the only votes of the holders of any class or series
of Baird Capital Development's capital stock necessary to approve this Agreement
and the transactions contemplated by this Agreement. The BCD Shareholders may
not exercise dissenter's rights granted under the Wisconsin Business Corporation
Law with respect to the Reorganization.
SECTION 3.20. STATE TAKEOVER STATUTES. No state takeover statute or
similar statute or regulation applies or purports to apply to the
Reorganization, this Agreement or any of the transactions contemplated by this
Agreement.
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SECTION 3.21. BOOKS AND RECORDS. The books and records of Baird Capital
Development reflecting, among other things, the purchase and sale of BCD Shares
by BCD Shareholders, the number of issued and outstanding shares owned by each
BCD Shareholder and the state or other jurisdiction in which such shares were
offered and sold, are complete and accurate in all material respects.
SECTION 3.22. PROSPECTUS. The current prospectus and statement of
additional information for Baird Capital Development as of the date on which
they were issued did not contain, and as supplemented by any supplement thereto
dated prior to or on the Closing Date, do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided, however, that
no representation or warranty is made with respect to written information
provided by AIM Equity for inclusion in the prospectus or statement of
additional information of Baird Capital Development, or any supplement thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AIM EQUITY
AIM Equity represents and warrants to Baird Capital Development as follows:
SECTION 4.1. INCORPORATION. Qualification and Corporate Authority. AIM
Equity has been duly incorporated and is validly existing and in good standing
under the laws of Maryland, with all requisite corporate power and authority to
enter into this Agreement and perform its obligations hereunder.
SECTION 4.2. BINDING OBLIGATION. This Agreement has been duly authorized,
executed and delivered by AIM Equity and, assuming this Agreement has been duly
executed and delivered by Baird Capital Development, constitutes the legal,
valid and binding obligation of AIM Equity, enforceable against AIM Equity in
accordance with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency, reorganization or similar laws relating to or affecting
creditors' rights generally or by general equity principles (whether applied in
a court of law or a court of equity and including limitations on the
availability of specific performance or other equitable remedies).
SECTION 4.3. NO BREACHES OR DEFAULTS. The execution and delivery of this
Agreement by AIM Equity and performance by AIM Equity of its obligations
hereunder have been duly authorized by all necessary corporate action on the
part of AIM Equity and (i) do not, and on the Closing Date will not, result in
any violation of the charter or by-laws of AIM Equity and (ii) does not, and on
the Closing Date will not, result in a breach of any of the terms or provisions
of, or constitute (with or without the giving of notice or the lapse of time or
both) a default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation or imposition of any Lien upon any property or assets of
the Portfolio (except for such breaches or defaults or Liens that would not
reasonably be expected, individually or in the aggregate, to adversely affect
the consummation of the Reorganization) under (A) any indenture, mortgage or
loan or any other material agreement or instrument to which AIM Equity is a
party or by which it may be bound which relates to the Portfolio or to which any
properties of the Portfolio may be subject; (B) any Permit; or (C) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over AIM Equity or any of the Portfolio's
properties.
SECTION 4.4. AUTHORIZATIONS OR CONSENTS. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by AIM Equity in connection
with the due execution and delivery by AIM Equity of this Agreement and the
consummation by AIM Equity of the transactions contemplated hereby.
SECTION 4.5. PERMITS. AIM Equity has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
the Portfolio, and there has occurred no default under any Permit, except for
the absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the
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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.
SECTION 4.9. REGISTRATION AND REGULATION. AIM Equity is registered with
the SEC under the Investment Company Act as an open-end, management, series,
investment company and the Portfolio has elected to qualify as a regulated
investment company under Section 851 of the Code. On the Closing Date the
Portfolio will be in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. On the Closing Date the Portfolio will be in compliance in all
material respects with the applicable investment policies and restrictions set
forth in its registration statement currently in effect. After the Closing Date
the value of the net assets of the Portfolio will be determined using portfolio
valuation methods that comply in all material respects with the requirements of
the Investment Company Act.
SECTION 4.10. REGISTRATION OF PORTFOLIO SHARES.
(a) The authorized capital stock of AIM Equity consists of 7,000,000,000
shares with a par value of $0.001 each.
(b) The Portfolio Shares of AIM Equity to be issued pursuant to Section 2.7
shall on the Closing Date be duly registered under the Securities Act by a
Registration Statement on Form N-14 of AIM Equity then in effect.
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(c) The Portfolio Shares to be issued pursuant to Section 2.7 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform in all substantial respects to the description
thereof contained in the Registration Statement on Form N-14 then in effect. At
the time of the Reorganization, the Portfolio shall not have outstanding any
warrants, options, convertible securities or any other type of right pursuant to
which any Person could acquire Portfolio Shares, except for the right of
investors to acquire Portfolio Shares at the public offering price in the normal
course of its business as an open-end diversified management investment company
operating under the Investment Company Act.
(d) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus") which forms a part of AIM Equity's Registration Statement
on Form N-14 shall be furnished to Baird Capital Development and BCD
Shareholders entitled to vote at the BCD Shareholders Meeting. The Combined
Proxy Statement/Prospectus and related Statement of Additional Information of
the Portfolio, when they become effective, shall conform in all material
respects to the applicable requirements of the Securities Act and the Investment
Company Act and shall not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not materially misleading, provided, however, that no representation or
warranty is made with respect to written information provided by Baird Capital
Development for inclusion in the Combined Prospectus/Proxy Statement.
(e) The Portfolio Shares which AIM Equity intends to offer for sale to the
public after the Closing Date shall be duly registered under the Securities Act
by the AEF Registration Statement then in effect.
SECTION 4.11. REPRESENTATIONS CONCERNING THE REORGANIZATION.
(a) AIM Equity has no plan or intention to reacquire any of the Portfolio
Shares issued in the Reorganization, except to the extent that the Portfolio is
required by the Investment Company Act to redeem any of its shares presented for
redemption.
(b) The Portfolio has no plan or intention to sell or otherwise dispose of
any of the assets of Baird Capital Development acquired in the Reorganization,
other than in the ordinary course of its business and to the extent necessary to
maintain its status as a "regulated investment company" under the Code.
(c) Following the Reorganization, the Portfolio will continue the "historic
business" of Baird Capital Development (within the meaning of Section 1.368-1(d)
of the Income Tax Regulations under the Code) or use a significant portion of
Baird Capital Development's historic assets in a business.
(d) Upon consummation of the Reorganization, the investment portfolios of
AIM Equity, in the aggregate, will not own ten percent or more of the voting
securities any issuer.
SECTION 4.12. PROSPECTUS. The prospectus and statement of additional
information for Baird Capital Development that will become effective on the
Closing Date will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided, however, that no representation or
warranty is made with respect to written information provided by Baird Capital
Development for inclusion in such prospectus or statement of additional
information, or any supplement thereto.
ARTICLE V
COVENANTS
SECTION 5.1. CONDUCT OF BUSINESS.
(a) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article VII), Baird Capital Development shall conduct its businesses only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct its businesses in the ordinary course in all
material respects. Without limiting the generality of the foregoing, Baird
Capital Development shall not do
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any of the following without the prior written consent of AIM Equity, which
consent shall not be unreasonably withheld:
(i) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock;
(ii) amend its articles of incorporation or by-laws;
(iii) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or any
assets that are material, individually or in the aggregate, to Baird
Capital Development taken as a whole, except purchases of assets in the
ordinary course of business consistent with past practice, and except as
permitted under Sections 5.9 and 5.10;
(iv) sell, lease or otherwise dispose of any of its material
properties or assets, or mortgage or otherwise encumber or subject to any
Lien any of its material properties or assets, other than in the ordinary
course of business;
(v) incur any indebtedness for borrowed money or guarantee any
indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Baird Capital
Development, guarantee any debt securities of another Person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another Person, or enter into any arrangement having the
economic effect of any of the foregoing;
(vi) settle or compromise any income tax liability or make any
material tax election;
(vii) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than in the ordinary course of business;
(viii) change its methods of accounting, except as required by changes
in generally accepted accounting principles as concurred in by its
independent auditors, or change its fiscal year;
(ix) make or agree to make any material severance, termination,
indemnification or similar payments except pursuant to existing agreements;
or
(x) adopt any Benefit Plan.
(b) From the date of this Agreement up to and including the Closing Date
(or, if earlier, the date upon which this Agreement is terminated pursuant to
Article VII), AIM Equity shall conduct the business of the Portfolio only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of the Portfolio in the
ordinary course in all material respects.
SECTION 5.2. CONFIDENTIALITY AND ANNOUNCEMENTS.
(a) As used herein, "Confidential Information" means all information,
whether oral, written or otherwise (including any information furnished prior to
the execution of this Agreement), furnished to AIM Equity, or its directors,
officers, partners, affiliates, employees, agents, advisors or representatives
(collectively "representatives") by Baird Capital Development or its
representatives relating to Baird Capital Development, and all reports,
analyses, compilations, studies and other materials prepared by AIM Equity or
its representatives (in whatever form maintained, whether documentary, computer
storage or otherwise) containing, reflecting or based upon, in whole or in part,
any such information or reflecting its review or view of, or interest in, Baird
Capital Development, a possible transaction with Baird Capital Development or
the Confidential Information. The term "Confidential Information" does not
include information which (i) is or becomes generally available to the public
other than as a result of disclosure by AIM Equity, its representatives or
anyone to whom AIM Equity or its representatives transmits any Confidential
Information, in breach of this Agreement or (ii) is or becomes known or
available to AIM Equity on a non-confidential
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basis from a source (other than Baird Capital Development, or its
representatives) who, insofar as is known to AIM Equity after due inquiry, is
not prohibited from transmitting the information to AIM Equity or its
representatives by a contractual, legal, fiduciary or other obligation.
