<PAGE> 1
As filed with the Securities and Exchange Commission on December 29, 1995
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. ____ Post-effective Amendment No. ____
(Check appropriate box or boxes)
AIM FUNDS GROUP
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza
Suite 1919
Houston, TX 77046
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(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
CAROL F. RELIHAN, ESQUIRE MARTHA J. HAYS, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll
11 Greenway Plaza 1735 Market Street, 51st Floor
Suite 1919 Philadelphia, PA 19103
Houston, TX 77046
CONRAD G. GOODKIND, ESQUIRE
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
No filing fee is required because Registrant has registered an indefinite
number of shares under the Securities Act of 1933 pursuant to Rule 24f-2 under
the Investment Company Act of 1940. Registrant will file its notice pursuant
to Rule 24f-2 for the fiscal year ending December 31, 1995 on or before
February 29, 1996. Registrant is filing a copy of its notice under Rule 24f-2
as an exhibit to this Registration Statement. Pursuant to Rule 429 under the
Securities Act of 1933, this Registration Statement relates to shares
previously registered on Form N-1A (Registration No. 2-27334).
It is proposed that this filing will become effective on January 29, 1996
pursuant to Rule 488.
<PAGE> 2
AIM FUNDS GROUP
Cross Reference Sheet
Pursuant to Rule 481(a) under the Securities Act of 1933
<TABLE>
<CAPTION>
LOCATION IN COMBINED PROXY
FORM N-14 ITEM NO. STATEMENT AND PROSPECTUS
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PART A
Item 1. Beginning of Registration Statement and Cover page of Registration Statement; Front
Outside Front Cover Page of Prospectus Cover Page of Prospectus
Item 2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
Item 3. Synopsis and Risk Factors Synopsis; Risk Factors
Item 4. Information About the Transaction Reasons for the Transaction; Synopsis;
Additional Information About the Agreement;
Rights of Shareholders; Capitalization
Item 5. Information About the Registrant Front Cover Page of Prospectus; Synopsis;
Risk Factors; Incorporation of Documents by
Reference in the Prospectus; Comparison of
Investment Objectives and Policies;
Financial Information; Additional
Information About AIM Income and Baird Bond;
Information Filed with the Securities and
Exchange Commission
Item 6. Information About the Company Being Front Cover Page of Prospectus;
Acquired Incorporation of Documents by Reference in
the Prospectus; Comparison of Investment
Objectives and Policies; Financial
Information; Additional Information About
AIM Income and Baird Bond; Information Filed
with the Securities and Exchange Commission
Item 7. Voting Information Prospectus Cover Page; Notice of Special
Meeting of Shareholders; Introduction;
Ownership of AIM Income and Baird Bond
Shares
Item 8. Interest of Certain Persons and Experts Not Applicable
Item 9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
</TABLE>
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<TABLE>
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PART B
Item 10. Cover Page Cover Page of Statement of Additional
Information
Item 11. Table of Contents Not Applicable
Item 12. Additional Information about the Additional Information About AFG and AIM
Registrant Income; Incorporation of Documents by
Reference in the Statement of Additional
Information
Item 13. Additional Information about the Company Not Applicable
Being Acquired
Item 14. Financial Statements Financial Information; Incorporation of
Documents by Reference in the Statement of
Additional Information; Incorporation of
Documents by Reference in Part C
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this document.
<PAGE> 4
BAIRD QUALITY BOND FUND
A PORTFOLIO OF
THE BAIRD FUNDS, 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 QUALITY BOND FUND, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Baird
Quality Bond Fund ("Baird Bond"), a portfolio of The Baird Funds, Inc. ("BFI")
will be held at The University Club, 924 East Wells Street, Milwaukee,
Wisconsin 53202 on March 15, 1996, at 10:00 a.m., local time, for the
following purposes:
1. To approve an Agreement and Plan of Reorganization (the
"Agreement") between BFI and AIM Funds Group ("AFG") and the consummation
of the transactions contemplated therein (the "Transaction"). Pursuant to
the Agreement, substantially all of the assets of Baird Bond will be
transferred to AIM Income Fund ("AIM Income"), an existing portfolio of
AFG. Upon such transfer, AFG will issue Class A shares of AIM Income
directly to the shareholders of Baird Bond. Shareholders of Baird Bond
will receive shares of AIM Income with an aggregate net asset value equal to
the aggregate net value of Baird Bond assets transferred in connection with
the Transaction. It is expected that the value of each shareholder's
account with AIM Income immediately after the Transaction will be the same
as the value of such shareholder's account with Baird Bond immediately
prior to the Transaction.
2. To transact any other business, not currently contemplated,
that may properly come before the Special Meeting, in the discretion of the
proxies or their substitutes.
The Transaction has been structured as a tax-free reorganization. No sales
charge will be imposed in connection with the Transaction. The Transaction is
described in the attached Combined Proxy Statement and Prospectus.
Shareholders of record as of the close of business on January 25 , 1996,
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
To assist Baird Bond in making suitable arrangements at the Special
Meeting, shareholders planning to attend the Special Meeting in person are
requested to notify the Baird Bond 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
BFI. 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 BFI AT ANY TIME BEFORE THE PROXY IS EXERCISED OR BY
VOTING IN PERSON AT THE SPECIAL MEETING.
Glen F. Hackmann
Secretary
February 2, 1996
<PAGE> 5
BAIRD QUALITY BOND FUND AIM INCOME FUND
(A PORTFOLIO OF THE BAIRD FUNDS, INC.) (A PORTFOLIO OF AIM FUNDS GROUP)
COMBINED PROXY STATEMENT AND PROSPECTUS
DATED: FEBRUARY 2, 1996
This document is being furnished in connection with the Special
Meeting of Shareholders of Baird Quality Bond Fund ("Baird Bond"), a portfolio
of The Baird Funds, Inc. ("BFI") to be held on March 15, 1996 (the "Special
Meeting"). At the Special Meeting, the shareholders of Baird Bond are being
asked to consider and approve a proposed Agreement and Plan of Reorganization
(the "Agreement") between Baird Bond and AIM Funds Group ("AFG") and the
consummation of the transactions contemplated therein (the "Transaction"). THE
BOARD OF DIRECTORS OF BFI HAS UNANIMOUSLY APPROVED THE AGREEMENT AND
TRANSACTION AS BEING FAIR TO, AND IN THE BEST INTEREST OF, BAIRD BOND
SHAREHOLDERS.
Pursuant to the Agreement, substantially all of the assets of Baird
Bond will be transferred to AIM Income ("AIM Income"), a portfolio of AFG. Upon
such transfer, AFG will issue Class A shares of AIM Income directly to
shareholders of Baird Bond. Shareholders of Baird Bond will receive shares of
AIM Income with an aggregate net asset value equal to the aggregate net value of
Baird Bond assets transferred in connection with the Transaction. As soon as
reasonably practicable after the closing of the Transaction, Baird Bond will pay
or make provision for payment for all of its liabilities, and its status as a
designated series of shares of BFI will be terminated. It is expected that the
value of each shareholder's account with AIM Income immediately after the
Transaction will be the same as the value of such shareholder's account with
Baird Bond immediately prior to the Transaction.
The Transaction has been structured as a tax-free reorganization.
No sales charge will be imposed in connection with the Transaction.
AIM INCOME IS A SERIES PORTFOLIO OF AFG, AN OPEN-END, SERIES
MANAGEMENT INVESTMENT COMPANY. THE INVESTMENT OBJECTIVE OF AIM INCOME IS TO
ACHIEVE A HIGH LEVEL OF CURRENT INCOME CONSISTENT WITH REASONABLE CONCERN FOR
SAFETY OF PRINCIPAL. IT SEEKS THIS OBJECTIVE BY INVESTING PRIMARILY IN FIXED
RATE CORPORATE DEBT AND U.S. GOVERNMENT OBLIGATIONS. AIM INCOME'S INVESTMENT
OBJECTIVE IS SIMILAR TO THAT OF BAIRD BOND, ALTHOUGH THE TYPES OF SECURITIES
THE TWO FUNDS PURCHASE TO ACHIEVE THEIR OBJECTIVES DIFFER, AND AIM INCOME IS
PERMITTED TO INVEST A PORTION OF ITS ASSETS IN SECURITIES OF LOWER CREDIT
QUALITY THAN BAIRD BOND. SEE "COMPARISON OF INVESTMENT OBJECTIVES AND
POLICIES" AND "RISK FACTORS."