(b) Subject to Section 5.2(c) below, AIM Equity and its representatives
shall keep the Confidential Information confidential and shall not, without
prior written consent of Baird Capital Development disclose, in whole or in
part, and will not use, Confidential Information, directly or indirectly, for
any purpose other than in connection with evaluating the transaction
contemplated by this Agreement. Moreover, AIM Equity shall transmit Confidential
Information to its representatives only if and to the extent that such
representatives need to know the Confidential Information for the purpose of
evaluating such transaction and, prior to being furnished any Confidential
Information, are informed by AIM Equity of the confidential nature of the
Confidential Information, are provided with a copy of the provisions of this
Section 5.2 and agree to be bound hereby. In any event, AIM Equity shall be
responsible for any actions by its representatives which are not in accordance
with the provisions hereof. AIM Equity agrees that neither AIM Equity nor its
representatives will make inquires of, or conduct any discussions with, any
representative of Baird Capital Development or regarding the Confidential
Information other than with the permission of Marcus C. Low, Jr., Ronald J.
Kruszewski or Glen F. Hackmann.
(c) In the event that AIM Equity, its representatives or anyone to whom AIM
Equity or its representatives supply the Confidential Information are requested
or required to disclose any Confidential Information, AIM Equity agrees (i) to
immediately notify Baird Capital Development of the existence, terms and
circumstances surrounding such a request, (ii) to consult with Baird Capital
Development on the advisability of taking legally available steps to resist or
narrow the Confidential Information which, in the opinion of its counsel, AIM
Equity is legally compelled to disclose and (iii) to cooperate with any action
by Baird Capital Development or to obtain an appropriate protective order or
other reliable assurance that confidential treatment will be accorded the
Confidential Information; provided, however, that this Section 5.2(c) shall not
prohibit AIM Equity or its representatives from disclosing Confidential
Information that consists of its or their own work product to persons that have
a need to know such information in the ordinary course of business.
(d) Upon termination of this Agreement pursuant to Article VII, and
promptly upon request from Baird Capital Development thereafter, AIM Equity
shall redeliver to Baird Capital Development or destroy all tangible
Confidential Information and any other tangible material containing, prepared on
the basis of, or reflecting any information in the Confidential Information
(whether prepared by Baird Capital Development, its advisors or otherwise), and
neither AIM Equity nor its representatives will retain any copies, extracts or
other reproductions in whole or in part of such tangible material. For purposes
of this Agreement, "tangible" Confidential Information shall include, without
limitation, information contained in printed, magnetic or other tangible media,
or in information storage and retrieval systems. At the request of Baird Capital
Development, compliance with the foregoing shall be certified in writing to
Baird Capital Development by an authorized officer supervising the same.
(e) Notwithstanding the other provisions of this Section 5.2, promptly
following execution and delivery of this Agreement, Baird Capital Development
and AIM Equity shall agree upon and release a mutually acceptable press release
and Baird Capital Development shall give any and all notices required to be
given by law. Except as described in the preceding sentence and as required by
law, prior to the Closing Date, none of Baird Capital Development, AIM Equity or
the parent or any affiliate of either will issue any press release or make any
other public statement with respect to this Agreement, without the prior written
consent of the other parties, which consent shall not be unreasonably withheld.
(f) The provisions of this Section 5.2 shall terminate on the closing of
the Reorganization.
SECTION 5.3. EXPENSES. Baird Capital Development and AIM Equity shall
each bear their respective direct and indirect expenses incurred in connection
with this Agreement, the Reorganization and the other transactions contemplated
hereby.
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SECTION 5.4. FURTHER ASSURANCES. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.5. NOTICE OF EVENTS. AIM Equity shall give prompt notice to
Baird Capital Development, and Baird Capital Development shall give prompt
notice to AIM Equity, of (i) the occurrence or nonoccurrence of any event of
which to the knowledge of AIM Equity or to the knowledge of Baird Capital
Development, the occurrence or non-occurrence of which would be likely to result
in any of the conditions specified in (x) in the case of AIM Equity, Sections
6.1 and 6.2 or (y) in the case of Baird Capital Development, Sections 6.2 and
6.3, not being satisfied so as to permit the consummation of the Reorganization
and (ii) any material failure on its part, or on the part of the other party
hereto of which it has knowledge, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.5
shall not limit or otherwise affect the remedies available hereunder to any
party.
SECTION 5.6. ACCESS TO INFORMATION.
(a) Baird Capital Development will, during regular business hours and on
reasonable prior notice, allow AIM Equity and its authorized representatives
reasonable access to employees, books and records of Baird Capital Development;
provided, however, that any such access shall not significantly interfere with
the business or operations of Baird Capital Development.
(b) Any information made available to or obtained by AIM Equity or its
authorized representatives pursuant to subsection (a) above, or otherwise in
connection with this Agreement, shall be subject to the confidentiality
provisions described in Section 5.2 above.
(c) AIM Equity will, during regular business hours and on reasonable prior
notice, allow Baird Capital Development and its authorized representatives
reasonable access to the books and records of AIM Equity pertaining to the
assets of the Portfolio and to employees of AIM Equity with knowledge thereof,
provided, however, that any such access shall not significantly interfere with
the business or operations of AIM Equity.
SECTION 5.7. CONSENTS, APPROVALS AND FILINGS. Each of Baird Capital
Development and AIM Equity shall make all necessary filings, as soon as
reasonably practicable, including, without limitation, those required under the
Securities Act, the Exchange Act, the Investment Company Act and the Advisers
Act, in order to facilitate prompt consummation of the Reorganization and the
other transactions contemplated by this Agreement. In addition, each of Baird
Capital Development and AIM Equity shall use its reasonable best efforts, and
shall cooperate fully with each other (i) to comply as promptly as reasonably
practicable with all requirements of Governmental Authorities applicable to the
Reorganization and the other transactions contemplated herein and (ii) to obtain
as promptly as reasonably practicable all necessary permits, orders or other
consents of Governmental Authorities and consents of all third parties necessary
for the consummation of the Reorganization and the other transactions
contemplated herein. Each of Baird Capital Development and AIM Equity shall use
reasonable efforts to provide such information and communications to
Governmental Authorities as such Governmental Authorities may request.
SECTION 5.8. SUBMISSION OF AGREEMENT TO SHAREHOLDERS. Baird Capital
Development shall take all action necessary in accordance with applicable law
and its articles of incorporation and by-laws to convene the BCD Shareholders
Meeting. Baird Capital Development shall, through its Board of Directors,
recommend to the BCD Shareholders approval of this Agreement and the other
transactions contemplated by this Agreement, except to the extent provided in
Section 5.10 hereof. Baird Capital Development shall use its reasonable best
efforts to hold the BCD Shareholders Meeting as soon as practicable after the
date hereof.
SECTION 5.9. ACQUISITION PROPOSALS. Baird Capital Development shall not,
nor shall it authorize any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of Baird Capital Development
to, directly or indirectly (i) solicit, initiate or encourage the submission of
any
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Acquisition Proposal or (ii) participate in any discussions or negotiations
regarding, or furnish to any Person any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal,
and Baird Capital Development shall promptly terminate any such discussions with
any Person that has expressed or expresses an interest in acquiring Baird
Capital Development or negotiations pending at the date of this Agreement
provided, however, Baird Capital Development or any officer, director or
employee of, or any investment banker, attorney or other adviser or
representative of Baird Capital Development may, following the receipt of an
Acquisition Proposal that the Board of Directors of Baird Capital Development
determines in good faith, after consultation with outside counsel, would permit
the Board of Directors to take any of the actions referred to in Section 5.10,
participate in negotiations regarding such Acquisition Proposal. Baird Capital
Development shall promptly notify AIM Equity, orally and in writing, of the
receipt by it after the date hereof of any Acquisition Proposal or any inquiry
from a potential acquiror of Baird Capital Development which could reasonably be
expected to lead to any Acquisition Proposal, the material terms and conditions
of such Acquisition Proposal or inquiry and the identity of the Person making
any such Acquisition Proposal or inquiry, except to the extent Baird Capital
Development's Board of Directors concludes, after consultation with outside
counsel, that the disclosure of any such information would be a breach of a duty
of confidentiality imposed on Baird Capital Development with respect to such
information. Subject to the foregoing, Baird Capital Development shall keep AIM
Equity informed of the status and details of any such Acquisition Proposal or
inquiry.
SECTION 5.10. FIDUCIARY DUTIES. The Board of Directors of Baird Capital
Development shall not (i) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to AIM Equity, its approval or recommendation of this
Agreement or the Reorganization, (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal or (iii) authorize Baird Capital
Development to enter into any agreement with respect to any Acquisition
Proposal, unless Baird Capital Development receives an Acquisition Proposal and
the Board of Directors of Baird Capital Development determines in good faith,
after consultation with outside counsel, that in order to comply with its
fiduciary duties to the shareholders of Baird Capital Development under
applicable law, the Board of Directors of Baird Capital Development should
withdraw or modify its approval or recommendation of this Agreement or the
Reorganization, approve, recommend or enter into negotiations concerning such
Acquisition Proposal, or authorize Baird Capital Development to enter into an
agreement with respect to such Acquisition Proposal or terminate this Agreement.
Nothing contained in this Section 5.10 shall prohibit Baird Capital Development
from making any disclosure to the BCD Shareholders which, in the good faith and
reasonable judgment of the Board of Directors of Baird Capital Development based
on the advice of outside counsel, is required under applicable law.
Notwithstanding any provision of this Agreement to the contrary, any action by
the Board of Directors of Baird Capital Development permitted by this Section
5.10 shall not constitute a breach of this Agreement by Baird Capital
Development.
SECTION 5.11. SECTION 15(F) OF THE 1940 ACT.
(a) Each of AIM Equity and Baird Capital Development shall use its
reasonable best efforts to assure compliance with the conditions of Section
15(f) of the Investment Company Act as it applies to the transactions
contemplated by this Agreement.