The principal executive offices of BFI are located at 777 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202 (telephone (414) 765-3500). The
principal executive offices of AFG are located at 11 Greenway Plaza, Suite
1919, Houston, Texas 77046 (telephone: (713) 626-1919 in Houston, (800)
347-4246 elsewhere).
This Combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus") sets forth concisely the information that a shareholder
of Baird Bond should know before voting on the Agreement. It should be read
and retained for future reference.
The current Prospectus of Baird Bond, dated January 31, 1995 (the
"Baird Bond Prospectus") is on file with the Securities and Exchange Commission
(the "SEC"). Such prospectus is incorporated by reference herein, and is
available without charge by writing to AFG at 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046 or by calling (713) 626-1919 (in Houston) or (800) 347-4246
(elsewhere). The Prospectus of AIM Income dated May 1, 1995 as revised November
22, 1995 (the "AFG Prospectus"), and Statement of Additional Information for AIM
Income dated May 1, 1995 have been filed with the SEC and are incorporated by
reference herein. The statement of additional information of AFG dated February
2, 1996 relating to this Proxy Statement/Prospectus (the "Statement of
Additional Information") has been filed with the SEC and is hereby incorporated
by reference. Such documents are available without charge by writing to A I M
Distributors, Inc., P.O. Box 4739, Houston, Texas 77210-4739 or by calling (713)
626-1919 (in Houston) or (800) 347-4246 (elsewhere).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
REASONS FOR THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Background and Reasons for the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
APPROVAL BY, AND RECOMMENDATION OF, BOARD OF DIRECTORS OF BFI . . . . . . . . . . . . . . . . . . . . . . . . . 2
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Comparison of AIM Income and Baird Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Risks Regarding Non-Investment Grade Debt Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Risks Regarding Foreign Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Risks as to Futures Contracts and Related Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Investment Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Portfolio Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Management Discussion and Analysis of Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ADDITIONAL INFORMATION ABOUT THE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Terms of the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Federal Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Capital Loss Carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Election of Trustees/Directors and Annual Shareholder Meetings . . . . . . . . . . . . . . . . . . . . . . . . 30
Terms of Trustees/Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Vacancies of Trustees/Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Removal of Trustees/Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Shareholder Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Liability of Directors/Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Supermajority Voting Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Amendment to Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Other Significant Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
(i)
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<TABLE>
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OWNERSHIP OF AIM INCOME AND BAIRD BOND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Control Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Ownership of Officers and Trustees/Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ADDITIONAL INFORMATION ABOUT AIM INCOME AND BAIRD BOND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</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.
(ii)
<PAGE> 8
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by BFI's Board of Directors from the shareholders of
Baird Bond, a portfolio of BFI, for use at the Special Meeting of Shareholders
to be held at The University Club, 924 East Wells Street, Milwaukee, Wisconsin,
53202 on March 15, 1996, at 10:00 a.m., local time (such meeting and any
adjournment thereof are referred to as the "Special Meeting").
BFI has engaged the services of Shareholder Communications
Corporation ("SCC") to assist it in the solicitation of proxies for the Special
Meeting. BFI expects to solicit proxies principally by mail, but BFI or SCC
may also solicit proxies by telephone, facsimile, telegraph or personal
interview. BFI's officers will not receive any additional or special
compensation for any such solicitation. Although Baird Bond and AIM Income
will bear their respective costs and expenses incurred in connection with the
Transaction, Robert W. Baird & Co. Incorporated ("Baird"), the investment
adviser of Baird Bond, has agreed with BFI 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 the
type normally incurred in transactions of this nature will be borne by Baird.