(b) AIM Equity shall for a period of not less than three years after the
Closing Date, use its reasonable best efforts to assure that no more than 25% of
the members of the board of directors AIM Equity shall be "interested persons"
(as defined in the Investment Company Act) of the investment adviser of Baird
Capital Development or any entity that served as investment advisor to Baird
Capital Development or any Person that before or after the Closing Date was or
is an Affiliated Person of any of the foregoing. Without limiting the generality
of the foregoing, AIM Equity will not take, recommend or endorse any action that
would cause more than 25% of the number of members of its board of directors to
be such "interested persons."
(c) AIM Equity represents and warrants that there is no express or implied
understanding, arrangement or intention on its part to impose an "unfair burden"
within the meaning of Section 15(f) of the Investment Company Act on the
Portfolio as a result of the transactions contemplated hereby, and that for a
period of not
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less than two years after the Closing Date, it shall not take or recommend any
act that would constitute an "unfair burden" on the Portfolio.
SECTION 5.12. SALES CHARGES. Baird Capital Development shall deliver to
AIM Equity on the Closing Date a certificate showing (a) the Remaining Amount
and Balance for Interest relating to Asset Based Sales Charges, as such terms
are used in NASD Notice to Members 93-12 at page 56, and (b) the total sales
charges, and the components thereof, paid by Baird Capital Development
shareholders, collected by Baird Capital Development or paid by Baird Capital
Development in connection with sales of its shares since July 1, 1993.
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. CONDITIONS PRECEDENT OF AIM EQUITY. The obligation of AIM
Equity to consummate the Reorganization is subject to the satisfaction, at or
prior to the Closing Date, of all of the following conditions, any one or more
of which may be waived in writing by AIM Equity.
(a) The representations and warranties of Baird Capital Development set
forth in this Agreement shall be true and correct in all material respects as of
the date of this Agreement and as of the Closing Date with the same effect as
though all such representations and warranties had been made as of the Closing
Date.
(b) Baird Capital Development shall have complied with and satisfied in all
material respects all agreements and all conditions set forth herein on its part
to be performed or satisfied at or prior to the Closing Date.
(c) AIM Equity shall have received at the Closing Date (i) a certificate,
dated as of the Closing Date, from an officer of Baird Capital Development on
behalf of Baird Capital Development, in such individual's capacity as an officer
of Baird Capital Development and not as an individual, to the effect that the
conditions specified in Section 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary of Baird Capital Development certifying as to the accuracy and
completeness of the attached articles of incorporation and by-laws, and
resolutions, consents and authorizations with respect to the execution and
delivery of this Agreement and the transactions contemplated hereby.
(d) AIM Equity shall have received the signed opinion of Quarles & Brady,
counsel to Baird Capital Development, or other counsel reasonably acceptable to
AIM Equity, in form and substance reasonably acceptable to counsel for AIM
Equity, as to the matters set forth in Schedule 6.1(d).
SECTION 6.2. MUTUAL CONDITIONS. The obligation of Baird Capital
Development and AIM Equity to consummate the Reorganization is subject to the
satisfaction, at or prior to the Closing Date, of all of the following further
conditions, any one or more may be waived in writing by Fund and AIM Equity, but
only if and to the extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with, and all
consents, approvals, permits and authorizations required to be obtained on or
prior to the Closing Date from Governmental Authorities, in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Baird Capital Development and AIM Equity
shall have been made or obtained, as the case may be; provided, however, that
such consents, approvals, permits and authorizations may be subject to
conditions that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(b) This Agreement, the Reorganization and related corporate matters shall
have been approved and adopted at the BCD Shareholders Meeting by the
shareholders of Baird Capital Development on the record date by the Required BCD
Shareholder Vote.
(c) The assets of Baird Capital Development to be acquired by the Portfolio
shall constitute at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets of Baird Capital
Development immediately prior to the Reorganization. For these purposes, assets
used by Baird
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Capital Development to pay the expenses it incurs in connection with this
Agreement and the Reorganization and to effect all shareholder redemptions and
distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course Baird
Capital Development's business as an open-end diversified management investment
company) after the date of this Agreement shall be included as assets of Baird
Capital Development immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority preventing the consummation of
the Reorganization on the Closing Date shall be in effect; provided, however,
that the party or parties invoking this condition shall use reasonable efforts
to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by AIM Equity with
respect to the Portfolio Shares to be issued to BCD Shareholders in connection
with the Reorganization shall have become effective under the Securities Act and
no stop orders suspending the effectiveness thereof shall have been issued and,
to the best knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the Securities Act.
(f) A post-effective amendment to the AEF Registration Statement filed by
AIM Equity to register Portfolio Shares to be offered to the public shall have
become effective under the Securities Act and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the Securities Act.
(g) Baird Capital Development and AIM Equity shall have received on or
before the Closing Date an opinion of Ballard Spahr Andrews and Ingersoll in
form, scope and substance satisfactory to Baird Capital Development and AIM
Equity, set forth on Schedule 6.2(g).
(h) The transactions contemplated by that certain Agreement and Plan of
Reorganization dated December 20, 1995, between Baird Blue Chip Fund, Inc. and
AIM Equity acting on behalf of AIM Blue Chip Fund, and that certain Agreement
and Plan of Reorganization dated December 20, 1995 between The Baird Funds,
Inc., acting on behalf of Baird Quality Bond Fund, and AIM Funds Group, acting
on behalf of AIM Income Fund, shall be consummated on the Closing Date.
(i) The dividend or dividends described in the last sentence of Section
3.16(b) shall have been declared.
(j) A I M Advisors, Inc. ("AIM") shall have executed and delivered to Baird
Capital Development a certificate to the effect that:
(i) its balance sheet as of December 31, 1994 has been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis and fairly reflects the financial condition of AIM as of
the date indicated; since December 31, 1994 there has not been any change
in AIM's financial condition, assets, liabilities or business that would
have a material adverse effect upon its ability to provide investment
advisory services to the Portfolio and the other funds advised by AIM (the
"AIM Funds").
(ii) AIM is, and on the Closing Date shall be, registered as an
investment adviser under the Investment Advisers Act and, registered as an
investment adviser in all states where it is required to be so registered.
(iii) AIM is in compliance in all material respects with all laws,
rules and regulations applicable to its business of providing investment
advisory services to the Portfolio and the AIM Funds, including, without
limitation, federal and state securities laws.
(iv) Neither AIM nor any affiliated person of AIM is ineligible to
serve as an employee, officer, director, member of an advisory board,
investment adviser, depositor or principal underwriter of any investment
company registered under the Investment Company Act by reason of any
conviction of a felony or misdemeanor, described in Section 9(a)(1) of the
Investment Company Act, and is not subject
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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 AIM
Advisors, Inc. shall be consummated on the Closing Date.
SECTION 6.3. CONDITIONS PRECEDENT OF BAIRD CAPITAL DEVELOPMENT. The
obligation of Baird Capital Development to consummate the Reorganization is
subject to the satisfaction, at or prior to the Closing Date, of all of the
following conditions, any one or more of which may be waived in writing by Baird
Capital Development.
(a) The representations and warranties of AIM Equity on behalf of the
Portfolio set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date with the
same effect as though all such representations and warranties had been made as
of the Closing Date.
(b) AIM Equity shall have complied with and satisfied in all material
respects all agreements and all conditions set forth herein on its part to be
performed or satisfied at or prior to the Closing Date.
(c) Baird Capital Development shall have received on the Closing Date (i) a
certificate, dated as of the Closing Date, from an officer of AIM Equity, in
such individual's capacity as an officer of AIM Equity and not as an individual,
to the effect that the conditions specified in Section 6.3(a) and (b) have been
satisfied and (ii) a certificate, dated as of the Closing Date, of AIM Equity,
certifying as to the accuracy and completeness of the attached articles of
incorporation and by-laws, and resolutions, consents and authorizations with
respect to the execution and delivery of this Agreement and the transactions
contemplated hereby.
(d) Baird Capital Development shall have received the signed opinion of
Ballard Spahr Andrews & Ingersoll, counsel to AIM Equity, or other counsel
reasonably acceptable to Baird Capital Development, in form and substance
reasonably acceptable to special counsel for Baird Capital Development, as to
the matters set forth on Schedule 6.3(d).
ARTICLE VII
TERMINATION OF AGREEMENT
SECTION 7.1. TERMINATION.
(a) This Agreement may be terminated on or prior to the Closing Date as
follows:
(i) by mutual written consent of Baird Capital Development and AIM
Equity; and
(ii) at the election of Baird Capital Development or AIM Equity:
(A) if the Closing Date shall not be on or before June 30, 1996, or
such later date as the parties hereto may agree upon, unless the failure
to consummate the Reorganization is the result of a willful and material
breach of this Agreement by the party seeking to terminate this
Agreement;
(B) if, upon a vote at BCD Shareholders Meeting or any adjournment
thereof, the Required BCD Shareholder Vote shall not have been obtained
as contemplated by Section 5.8; or
(C) if any Governmental Authority shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Reorganization and such order,
decree, ruling or other action shall have become final and
nonappealable; or
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(iii) by Baird Capital Development in the event Baird Capital
Development receives an Acquisition Proposal and the Board of Directors of
Baird Capital Development determines in good faith, after consultation with
outside counsel, that, in order to comply with its fiduciary duties to the
stockholders of Baird Capital Development under applicable law, the Board
of Directors of Baird Capital Development should authorize Baird Capital
Development to terminate this Agreement; or
(iv) by AIM Equity 45 days following the date on which Baird Capital
Development first actively participates in any discussions on negotiations
regarding, or furnishes to any Person any confidential information with
respect to, any Acquisition Proposal, unless prior to the expiration of
such 45 day period Baird Capital Development notifies AIM Equity that such
Acquisition Proposal has been rejected and any such negotiations have been
terminated.
(b) The termination of this Agreement shall be effectuated by the delivery
by the terminating party to the other party of a written notice of such
termination. If this Agreement so terminates, it shall become null and void and
have no further force or effect, except as provided in Section 7.2.