A I M Advisors, Inc. ("AIM"), the investment adviser to AIM Income, 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 in accordance with
management's recommendation on other matters. The presence in person or by
proxy of a majority of outstanding shares of BFI representing an interest in
Baird Bond at the Special Meeting will constitute a quorum ("Quorum").
Approval of the Agreement requires the affirmative vote of a majority of the
outstanding shares of BFI representing an interest in Baird Bond. 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 BFI. In addition,
although mere attendance at the Special Meeting will not revoke a proxy, a
shareholder present at the Special Meeting may withdraw his proxy and vote in
person. Shareholders may also transact any other business not currently
contemplated that may properly come before the Special Meeting in the
discretion of the proxies or their substitutes.
In the event that sufficient votes in favor of the proposal to
approve the Agreement are not received by the scheduled time of the Special
Meeting, the persons named as proxies in the enclosed proxy may propose and
vote in favor of one or more adjournments of the Special Meeting to permit
further solicitation of proxies without the necessity of further notice. Any
such adjournment will require the affirmative vote of a majority of the shares
represented at the Special Meeting to be adjourned. Proxies cast for approval
of the Agreement will be voted for adjournment, and proxies cast against
approval of the Agreement or abstaining on the matter will be voted against
adjournment.
Shareholders of record as of the close of business on January 25,
1996 (the "Record Date"), are entitled to vote at the Special Meeting. On the
Record Date, there were outstanding ___________ shares of Baird Bond. Each
share is entitled to one vote for each full share held, and a fractional vote
for a fractional share held.
Baird Bond intends to mail this Proxy Statement/Prospectus and the
accompanying proxy on or about February 2, 1996.
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<PAGE> 9
REASONS FOR THE TRANSACTION
BACKGROUND AND REASONS FOR THE TRANSACTION
Baird has indicated its desire not to continue to serve as
investment advisor and distributor of Baird Bond 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 BFI agrees,
that the interests of shareholders of Baird Bond, many of whom are brokerage
clients of Baird, would be well-served if Baird Bond were part of a large,
growing mutual fund complex managed by a reputable advisor with an extensive
distribution network and competitive costs. Baird believes, and the Board of
Directors of BFI agrees, that association with a large fund complex could
enable Baird Bond to achieve larger and wider distribution of shares,
potentially resulting in economies of scale which to date have not been
achieved by Baird Bond. Association with a large fund complex could also
facilitate the ability of the shareholders of Baird Bond to invest in a variety
of other funds within the complex and offer the shareholders quality services
at a competitive cost.
Management of Baird and Baird Bond, at the direction of the Board
of Directors of BFI, reviewed and analyzed information relating to several
mutual fund complexes, including their advisors, numbers and types of funds
offered in the complexes and their performance, their sales loads and expenses,
distribution capabilities, and shareholder services.
Baird Bond received proposals from several mutual fund complexes and
investment management firms, including AIM. Baird also received separate
proposals for the purchase of Baird's records, account information and goodwill
applicable to its advisory relationship to the Baird mutual funds. Following
its review of the proposals, management of Baird Bond (each of which is an
interested person of Baird) recommended AIM's proposal to the Board of Directors
of BFI for approval.
APPROVAL BY, AND RECOMMENDATION OF, BOARD OF DIRECTORS OF BFI
The Board of Directors of BFI considered and unanimously approved
the Agreement and Transaction, subject to shareholder approval, during meetings
held on December 11 and 20, 1995. The Board of BFI 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 BFI 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 and its general counsel),
consulted with legal counsel, made inquiries and considered the following
factors, among others:
(i) the intention of Baird to step down as Baird Bond's
investment advisor and distributor;
(ii) the reputation, experience, investment philosophy,
performance, personnel, resources and financial condition of
AIM;
(iii) a comparison of the investment objectives, policies,
strategies and restrictions of Baird Bond and AIM Income;
(iv) a comparison of the performance of Baird Bond and AIM
Income;
2
<PAGE> 10
(v) the quality, scope and cost of the advisory services to be
provided by AIM, and a comparison of such attributes to
those of other advisors of comparable mutual funds;
(vi) the distribution performance, resources and capabilities of
AIM Distributors, and the economies of scale which
potentially may be achieved through larger and wider
distribution of shares of AIM Income, which has total assets
of more than $250 million as compared to $8 million for
Baird Bond;
(vii) the distribution fees and expenses paid by AIM Income and the
services received for such fees and expenses, together with a
comparison of such attributes to Baird Bond and other
comparable mutual funds;
(viii) the various other services (including administrative,
accounting, custodial, transfer agency and legal services)
provided to AIM Income and the associated costs of such
services, including a comparison of such attributes to Baird
Bond and other comparable mutual funds;
(ix) a comparison of the current expense ratios for Baird Bond
and AIM Income (as well as an analysis of the pro forma
expense ratios of AIM Income assuming the Transaction is
consummated), together with a comparison of expense ratios
for other comparable mutual funds;
(x) the number and variety of other mutual funds within The AIM
Family of Funds(R), and the ability of Baird Bond
shareholders to exchange shares of AIM Income into shares of
other funds in The AIM Family of Funds(R);
(xi) 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
(xii) such other factors deemed relevant by the Board.
Baird and AIM have entered into an Acquisition Agreement dated
December 20, 1995 (the "Acquisition Agreement") pursuant to which Baird will
transfer to AIM all of its files, books and records relating to Baird's
provision of investment advisory services to Baird Bond and certain other Baird
Mutual Funds and all goodwill applicable to Baird's role as investment adviser
to the Baird Mutual Funds. The purchase price to be paid by AIM pursuant to
the Acquisition Agreement is $3,600,000, $3,000,000 of which is payable on the
closing date for the Acquisition Agreement and $600,000 of which is payable on
the 60th day after the first anniversary of the closing date. The second
payment is subject to upward adjustment in the amount of any damages owed by
AIM to Baird under the Acquisition Agreement as of the payment date and to
downward adjustment in the amount of any damages owed by Baird to AIM under the
Acquisition Agreement as of the payment date together with the amount of any
adjustment to the value of the goodwill acquired by AIM. The goodwill
adjustment takes into account, among other things, (i) the number of shares of
mutual funds advised by AIM ("AIM Funds") that were issued in connection with
reorganization transactions of the Baird Mutual Funds (including the
Transaction) which remain outstanding on such first anniversary date and (ii)
the number of shares of the AIM Funds involved in the reorganization
transactions involving the Baird Mutual Funds that were issued after the
reorganization transactions as to which Baird and certain other persons who may
become party to a selling agreement with AIM Distributors after December 28,
1995 are listed as agent of record and which remain outstanding on such first
anniversary date. Consummation of the transaction described in the Acquisition
Agreement is contingent upon, among other things, approval of the
3
<PAGE> 11
Transaction by Baird Bond shareholders and approval of the reorganization of
other Baird Mutual Funds by the shareholders of such other Baird Mutual Funds.
The Board of Directors also considered whether the Transaction is
consistent with the requirements of Section 15(f) of the Investment Company Act
of 1940 (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 predecessor investment adviser for the three-year
period immediately following the transaction. The Board of Directors of AFG
will have seven out of nine members who are not interested persons of AIM or
Baird. In addition, the BFI directors are not and are not expected to become
interested persons of AIM.
A second condition of Section 15(f) is that no "unfair burden" be
imposed on the investment company as a result of the transactions relating to
the sale of such interest or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden," as defined in the
1940 Act, includes, but is not limited to, any arrangement during the two-year
period following the transaction whereby the fund's investment adviser or any
interested person of such adviser receives or is entitled to receive any
compensation, directly or indirectly: (i) from any person in connection with
the purchase of or sale of securities or other property to, from, or on behalf
of such company, other than other property to, from or on behalf of such
company, other than bona fide ordinary compensation as principal underwriter
for such company, or (ii) from such company or its security holders for other
than bona fide investment advisory or other services.