SECTION 7.2. SURVIVAL AFTER TERMINATION. If this Agreement is terminated
in accordance with Section 7.1 hereof and the transactions contemplated hereby
are not consummated, this Agreement shall become void and of no further force
and effect, except for the provisions of Section 5.2 and Section 5.3.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as set
forth below, none of the representations, warranties or covenants in this
Agreement or in any certificate or instrument delivered pursuant to this
Agreement shall survive the Closing Date and no party shall, therefore, have any
recourse therefor against any other party in connection therewith. This Section
8.1 shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Closing Date.
SECTION 8.2. LAW GOVERNING. This Agreement shall be construed and
interpreted according to the laws of the State of Maryland applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. BINDING EFFECT, PERSONS BENEFITING, NO ASSIGNMENT. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. OBLIGATION OF AIM EQUITY PORTFOLIO. Baird Capital
Development and AIM Equity hereby acknowledge and agree that the Portfolio is a
separate investment portfolio of AIM Equity, that AIM Equity is executing this
Agreement on behalf of the Portfolio, and that any amounts payable by AIM Equity
under or in connection with this Agreement shall be payable solely from the
revenues and assets of the Portfolio.
SECTION 8.5. AMENDMENTS. This Agreement may not be amended, altered or
modified except by a written instrument executed by Baird Capital Development
and AIM Equity.
SECTION 8.6. ENFORCEMENT. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any 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
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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 Capital Development:
Baird Capital Development Fund, Inc.
777 Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Glen F. Hackmann, Esq.
Fax: (414) 765-3662
with a copy to:
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attn: Conrad G. Goodkind, Esq.
Fax: (414) 271-3552
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
BAIRD CAPITAL DEVELOPMENT FUND, INC.
By: /s/ M. C. LOW, JR.
---------------------------------
AIM EQUITY FUNDS, INC., acting on
behalf of AIM Capital Development Fund
By: /s/ ROBERT H. GRAHAM
---------------------------------
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SCHEDULE 3.12(a)
LIST OF CONTRACTS AND AGREEMENTS
1. Investment Advisory Agreement dated June 25, 1984 between Baird Growth
Settlement Fund, Inc. (now named Baird Capital Development Fund, Inc.) ("BCD
Fund") and Fiduciary Management, Inc. ("FMI").
2. Amendment to Investment Advisory Agreement Dated June 21, 1986 between
BCD Fund and FMI.
3. Sub-Advisory Agreement dated December 12, 1986 between BCD Fund and
Robert W. Baird & Co. Incorporated ("Baird").
4. Administration Agreement dated December 19, 1988 between BCD Fund and
Baird.
5. Amended and Restated Distribution Plan of BCD Fund.
6. Distribution Agreement dated June 21, 1986 between BCD Fund and Baird.
7. Distribution Assistance Agreement dated June 21, 1986 between BCD Fund
and Baird.
8. Custodian Agreement dated June 25, 1984 between BCD Fund and First
Wisconsin Trust Company (now named Firstar Trust Company) ("Firstar").
9. Amendment to Custodian Agreement dated June 21, 1986 between BCD Fund
and Firstar.
10. Transfer Agent Agreement dated July 20, 1990 between BCD Fund and
Firstar.
11. License Agreement dated March 31, 1987 between BCD Fund and Baird.
12. Agreement dated September 14, 1994, as amended, among the BCD Fund, The
Baird Funds, Inc. and Baird Blue Chip Fund, Inc. regarding allocation of
fidelity bond coverage, pursuant to Rule 17g-1(f) under the Investment Company
Act of 1940.
13. $1,600,000 Fidelity Bond issued by Reliance Insurance Company.
14. Articles of Incorporation of BCD Fund.
15. Bylaws of BCD Fund.
16. Order under Section 6(c) of the Investment Company Act of 1940, dated
February 27, 1991, granting an exemption from Sections 2(a)(32), 2(a)(35), 22(c)
and 22(d) of the Act and Rule 22c-1 thereunder.
<PAGE> 80
SCHEDULE 6.1(d)
OPINION OF COUNSEL TO BAIRD CAPITAL DEVELOPMENT
1. Baird Capital Development is a corporation duly incorporated and validly
existing under the laws of the State of Wisconsin.
2. Baird Capital Development is an open-end management investment company
registered under the Investment Company Act of 1940.
3. The execution, delivery and performance of the Agreement by Baird
Capital Development have been duly authorized and approved by all requisite
corporate action on the part of Baird Capital Development. The Agreement has
been duly executed and delivered by Baird Capital Development and constitutes
the valid and binding obligation of Baird Capital Development.
4. The BCD Shares outstanding on the date hereof have been duly authorized
and validly issued, are fully paid and are non-assessable (subject to Wisconsin
Business Corporation Law Section 180.0622(2)(b)).
5. Baird Capital Development is not required to submit any notice, report
or other filing with or obtain any authorization consent or approval from any
governmental authority or self regulatory organization prior to the consummation
of the transactions contemplated by the Agreement.
We confirm to you that to our knowledge after inquiry of each lawyer who is
the current primary contact for Baird Capital Development or who has devoted
substantive attention on behalf of Baird Capital Development during the
preceding twelve months and who is still currently employed by or is currently a
member of this firm, no litigation or governmental proceeding is pending or
threatened in writing against Baird Capital Development (i) with respect to the
Agreement or (ii) which involves in excess of $500,000 in damages.
<PAGE> 81
SCHEDULE 6.2(g)
TAX OPINIONS
(i) The transfer of the assets of Baird Capital Development to the
Portfolio in exchange for the Portfolio Shares distributed directly to the BCD
Shareholders, as provided in the Agreement, will constitute a "reorganization"
within the meaning of Section 368(a) of the Code and that Baird Capital
Development and AIM Equity will each be a "party to a reorganization" within the
meaning of 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Baird Capital Development as a result of
such transaction.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by the Portfolio upon the receipt of assets of Baird Capital
Development in exchange for Portfolio Shares issued directly to the BCD
Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by BCD Shareholders on issuance by AIM Equity of Portfolio Shares
in exchange for their BCD Shares.
(v) In accordance with Section 362(b) of the Code, the basis to the
Portfolio of the assets of Baird Capital Development transferred to it will be
the same as the basis of such assets in the hands of Baird Capital Development
immediately prior to the exchange.
(vi) In accordance with Section 358(a) of the Code, a BCD Shareholder's
basis for Portfolio Shares issued to such BCD Shareholder pursuant to Section
2.7 of the Agreement ("Issued Shares") will be the same as his basis for BCD
Shares.
(vii) In accordance with Section 1223(1) of the Code, a BCD Shareholder's
holding period for Portfolio Shares will be determined by including said BCD
Shareholder's holding period for BCD Shares exchanged therefor, provided that
BCD Shareholder held such BCD Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Baird Capital Development transferred to the
Portfolio will include the holding period for such assets in the hands of Baird
Capital Development.
(ix) In accordance with Section 381(a)(2) of the Code, the Portfolio will
succeed to and take into account the items of Baird Capital Development
described in Section 381(c) of the Code, subject to the conditions and
limitations specified in Sections 381 through 384 of the Code and the Internal
Revenue Service regulations thereunder.
<PAGE> 82
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> 83
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY!
Please detach at perforation before mailing.
_______________________________________________________________________________
BAIRD CAPITAL DEVELOPMENT 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 Capital Development Fund, Inc. ("BCF Fund") that the undersigned is
entitled to vote at the Special Meeting of Shareholders of BCD Fund, 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> 84
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
BCD Fund 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 BCD Fund will be transferred
to AIM Capital Development Fund ("Capital
Development"), a newly-created portfolio of
AEF. Upon such transfer, AEF will issue
shares of Capital Development directly to the
shareholders of the BCD Fund. Shareholders of
the BCD Fund will receive shares of Capital
Development with an aggregate net asset value
equal to the aggregate net value of the BCD
Fund assets transferred in connection with the
Transaction. It is expected that the value of
each shareholder's account with Capital
Development immediately after the Transaction
will be the same as the value of such
shareholder's account with the BCD Fund
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> 85
STATEMENT OF
ADDITIONAL INFORMATION
RETAIL CLASS OF
AIM CAPITAL DEVELOPMENT 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 CAPITAL DEVELOPMENT FUND PROXY STATEMENT/PROSPECTUS
DATED FEBRUARY 2, 1996
<PAGE> 86
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GENERAL INFORMATION ABOUT THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company and its Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Total Return Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Yield Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Historical Portfolio Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
General Brokerage Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 28(e) Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Foreign Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Rule 144A Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Lending of Portfolio Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Repurchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Risks as to Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Additional Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Investment Advisory, and Administrative Services Agreements . . . . . . . . . . . . . . . . . . . . . . . . 19
THE DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
HOW TO PURCHASE AND REDEEM SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
NET ASSET VALUE DETERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Reinvestment of Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Qualification as a Regulated Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Excise Tax on Regulated Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Fund Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Sale or Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Foreign Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Effect of Future Legislation; Local Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
MISCELLANEOUS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Shareholder Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
i
<PAGE> 87
<TABLE>
<S> <C>
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Principal Holders of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Description of Commercial Paper Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Description of Corporate Bond Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-1
</TABLE>
ii
<PAGE> 88
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 Capital Development
Fund ("Capital Development" 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 Capital Development Fund, Inc.
(the "BCD Fund"), is set forth below. Capitalized terms not otherwise
defined in this Statement of Information 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 Charter Fund ("Charter"), AIM Constellation Fund ("Constellation"), AIM
Weingarten Fund ("Weingarten") and the Fund (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. Capital
Development intends to commence operations upon consummation of the
Transaction. Blue Chip also intends to commence operations upon consummation
of a reorganization with Baird Blue Chip Fund, Inc. in a transaction similar to
the Transaction.
This Statement of Additional Information relates solely to the Class A
shares of Capital Development.
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> 89
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.
2
<PAGE> 90
d = the maximum offering price per share on the last day of the period.