Based on its review of the terms of the Transaction, including the
provisions of the Agreement and the Acquisition Agreement between AIM and
Baird, the Board of Directors is not aware of any express or implied term,
condition, arrangement or understanding which would impose an "unfair burden"
on AIM Income or Baird Bond as a result of the Transaction.
The Board of Directors of BFI has concluded that the Agreement and
the Transaction are fair to, and in the best interests of, Baird Bond
shareholders. The Board of Directors, including all of the directors who are
not interested persons of Baird or AIM, unanimously approved the Agreement and
the Transaction, and recommends to the shareholders of Baird Bond that they
vote FOR the Agreement and the Transaction.
4
<PAGE> 12
SYNOPSIS
THE TRANSACTION
The Agreement and the Transaction described therein will result in
the combination of Baird Bond and AIM Income. Baird Bond is a portfolio of BFI,
a Wisconsin corporation. AIM Income is a portfolio of AFG, a Delaware business
trust. In the event shareholders approve the Agreement and other closing
conditions are satisfied, Baird Bond will transfer all of its portfolio
securities and substantially all of its other assets to AIM Income. In
exchange, AFG will issue directly to the shareholders of Baird Bond shares of
AIM Income with an aggregate value equal to the Baird Bond assets transferred in
connection with the reorganization, as determined by using AIM Income's
valuation methodology. Shareholders will not pay any sales charge in connection
with the Transaction. Promptly after the acquisition by AIM Income of such
securities and other assets, BFI will take steps to pay any outstanding
liabilities of Baird Bond and Baird Bond's status as a designated series of BFI
will be terminated. Any assets held by Baird Bond after the Transaction that
are not used by BFI to discharge the debts of Baird Bond will be distributed to
its shareholders as a dividend, although none is expected. It is expected that
the value of each shareholder's account with AIM Income immediately after the
Transaction will be the same as the value of such shareholder's account with
Baird Bond immediately prior to the Transaction. A copy of the Agreement is
attached as Appendix II to this Proxy Statement/Prospectus. See "Additional
Information About the Agreement - Transfer of Assets and Liabilities" below.
Baird Bond 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" below.
AIM Income is a diversified investment portfolio of AFG, an
open-end series management investment company registered under the 1940 Act.
The principal offices of AFG are located at 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046 (telephone: (713) 626-1919 in Houston, (800) 347-4246
elsewhere).
COMPARISON OF AIM INCOME AND BAIRD BOND
Investment Objective and Policies
The investment objectives of AIM Income and Baird Bond are similar,
although the credit quality and types of securities the two funds purchase to
achieve their objectives differ in important respects. The investment objective
of AIM Income is to achieve a high level of current income consistent with
reasonable concern for safety of principal by investing in fixed rate corporate
debt and U.S. Government obligations. AIM Income may also invest in preferred
stock issues and convertible corporate debt. The percent of AIM Income's assets
in various types of securities will vary in light of AIM Income's investment
objective and existing market conditions. The investment objective of Baird
Bond is to provide a high level of current income through investments in a
diversified portfolio of investment grade debt securities. It is anticipated
that at least 80% of Baird Bond's net assets are ordinarily invested in (i) U.S.
dollar denominated non-convertible corporate debt securities, including bonds,
debentures and notes, (ii) debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and (iii) commercial paper,
repurchase agreements, certificates of deposit, bankers acceptances and other
cash equivalents. See "Comparison of Investment Objectives and Policies" below.
5
<PAGE> 13
AIM Income's investment policies and restrictions permit AIM Income
to invest in a wider variety of securities than is currently permitted under
Baird Bond's investment policies and restrictions. AIM believes that this
provides AIM Income with greater flexibility to take advantage of valuable
market opportunities. Both AIM Income and Baird Bond invest in fixed rate
corporate debt, U.S. Government obligations, U.S. Government Agency
Mortgage-Backed Securities and repurchase agreements. Unlike Baird Bond,
however, AIM Income is permitted to invest up to 35% of its net assets in debt
securities rated below Baa/BBB, which are commonly known as "junk bonds," and
up to 40% of its assets in securities issued by foreign entities. In addition,
AIM Income may engage in interest rate futures transactions and purchase
covered call options for hedging purposes. Although Baird Bond may invest in
futures and options and is not prohibited from investing in foreign securities,
in practice it does not do so. For a more detailed discussion of the
investment practices AIM Income and Baird Bond, see "Comparison of Investment
Objectives and Policies" below.