HISTORICAL PORTFOLIO RESULTS
The Fund's performance may be compared in advertising to the
performance of other mutual funds in general, or of particular types of mutual
funds, especially those with similar objectives. Such performance data may be
prepared by Lipper Analytical Services, Inc. and other independent services
which monitor the performance of mutual funds. The Fund may also advertise
mutual fund performance rankings which have been assigned to the Fund by such
monitoring services.
The Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the Consumer Price Index ("CPI"),
the Standard & Poor's ("S&P") 500 Stock Index, and fixed-price investments such
as bank certificates of deposit and/or savings accounts.
In addition, the Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events.
The Fund's advertising may from time to time include discussions of
general economic conditions and interest rates. The Fund's advertising may
also include references to the use of the Fund as part of an individual's
overall retirement investment program.
From time to time, Fund's sales literature and/or advertisements may
disclose (i) top holdings included in the Fund's portfolio, (ii) certain
selling group members and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. These
topics include, but are not limited to, literature addressing general
information about mutual funds, variable annuities, dollar-cost averaging,
stocks, bonds, money markets, certificates of deposit, retirement, retirement
plans, asset allocation, tax-free investing, college planning and inflation.
3
<PAGE> 91
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 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.
4
<PAGE> 92
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 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, the Fund may sell a security to, or purchase a
security from, a registered investment company or portfolio thereof managed,
administered or distributed advised or subadvised by AIM or its affiliates (an
"AIM Funds") or another investment account advised by AIM or AIM Capital when
such transactions comply with applicable rules and regulations and are deemed
consistent with the investment objective(s) and policies of the investment
accounts involved. Procedures pursuant to Rule 17a-7 under the 1940 Act
regarding transactions between investment accounts advised by AIM or AIM
Capital have been adopted by the Board of Directors/Trustees of the various AIM
Funds including the Company. Although such transactions may result in
custodian, tax or other related expenses, no brokerage commissions or other
direct transaction costs are generated by transactions among the investment
accounts advised by AIM or AIM Capital.
In some cases the procedure for allocating portfolio transactions among
the various investment accounts advised by AIM and AIM Capital could have an
adverse effect on the price or amount of securities available to the Fund. In
making such allocations, the main factors considered by AIM are the respective
investment objectives and policies of its advisory clients, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
judgments of the persons responsible for recommending the investment.
SECTION 28(e) STANDARDS
Under Section 28(e) of the Securities Exchange Act of 1934, AIM shall
not be "deemed to have acted unlawfully or to have breached its fiduciary duty"
solely because under certain circumstances it has caused the account to pay a
higher commission than the lowest available. To obtain the benefit of Section
28(e), AIM must make a good faith determination that the commissions paid are
"reasonable in relation to the value of the brokerage and research services
provided . . . viewed in terms of either that particular transaction or [its]
overall responsibilities with respect to the accounts as to which [it]
exercises investment discretion," and that the services provided by a broker
provide AIM with lawful and appropriate assistance in the performance of their
investment decision-making responsibilities. Accordingly, the price to the
Fund in any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered.
Broker-dealers utilized by AIM may furnish statistical, research and
other information or services which are deemed by AIM to be beneficial to the
Fund's investment program. Research services received
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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 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 Capital
Development." 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 when to the extent permitted by the Fund's
fundamental and non-fundamental investment policies such positions are deemed
advisable in light of economic or market conditions. For a description of the
various rating categories of corporate bonds and commercial paper in which the
Fund may invest, see the Appendix to this Statement of Additional Information.
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COMMON STOCKS - The Fund will invest in common stocks. Common stocks
represent the residual ownership interest in the issuer and are entitled to the
income and increase in the value of the assets and business of the entity after
all of its obligations and preferred stocks are satisfied. Common stocks
generally have voting rights. Common stocks fluctuate in price in response to
many factors including historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
PREFERRED STOCKS - The Fund may invest in preferred stocks. Preferred
stock has a preference over common stock in liquidation (and generally
dividends as well) but is subordinated to the liabilities of the issuer in all
respects. As a general rule the market value of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates
and perceived credit risk, while the market price of convertible preferred
stock generally also reflects some element of conversion value. Because
preferred stock is junior to debt securities and other obligations of the
issuer, deterioration in the credit quality of the issuer will cause greater
changes in the value of a preferred stock than in a more senior debt security
with similar stated yield characteristics. Unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Preferred stock also may be subject to optional
or mandatory redemption provisions.
CONVERTIBLE SECURITIES - The Fund may invest in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible income securities in
that they ordinarily provide a stable stream of income with generally higher
yields than those of common stocks of the same or similar issuers. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Convertible
securities may be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument.
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 Baa 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
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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.
SHORT SALES - Although it does not intend to do so, the Fund may
engage in short sales transactions. The Fund will not make short sales of
securities or maintain a short position unless at all times when a short
position is open, the Fund owns an equal amount of such securities or
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short. This is a technique known as selling short "against the
box." In no event may more than 10% of the value of the Fund's net assets be
deposited or pledged as collateral for such sales at any time.
FOREIGN SECURITIES
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
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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.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, the Fund may make
secured loans of portfolio securities amounting to not more than 33 1/3% of its
total assets. Securities loans are made to banks, brokers and other financial
institutions pursuant to agreements requiring that the loans be continuously
secured by collateral at least equal at all times to the value of the securities
lent marked to market on a daily basis. The collateral received will consist of
cash, U.S. Government securities, letters of credit or such other collateral as
may be permitted under the Fund's investment program. While the securities are
being lent, the Fund will continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. The Fund has a right to
call each loan and obtain the securities on five business days' notice or, in
connection with securities trading on foreign markets, within such longer period
of time which coincides with the normal settlement period for purchases and
sales of such securities in such foreign markets. The Fund 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,
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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 covered put options, and may engage in
strategies employing combinations of covered 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 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.
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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 Fund will only enter into stock
index futures contracts as a hedge against changes resulting from market
conditions in the values of the securities held or which it intends to purchase.
When the Fund anticipates a significant market or market sector advance, the
purchase of a stock index futures contract affords a hedge against not
participating in such advance. Conversely, in anticipation of or in a general
market or market sector decline that adversely affects the market values of the
Fund's portfolio of securities, the Fund may sell stock index futures contracts.
FOREIGN CURRENCY FUTURES CONTRACTS
Futures contracts may also be used to hedge the risk of changes in the
exchange rate of foreign currencies.
RISKS AS TO FUTURES CONTRACTS
There are several risks in connection with the use of futures contracts
as hedging devices. One risk arises because of the imperfect correlation
between movements in the price of hedging instruments and movements in the price
of the stock, debt security or foreign currency which are the subject of the
hedge. If the price of a hedging instrument moves less than the price of the
stock, debt security or foreign currency which is the subject of the hedge, the
hedge will not be fully effective. If the price of a hedging instrument moves
more than the price of the stock, debt security or foreign currency, the Fund
will experience either a loss or gain on the hedging instrument which will not
be completely offset by movements in the price of the stock, debt security or
foreign currency which is the subject of the hedge.
Successful use of hedging instruments by the Fund is also subject to
AIM's ability to predict correctly movements in the direction of the stock
market, of interest rates or of foreign exchange rates. Because of possible
price distortions in the futures markets and because of the imperfect
correlation between movements in the prices of hedging instruments and the
investments being hedged, even a correct forecast by AIM of general market
trends may not result in a completely successful hedging transaction.
It is also possible that where the Fund has sold futures contracts to
hedge its portfolio against a decline in the market, the market may advance and
the value of stocks or debt securities held in its portfolio may decline. If
this occurred, the Fund would lose money on the futures contracts and also
experience a decline in the value of its portfolio securities. Similar risks
exist with respect to foreign currency hedges.
Positions in futures contracts may be closed out only on an exchange
on which such contracts are traded. Although the Fund intends to purchase or
sell futures contracts only on exchanges or boards of trade where there appears
to be an active market, there is no assurance that a liquid market on an
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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.
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) with respect to 75% of the total assets of the Fund, purchase
the securities of any one issuer (except securities issued or guaranteed by the
U.S. Government) if, immediately after and as a result of such purchase, (i)
the value of the holdings of the Fund in the securities of such issuer exceeds
5% of the value of the Fund's total assets, or (ii) the Fund owns more than 10%
of the outstanding voting securities of any one class of securities of such
issuer;
(b) concentrate its investments; that is, invest 25% or more of
the value of its total assets in issuers who conduct their business operations
in the same industry;
(c) by or sell commodities or commodity contracts (the Fund does
not consider financial futures to be commodities or commodity contracts for
purposes of this limitation) or purchase or sell real estate or other interests
in real estate including real estate limited partnership interests, except that
this restriction does not preclude investments in marketable securities of
companies engaged in real estate activities or in master limited partnership
interests that are traded on a national securities exchange;
(d) 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;
(e) 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 securities short (except against the box and
collateralized by not more than 10% of its net assets);
(f) 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)
provided that no borrowing may exceed one-third of the value of its total
assets, including the proceeds of such borrowings, and may secure such
borrowings by pledging up to one-third of the value of its total assets;
(g) act as an underwriter of securities of other issuers; or
(h) issue senior securities except to the extent permitted by the
1940 Act, including permitted borrowing.
12
<PAGE> 100
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) deal in
forward contracts; (d) invest in interests in oil, gas or other mineral
exploration or development programs; or (e) 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.
To permit the sale of shares of the Fund in Texas, investments by the
Fund 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.
13
<PAGE> 101
**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).
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.
________________________
* 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.
14
<PAGE> 102
JOHN F. KROEGER, Director (71)
24875 Swan Road - Martingham
Box 464
St. Michaels, MD 21663
Director, Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag Investors
Equity Partners Fund, Inc., Total Return U.S. Treasury Fund, Inc., Flag
Investors Intermediate Term Income Fund, Inc., Managed Municipal Fund, Inc.,
Flag Investors Value Builder Fund, Inc., Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities Fund, Inc.,
Alex. Brown Cash Reserve Fund, Inc. and North American Government Bond Fund,
Inc. (investment companies). Formerly, Consultant, Wendell & Stockel
Associates, Inc. (consulting firm).
LEWIS F. PENNOCK, Director (53)
8955 Katy Freeway, Suite 204
Houston, TX 77024
Attorney in private practice in Houston, Texas.
IAN W. ROBINSON, Director (72)
183 River Drive
Tequesta, FL 33469
Formerly, Executive Vice President and Chief Financial Officer, Bell
Atlantic Management Services, Inc. (provider of centralized management services
to telephone companies); Executive Vice President, Bell Atlantic 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.,
________________________
*** Mr. Arthur and Ms. Relihan are married to each other.
15
<PAGE> 103
and AIM Global Ventures Co.; Director, A I M Distributors, Inc.; and Senior
Vice President, AIM Global Advisors Limited.
JONATHAN C. SCHOOLAR, Senior Vice President (33)
Director and Senior Vice President, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
***CAROL F. RELIHAN, Vice President and Secretary (41)
Senior Vice President, General Counsel and Secretary, A I M Advisors, Inc.;
Vice President, General Counsel and Secretary, A I M Management Group Inc.;
Vice President and General Counsel, Fund Management Company; Vice President
and Secretary, A I M Global Associates, Inc. and A I M Global Holdings, Inc.;
Vice President and Assistant Secretary, AIM Global Advisors Limited and AIM
Global Ventures Co.; Vice President, A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc. and A I M Institutional Fund
Services, Inc.
DANA R. SUTTON, Vice President and Assistant Treasurer (36)
Vice President and Fund Controller, A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund Management Company.
MELVILLE B. COX, Vice President (52)
Vice President, A I M Advisors, Inc., A I M Capital Management, Inc., A I M
Fund Services, Inc. and A I M Institutional Fund Services, Inc.; and Assistant
Vice President, A I M Distributors, Inc. and Fund Management Company.
Formerly, Vice President, Charles Schwab & Co., Inc.; Assistant Secretary,
Charles Schwab Family of Funds and Schwab Investments; Chief Compliance
Officer, Charles Schwab Investment Management, Inc.; and Vice President,
Integrated Resources Life Insurance Co. and Capitol Life Insurance Co.
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
________________________
*** Mr. Arthur and Ms. Relihan are married to each other.
16
<PAGE> 104
long as the Company maintains a distribution plan pursuant to Rule 12b-1
under the 1940 Act, reviewing from time to time the compensation payable to the
disinterested directors, and considering such matters as may from time to time
be set forth in a charter adopted by the Board of Directors and such committee.
Remuneration of Directors
Each director is reimbursed for expenses incurred in connection with each
meeting of the Board of Directors or any Committee attended. The Directors of
the Company who do not serve as officers of the Company are compensated for
their services according to a fee schedule which recognizes the fact that they
also serve as directors or trustees of certain other investment companies
advised or managed by AIM. Each such director receives a fee, allocated among
the AIM Funds for which he serves as a director or trustee, which consists of
an annual retainer component and a meeting fee component.
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.
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
17
<PAGE> 105
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 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
18
<PAGE> 106
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 Fund has 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 will become effective with respect to the Fund upon
consummation of the Transaction.
The Master Advisory Agreement provides that the Fund will pay or cause
to be paid all expenses of the Fund not assumed by AIM Capital, including,
without limitation: brokerage commissions, taxes, legal, auditing or
governmental fees, the cost of preparing share certificates, custodian,
transfer and shareholder service agent costs, expenses of issue, sale,
redemption, and repurchase of shares, expenses of registering and qualifying
shares for sale, expenses relating to directors and shareholder meetings, the
cost of preparing and distributing reports and notices to shareholders, the
fees and other expenses incurred by the Company on behalf of the Fund in
connection with membership in investment company organizations, the cost of
printing copies of prospectuses and statements of additional information
distributed to the Fund's shareholders and all other charges and costs of the
Fund's operations unless otherwise explicitly provided.
The Master Advisory Agreement provides that if, for any fiscal year,
the total of all ordinary business expenses of the Fund, including all
investment advisory fees, but excluding brokerage commissions and fees, taxes,
interest and extraordinary expenses, such as litigation, exceed the applicable
expense limitations imposed by state securities regulations in any state in
which such Fund's shares are qualified for sale, as such limitations may be
raised or lowered from time to time, the aggregate of all such investment
advisory fees with respect to such Fund shall be reduced by the amount of such
excess. The amount of any such reduction to be borne by AIM shall be deducted
from the monthly investment advisory fees otherwise payable to AIM with respect
to such Fund during such fiscal year. If required pursuant to such state
securities regulations, AIM will reimburse each Fund, no later than the last
day of the first month of the next succeeding fiscal year, for any such
annual operating expenses (after reduction of all investment advisory fees in
excess of such limitation).
19
<PAGE> 107
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 on 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
the Fund of pay 0.35% per annum of its daily average net assets as compensation
to AIM Distributors for the purpose of financing any activity which is
primarily intended to result in the sale of Class A shares. Activities
appropriate for financing under the Class A Plan include, but are not limited
to, the following: printing of prospectuses and statements of additional
information and reports for other than existing shareholders; overhead;
preparation and distribution of advertising material and sales literature;
expenses of organizing and conducting sales seminars; supplemental payments to
dealers and other institutions such as asset-based sales charges or as payments
of service fees under shareholder service arrangements; and costs of
administering the Class A Plan.
Pursuant to an incentive program, AIM Distributors may enter into
agreements ("Shareholder Service Agreements") with investment dealers selected
from time to time by AIM Distributors for the provision of distribution
assistance in connection with the sale of the Fund's shares to such dealers'
customers, and for the provision of continuing personal shareholder services to
customers who may from time to time directly or beneficially own shares of the
Fund. The distribution assistance and continuing personal shareholder services
to be rendered by dealers under the Shareholder Service Agreements may include,
but shall not be limited to, the following: distributing sales literature;
answering routine customer inquiries concerning the Fund; assisting customers
in changing dividend options, account designations and addresses, and in
enrolling in any of several special investment plans offered in connection with
the purchase of the Fund's shares; assisting in the establishment and
maintenance of customer accounts and records and in the processing of purchase
and redemption transactions; investing dividends and any
20
<PAGE> 108
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 of
the Fund and its shareholders.
The Plan does not obligate the Fund to reimburse AIM Distributors for
the actual expenses AIM Distributors may incur in fulfilling its obligations
under the Plan. Thus, even if AIM Distributors' actual expenses exceed the fee
payable to AIM Distributors thereunder at any given time, the Fund will not be
obligated to pay more than that fee. If AIM Distributors' expenses are less
than the fee it receives, AIM Distributors will retain the full amount of the
fee.
21
<PAGE> 109
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 Investors 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 provide 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 Investors Guide to The AIM Family of Funds(R)
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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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 Investors Guide to The AIM Family of Funds(R) 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 Investors Guide to The AIM Family of Funds(R) attached as an Appendix to
the Proxy Statement/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 is restricted, as
determined by applicable rules and regulations of the SEC, (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings,
(c) the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposition of portfolio securities or the
valuation of the net assets of the Fund not reasonably practicable.
NET ASSET VALUE DETERMINATION
In accordance with the current rules and regulations of the SEC, the
net asset value of a share of each Fund is determined once daily as of 4:00 p.m.
Eastern Time on each business day of the Fund. In the event the New York Stock
Exchange closes early (i.e. before 4:00 p.m. Eastern Time) on a particular day,
the net asset value of a Fund share is determined at 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 New York Stock Exchange 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
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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.
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 Investors Guide to 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,
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futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies (the "Income Requirement"); and (b)
derive less than 30% of its gross income (exclusive of certain gains on
designated hedging transactions that are offset by realized or unrealized losses
on offsetting positions) from the sale or other disposition of stock, securities
or foreign currencies (or options, futures or forward contracts thereon) held
for less than three months (the "Short-Short Gain Test"). However, foreign
currency gains, including those derived from options, futures and forward
contracts, will not be characterized as Short-Short Gain if they are directly
related to the regulated investment company's principal business of investing in
stock or securities (or options or futures thereon). Because of the Short-Short
Gain Test, the Fund may have to limit the sale of appreciated securities that it
has held for less than three months. However, the Short-Short Gain Test will
not prevent the Fund from disposing of investments at a loss, since the
recognition of a loss before the expiration of the three-month holding period is
disregarded. Interest (including original issue discount) received by the Fund
at maturity or upon the disposition of a security held for less than three
months will not be treated as gross income derived from the sale or other
disposition of a security within the meaning of the Short-Short Gain Test.
However, any other income that is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of securities
for this purpose.
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 the Fund (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
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Service has held in several private rulings that gains arising from
Section 1256 contracts will be treated for purposes of the Short-Short Gain
Test as being derived from securities held for not less than three months if
the gains arise as a result of a constructive sale under Code Section 1256.
In addition to satisfying the requirement described above, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the
Fund's taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which
the companies, and securities of other issuers, the Fund has not invested more
than 5% of the value of the Fund's total assets in securities of such issuer
and as to which the Fund does not hold more than 10% of the outstanding voting
securities of such issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any one issuer (other than U.S.
Government securities and securities of other regulated investment companies),
or in two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses.**
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction 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).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax.
However, investors should note that the Fund may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability.
FUND DISTRIBUTIONS
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for federal
income tax purposes, 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
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as a capital gain dividend, it will be taxable to shareholders as long-term
capital gain, regardless of the length of time the shareholder has held his
shares or whether such gain was recognized by the Fund prior to the date on
which the shareholder acquired his shares. Conversely, if the Fund elects to
retain its net capital gain, the Fund will be taxed thereon (except to the
extent of any available capital loss carry forwards) at the 35% corporate tax
rate. If the Fund elects to retain its net capital gain, it is expected that
the Fund also will elect to have shareholders treated as if each received a
distribution of its pro rata share of such gain, with the result that each
shareholder will be required to report its pro rata share of such gain on its
tax return as long-term capital gain, will receive a refundable tax credit for
its share of tax paid by the Fund on the gain, and will increase the tax basis
for its shares by an amount equal to the deemed distribution less the tax
credit.