Risk Factors
The investment practices of AIM Income discussed above may result
in risks which are different than those currently associated with the
investment practices of Baird Bond. For a more complete discussion of AIM
Income's investment practices and the risks associated therewith, see "Risk
Factors" and "Comparison of Investment Objectives and Policies" below.
Performance
Set forth below are average annual total returns for the periods
indicated for each of AIM Income and Baird Bond.
<TABLE>
<CAPTION>
AIM Income Baird Bond
--------------------------------------- -------------------------------------
With Sales Load Without Sales Load With Sales Load Without Sales Load
--------------- ------------------ --------------- ------------------
<S> <C> <C>
1 Year Ended September 30, 1995 16.99% 12.64%
3 Years Ended September 30, 1995 7.58 5.38
</TABLE>
Performance figures are historical and reflect reinvestment of all
distributions, changes in net asset value, and the effect of the maximum sales
charge, unless otherwise indicated. Performance would have been lower had Baird
not waived a portion of its advisory and distribution fees of Baird Bond.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee comparable future results.
Advisory and Administrative Services
AIM Income
AIM serves as the investment advisor to AIM Income pursuant to a
Master Advisory Agreement dated October 18, 1993, as amended (the "Master
Advisory Agreement"). AIM was organized in 1976, and advises or manages 40
investment company portfolios (including AIM Income), including 23 portfolios
which comprise "The AIM Family of Funds(R)" as listed in the Investor's Guide
to The AIM Family of Funds(R) ("The AIM Family of Funds(R)") in the AFG
Prospectus, a copy of which is attached as Appendix I hereto. As of November
30, 1995, the total assets of the investment company portfolios advised or
managed by AIM and its affiliates were approximately $41.1 billion. AIM is a
wholly-owned subsidiary of A I M Management Group Inc. ("AIM Management").
Pursuant to the Master Advisory Agreement and as compensation for
its services to AIM Income, AIM is paid an investment advisory fee calculated
at an annual rate of 0.50% of the first $200 million of AIM Income's
6
<PAGE> 14
average daily net assets, plus 0.40% for the next $300 million of AIM Income's
average daily net assets, plus 0.35% for the next $500 million of AIM Income's
average daily net assets, plus 0.30% of AIM Income's average daily net assets
for amounts in excess of $1 billion. AFG pays or causes to be paid all
expenses of AIM Income which are not borne by AIM. For AIM Income's fiscal
year ended December 31, 1994, AIM Income's total expenses for the Class A
shares as a percentage of its average daily net assets was 0.98%.
AFG 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 AFG, including the services of a principal financial
officer and related staff. In consideration of AIM's services under the Master
Administrative Services Agreements, AIM Income 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 AFG.
AIM may in its discretion, from time to time, voluntarily agree to
waive all or any portion of its advisory fee and/or assume certain expenses of
AIM Income but will retain its ability to be reimbursed prior to the end of the
fiscal year. Such waivers and reimbursements will have the effect of
increasing AIM Income's yield to investors. Such waivers and reimbursements
(other than those set forth in the Master Advisory Agreement) may be rescinded
at any time.
Baird Bond
Baird, through its Investment Management Services Group, serves as
investment advisor to Baird Bond pursuant to an investment advisory agreement
("Baird Advisory Agreement"). Baird supervises and manages the investment
portfolio of Baird Bond and subject to such policies as BFI's Board of Directors
may determine, directs the purchase and sale of investment securities in the
day-to-day management of Baird Bond. Under the Baird Advisory Agreement, Baird
receives a monthly fee of 1/12 of 0.50 (0.50% per annum) of the daily net assets
of Baird Bond.