Ordinary income dividends paid by the Fund with respect to a taxable
year will qualify for the 70% dividends received deduction generally available
to corporations (other than corporations, such as "S" corporations, which are
not eligible for the deduction because of their special characteristics and
other than for purposes of special taxes such as the accumulated earnings tax
and the personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by the Fund will not be treated as a qualifying dividend
(a) if it has been received with respect to any share of stock that the Fund
has held for less than 46 days (91 days in the case of certain preferred
stock), excluding for this purpose under the rules of 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 the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance
since the amount of any such Fund's assets to be invested in various countries
is not known.
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Distributions by the Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions by the Fund will be treated in the manner described
above regardless of whether such distributions are paid in cash or reinvested
in additional shares of the Fund (or of another Fund). Shareholders receiving
a distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of the Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions
of such amounts will be taxable to the shareholder in the manner described
above, although such distributions economically constitute a return of capital
to the shareholder.
Ordinarily, shareholders are required to take distributions by the
Fund into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares, paid to any shareholder (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.
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FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder. If the income from the Fund is not effectively connected
with a U.S. trade or business carried on by a foreign shareholder, dividends
and distributions (other than capital gain dividends) will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) upon the gross amount
of the dividend. Such a foreign shareholder would generally be exempt from
U.S. federal income tax on gains realized on the sale of shares of the Fund,
capital gain dividends and amounts retained by the Fund that are designated as
undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends and any gains realized upon the sale of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign non-corporate shareholders, the Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
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.
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MISCELLANEOUS INFORMATION
SHAREHOLDER INQUIRIES
The Transfer Agent may impose certain copying charges for requests for
copies of shareholder account statements and other historical account
information older than the current year and the immediately preceding year.
AUDIT REPORTS
The Board of Directors will issue semi-annual reports of the
transactions of the Fund to the shareholders. Financial statements, audited by
independent auditors, will be issued annually.
LEGAL MATTERS
Legal matters for the Company have been passed upon by Ballard Spahr
Andrews & Ingersoll, Philadelphia, Pennsylvania.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company (the "Custodian"), 225 Franklin
Street, Boston, Massachusetts 02110, is custodian of all securities and cash of
the Fund. The custodian attends to the collection of principal and income,
pays and collects all monies for securities bought and sold by the Fund and
performs certain other ministerial duties. A I M Fund Services, Inc. (the
"Transfer Agent"), acts as transfer and dividend disbursing agent for the Fund.
These services do not include any supervisory function over management or
provide any protection against any possible depreciation of assets. The Fund
pays the Custodian and the Transfer Agent such compensation as may be agreed
upon from time to time.
Texas Commerce Bank National Association, P. O. Box 2558, Houston,
Texas 77252-8084, serves as Sub-Custodian for retail purchases of the AIM
Funds.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") has
entered into an agreement with the Company (and certain other AIM Funds), 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
A I M Advisors, Inc. provided the initial capitalization of the Fund,
which was nominal, and as of December 29, 1995, it owned all of the outstanding
shares of stock of the Fund. Upon consummation of the Transaction, it is
anticipated that AIM will own less than 1% of the stock of the Fund, if any.
OTHER INFORMATION
The Proxy Statement/Prospectus and this Statement of Additional
Information omit certain information contained in the Registration Statement
which the Company has filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statement for further information
with respect to the Fund and the securities offered hereby. The Registration
Statement is available for inspection by the public at the SEC in Washington,
D.C.
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APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S
Commercial paper rated by Standard & Poor's Corporation has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well-established, and the issuer has a
strong position within the industry. The reliability and quality of management
are unquestioned. The relative strength or weakness of the above factors
determines whether the issuer's Commercial Paper is rated A-1 or A-2. A-1
indicates the degree of safety regarding time of payment is very strong. A-2
indicates that the capacity for timely payment is strong, but that the relative
degree of safety is not as overwhelming as for issues designated A-1.
MOODY'S
Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. Among the factors considered by
Moody's in assigning ratings are the following: (a) evaluation of the
management of the issuer; (b) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (c) evaluation of the issuer's products in relation to
competition and customer acceptance; (d) liquidity; (e) amount and quality of
long-term debt; (f) trend of earnings over a period of ten years; (g) financial
strength of a parent company and the relationships which exist with the issuer;
and (h) recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to meet
such obligations. Relative strength or weakness of the above factors
determines whether the issuer's commercial paper is rated Prime-1 or Prime-2.
31
<PAGE> 119
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.
32
<PAGE> 120
FINANCIAL STATEMENTS
Financial Data
Set forth below is certain audited financial information for the BCD Fund
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 the BCD Fund will be transferred to Capital Development, a shell
portfolio consisting of zero assets. As a result, the assets of the BCD Fund
will represent 100% of the assets of the combined entity.
The pro forma effect of this combination had the transaction occurred
September 30, 1995, would be an increase in the advisory and distribution fees
and a reduction of administrative fees. See "Synopsis - Comparison of Capital
Development and the BCD Fund" 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 the BCD Fund 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 the BCD Fund as, at and for the
year ended September 30, 1995, adequately reflect the results of the business
combination.
FS-1
<PAGE> 121
BAIRD CAPITAL
DEVELOPMENT FUND
ANNUAL
REPORT
SEPTEMBER 30, 1995
(Baird Logo)
REPORT OF INDEPENDENT ACCOUNTANTS
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
(Price Waterhouse Logo)
To the Shareholders and Board of Directors
of Baird Capital Development 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 Capital Development 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 ten years in the period then ended, 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 CAPITAL DEVELOPMENT FUND, INC.
STATEMENT OF NET ASSETS
September 30, 1995
LONG-TERM INVESTMENTS 82.4% (a)<F2>
<TABLE>
<CAPTION>
Quoted
Shares Cost Market Value
- ------- ---------- ------------
<S> <C> <C> <C>
COMMON STOCKS - 77.3% (a)<F2>
BANKS/SAVINGS & LOANS - 2.0%
46,500 Marshall & Ilsley Corp. $ 582,430 $1,168,312
COMPUTERS - 2.0%
45,000 Stratus Computer, Inc.*<F1> 1,403,475 1,181,250
CONSUMER PRODUCTS - DURABLES - 4.8%
40,000 Harley-Davidson, Inc. 265,750 975,000
65,000 Juno Lighting, Inc. 731,000 991,250
30,000 Kimball International, Inc. Cl B 778,379 840,000
---------- ----------
1,775,129 2,806,250
CONSUMER PRODUCTS - NON-DURABLES - 1.2%
28,000 Newell Co. 500,150 693,000
ENERGY/ENERGY SERVICES - 1.6%
25,000 Burlington Resources Inc. 974,125 968,750
FOOD & BEVERAGES - 1.5%
25,000 Universal Foods Corp. 782,860 871,875
HEALTH INDUSTRIES - 11.4%
90,000 Biomet, Inc.*<F1> 1,006,875 1,552,500
35,000 Dentsply International Inc. 1,133,750 1,207,500
10,000 Haemonetics Corp.*<F1> 220,800 230,000
30,000 Sofamor/Danek Group, Inc.*<F1> 480,950 832,500
20,000 St. Jude Medical, Inc.*<F1> 751,500 1,265,000
40,000 Sybron International Corp.*<F1> 998,860 1,610,000
---------- ----------
4,592,735 6,697,500
INDUSTRIAL SERVICES - 1.9%
13,800 Bandag, Inc. 731,120 729,675
7,400 Bandag, Inc. Cl A 319,428 360,750
---------- ----------
1,050,548 1,090,425
INSURANCE - 5.2%
10,000 Poe & Brown, Inc. 246,250 245,000
30,000 Progressive Corp. (Ohio) 1,065,210 1,342,500
35,000 Providian Corp. 809,870 1,452,500
---------- ----------
2,121,330 3,040,000
LEISURE/RESTAURANTS - 4.9%
97,600 Brinker International, Inc.*<F1> 1,699,528 1,451,800
181,200 Ryan's Family Steak Houses, Inc.*<F1> 1,367,125 1,426,950
---------- ----------
3,066,653 2,878,750
MACHINERY/TOOLS - 1.4%
24,000 Harnischfeger Industries, Inc. 599,200 801,000
MISCELLANEOUS-BUSINESS SERVICES - 1.3%
28,500 G & K Services, Inc. 281,625 662,625
5,000 On Assignment, Inc.*<F1> 81,650 126,875
---------- ----------
363,275 789,500
MISCELLANEOUS-CONSUMER MANUFACTURING - 2.3%
20,000 Lancaster Colony Corp. 612,500 680,000
35,000 LSI Industries Inc. 372,350 682,500
---------- ----------
984,850 1,362,500
</TABLE>
FS-3
<PAGE> 123
<TABLE>
<S> <C> <C> <C>
MISCELLANEOUS-FINANCE - 2.3%
13,000 Federal National Mortgage Association 677,710 1,345,500
PAPER/PACKAGING - 2.5%
18,800 Liqui-Box Corp. 652,255 556,950
38,500 Wausau Paper Mills Co. 717,199 933,625
---------- ----------
1,369,454 1,490,575
POLLUTION CONTROL - 2.4%
40,000 Browning-Ferris Industries, Inc. 1,206,207 1,215,000
25,000 Harding Associates, Inc.*<F1> 355,250 171,875
---------- ----------
1,561,457 1,386,875
PRINTING/PUBLISHING/FORMS - 2.3%
17,500 Banta Corp. 562,250 735,250
27,000 CCH INC. Cl B 556,875 600,750
---------- ----------
1,119,125 1,336,000
PRODUCER MANUFACTURING - 5.7%
70,000 Pall Corp. 1,102,096 1,627,500
24,200 Regal-Beloit Corp. 166,980 450,725
50,000 Watts Industries, Inc. 1,108,676 1,243,750
---------- ----------
2,377,752 3,321,975
RETAIL TRADE - 9.3%
90,000 Casey's General Stores, Inc. 844,375 2,036,250
60,000 Elek-Tek, Inc.*<F1> 764,375 285,000
115,000 Family Dollar Stores, Inc. 1,593,200 2,185,000
60,000 Mac Frugal's Bargains o Close-outs Inc.*<F1> 1,016,230 945,000
---------- ----------
4,218,180 5,451,250
SOFTWARE/SERVICE - 11.3%
15,000 Compuware Corp.*<F1> 607,500 330,000
80,000 Mentor Graphics Corp.*<F1> 802,500 1,670,000
45,000 Policy Management Systems Corp.*<F1> 1,446,368 2,306,250
80,000 SunGard Data Systems Inc.*<F1> 708,605 2,340,000
---------- ----------
3,564,973 6,646,250
WARRANTS- 0.0%
790 Windmere Warrants, 01/19/98*<F1> 0 0
---------- ----------
Total common stocks 33,685,411 45,327,537
U.S. TREASURY NOTES - 5.1% (a)<F2>
$3,000,000 U.S. Treasury Notes, 4.375%, due 8/15/96 3,019,218 2,965,314
---------- ----------
Total long-term investments 36,704,629 48,292,851
</TABLE>
FS-4
<PAGE> 124
<TABLE>
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS 17.6% (a)<F2>
VARIABLE RATE DEMAND NOTES
$2,665,000 General Mills, Inc. $2,665,000 $2,665,000
2,850,000 Pitney Bowes Credit Corp. 2,850,000 2,850,000
1,998,440 Sara Lee Corp. 1,998,440 1,998,440
2,830,000 Wisconsin Electric Power Co. 2,830,000 2,830,000
---------- ----------
Total short-term investments 10,343,440 10,343,440
---------- ----------
Total investments $47,048,069 58,636,291
==========
Cash and receivables, less
liabilities - 0.0% (a)<F2> 9,433
----------
NET ASSETS $58,645,724
==========
Net Asset Value Per Share
($0.01 par value 20,000,000
shares authorized), redemption price
($58,645,724 divided by 2,234,499
shares outstanding) $ 26.25
==========
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 $26.25 x 100 divided by 94.25) $ 27.85
==========
</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-5
<PAGE> 125
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1995
<S> <C>
INCOME:
Dividends $ 444,201
Interest 451,181
----------
Total income 895,382
----------
EXPENSES:
Management fees - Adviser 225,719
Management fees - Sub-Adviser 179,231
Distributor fees 148,437
Transfer agent fees 56,552
Administrative services 42,361
Printing and postage expense 32,315
Professional fees 18,196
Custodian fees 12,824
Registration fees 8,937
Other expenses 11,193
----------
Total expenses 735,765
----------
NET INVESTMENT INCOME 159,617
----------
NET REALIZED GAIN ON INVESTMENTS 5,612,531
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 3,054,593
----------
NET GAIN ON INVESTMENTS 8,667,124
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,826,741
==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
FS-6
<PAGE> 126
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1995 and 1994
<S> <C> <C>
1995 1994
---------- ----------
OPERATIONS:
Net investment income $ 159,617 $ 91,703
Net realized gain on investments 5,612,531 3,025,462
Net increase (decrease) in unrealized
appreciation on investments 3,054,593 (1,246,508)
---------- ----------
Net increase in net assets resulting
from operations 8,826,741 1,870,657
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.02490 and $0.04375 per share, respectively) (56,619) (100,460)
Distributions from net realized gains
($1.1155 and $0.5313 per share, respectively) (2,536,513) (1,221,249)
---------- ----------
Total distributions (2,593,132)**<F4> (1,321,709)*<F3>
---------- ----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(195,408 and 395,526 shares, respectively) 4,530,286 9,199,212
Net asset value of shares issued in distributions
(57,724 and 30,019 shares, respectively) 1,286,104 692,008
Cost of shares redeemed (304,827
and 381,575 shares, respectively) (7,211,431) (8,802,392)
---------- ----------
Net (decrease) increase in net assets
derived from Fund share activities (1,395,041) 1,088,828
---------- ----------
TOTAL INCREASE 4,838,568 1,637,776
NET ASSETS AT THE BEGINNING OF THE YEAR 53,807,156 52,169,380
---------- ----------
NET ASSETS AT THE END OF THE YEAR
(including undistributed net investment income
of $159,464 and $56,574, respectively) $58,645,724 $53,807,156
========== ==========
</TABLE>
*<F3>Total distributions include $997,958 of ordinary income, of which 57% is
eligible for the corporate dividends received deduction.
**<F4>Total distributions include $136,886 of ordinary income, of which 72% is
eligible for the corporate dividends received deduction.
The accompanying notes to financial statements are an integral part of this
statement.
FS-7
<PAGE> 127
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year $23.54 $23.27 $21.67 $21.35 $15.38 $19.16 $14.81 $18.50 $15.44 $13.33
Income from investment
operations:
Net investment
income (loss) 0.07 0.04 0.04 0.11 0.13 0.19 0.14 (0.03) (0.04) (0.12)
Net realized and
unrealized gains (losses)
on investments**<F6> 3.78 0.80 3.54 2.17 6.77 (3.86) 4.21 (2.54) 3.19 4.28
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 3.85 0.84 3.58 2.28 6.90 (3.67) 4.35 (2.57) 3.15 4.16
Less distributions:
Dividends from net
investment income (0.02) (0.04) (0.08) (0.10) (0.20) (0.11) - - - -
Distributions from net
realized gains (1.12) (0.53) (1.90) (1.86) (0.73) - - (1.12) (0.09) (2.05)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from distributions (1.14) (0.57) (1.98) (1.96) (0.93) (0.11) - (1.12) (0.09) (2.05)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of year $26.25 $23.54 $23.27 $21.67 $21.35 $15.38 $19.16 $14.81 $18.50 $15.44
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT
RETURN***<F7> 17.2% 3.7% 17.9% 11.6% 47.8% (19.3%) 29.4% (12.8%) 20.6% 35.8%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
year (in 000's $) 58,646 53,807 52,169 38,236 26,713 18,454 21,372 18,868 23,052 10,233
Ratio of expenses to
average net assets*<F5> 1.3% 1.4% 1.4% 1.6% 1.7% 1.7% 1.7% 2.3% 2.5% 2.1%
Ratio of net investment
income (loss) to
average net assets 0.3% 0.2% 0.2% 0.5% 0.7% 1.1% 0.3% (0.6%) (0.4%) (0.5%)
Portfolio turnover rate 20.4% 29.5% 25.2% 47.7% 64.1% 63.8% 50.5% 55.6% 80.1% 41.9%
</TABLE>
*<F5>Includes a maximum 1% distribution fee through December 12, 1985, a
maximum .75% distribution fee from June 21, 1986 through September 30, 1988
and a maximum .45% distribution fee beginning October 1, 1988.
**<F6>On a per share basis this amount may not agree with the net realized and
unrealized gains (losses) experienced on the portfolio securities for the
period because of the timing of sales and repurchases of the Fund's shares in
relation to fluctuating market values of the portfolio
***<F7>Total return does not include the sales load.
The accompanying notes to financial statements are an integral part of this
statement.
FS-8
<PAGE> 128
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 Capital Development Fund, Inc.
(the ''Fund''), which is registered under the Investment Company Act of 1940.
The Fund was incorporated under the laws of Wisconsin on February 21, 1984.
(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. Cost amounts, as
reported on the statement of net assets, are the same for Federal income tax
purposes.
(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 significant 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 Fiduciary Management, Inc.
(''FMI''), to serve as investment adviser and manager. Under the terms of the
agreement, the Fund will pay FMI a monthly management fee at the annual rate of
0.4125% of the daily net assets of the Fund. The Fund has an administrative
agreement with FMI to supervise all aspects of the Fund's operations except
those performed by FMI pursuant to the management agreement. Under the terms of
the agreement, the Fund will pay FMI a monthly administrative fee at the annual
rate of 0.1% of the daily net assets up to and including $30,000,000 and 0.05%
of the daily net assets of the Fund in excess of $30,000,000.
The Fund has a sub-advisory agreement with Robert W. Baird & Co. Incorporated
(''RWB''), with whom certain officers and directors of the Fund are affiliated,
to serve as the sub-advisor. Under the terms of the agreement, the Fund will
pay RWB a monthly sub-advisory fee at the annual rate of 0.3275% of the daily
net assets of the Fund.
FS-9
<PAGE> 129
The Fund has adopted a Distribution Plan (the ''Plan''), pursuant to Rule 12b-1
under the Investment Company Act of 1940, with RWB. 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.
During the year ended September 30, 1995, the Fund was advised that RWB
received $97,202 from investors representing commissions on sales of Fund
shares and $21,221 from the Fund for brokerage fees on the execution of
purchases and sales of portfolio securities.
(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 $159,464 ($0.0723 per share) was declared. In addition,
the Fund distributed $5,612,454 ($2.5432 per share) from net long-term realized
gains. 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
securities) were $10,030,374 and $20,210,990, respectively.
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - As of September 30, 1995,
liabilities of the Fund included the following:
<TABLE>
<S> <C>
Payable to shareholders for redemptions $91,302
Payable to FMI and RWB for management,
service and distribution fees 51,861
Other liabilities 10,835
</TABLE>
(6) SOURCES OF NET ASSETS - As of September 30, 1995, the sources of net assets
were as follows:
<TABLE>
<S> <C>
Fund shares issued and outstanding $41,285,584
Net unrealized appreciation on investments 11,588,222
Accumulated net realized gains on investments 5,612,454
Undistributed net investment income 159,464
-----------
$58,645,724
===========
</TABLE>
Aggregate net unrealized appreciation as of September 30, 1995, consisted of
the following:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation $13,226,934
Aggregate gross unrealized depreciation (1,638,712)
-----------
Net unrealized appreciation $11,588,222
===========
</TABLE>
FS-10