BFI has entered into an administration agreement with Fiduciary
Management, Inc. ("FMI") pursuant to which FMI supervises all aspects of Baird
Bond's operations, except those performed by Baird. FMI prepares and maintains
the books, accounts and other documents required by the 1940 Act, determines
Baird Bond's net asset value, responds to shareholder inquires, prepares
financial statements and excise tax returns, prepares reports and filings with
the SEC, furnishes statistical and research data, clerical, accounting and
bookkeeping services and stationery and office supplies, keeps and maintains
Baird Bond's financial accounts and records and generally assists in all
aspects of operations other than portfolio decisions. FMI, at its own expense
and without reimbursement from Baird Bond, furnishes office space and all
necessary office facilities, equipment and executive personnel for supervising
Baird Bond's operations. For the foregoing, FMI receives from Baird Bond a
monthly fee of 1/12 of 0.1% (0.1% per annum) on the first $20,000,000 of Baird
Bond's daily net assets and 1/12 of 0.05% (0.05% per annum) on the daily net
assets over $20,000,000.
Distribution
AIM Income
AIM Income's shares are 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. This
distribution arrangement, which represents a significantly broader distribution
arrangement than is presently available to Baird Bond, allows
7
<PAGE> 15
for greater opportunity for AIM Income to increase in size and to benefit from
corresponding lower expense ratios and potential for diversification as
compared to Baird Bond. AIM Distributors, a registered broker-dealer and a
wholly owned subsidiary of AIM, acts as the distributor of the Class A shares
of AIM Income. AFG has adopted a plan pursuant to Rule 12b-1 under the 1940
Act under which AFG may compensate AIM Distributors an aggregate amount of
0.25% of the average daily net assets of AIM Income on an annualized basis for
the purpose of financing any activity that is intended to result in the sale of
Class A shares of AIM Income.
Baird Bond
Baird acts as distributor of Baird Bond pursuant to a Distribution
Assistance Agreement with BFI. Substantially all of the shares of Baird Bond
have been sold through Baird to its clients and customers. Baird Bond has
adopted a Distribution Plan (the "Baird Bond Plan") pursuant to Rule 12b-1
under the 1940 Act. The Baird Bond Plan provides that Baird Bond shall pay
Baird from its assets a distribution fee calculated as the lesser of (a) 0.45%
per year of Baird Bond's average daily net assets, or (b) Baird's total costs
incurred during the year for distribution of Baird Bond's shares. Amounts paid
under the Baird Bond Plan may be spent by Baird on any activities or expenses
primarily intended to result in the sale of shares.
Expense Levels
Set forth below are the expenses a shareholder would incur in
purchasing shares of AIM Income and Baird Bond. No sales charges are applicable
to the Transaction.
<TABLE>
<CAPTION>
AIM Baird
Income Bond
------ --------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load
imposed on purchase
of shares (as a % of the
offering price) . . . . . . . . . . . . . . . . 4.75% 4.00%
</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 Investor's Guide to The AIM Family of Funds(R) in the
attached AFG Prospectus for more information about applicable sales charges for
AIM Income, as well as the Baird Bond Prospectus. Neither fund charges
redemption fees or exchange fees; however, a $5 service fee will be charged for
exchanges of AIM Income by accounts of market timers. Broker-dealers may
charge a service fee for redemptions or repurchases of Baird Bond and AIM
Income 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
Investors Guide to the AIM Family of Funds(R) in the attached AFG Prospectus
for more information about the deferred sales charge applicable to certain
redemptions of such purchases of AIM Income shares. See also the Baird Bond
Prospectus. Reinvestment of dividends of both AIM Income and Baird Bond are
exempt from sales loads.
Set forth below is a comparison of annual operating expenses
as a percentage of net assets ("Expense Ratio") for the Class A shares of AIM
Income and for Baird Bond. Expense Ratios are shown after any voluntary fee
waivers and expense reimbursements.
8
<PAGE> 16
<TABLE>
<CAPTION>
AIM Baird
Income (1) Bond (2)
---------- --------
<S> <C> <C>
ANNUAL OPERATING EXPENSES (AS A % OF NET ASSETS)
(AFTER FEE WAIVERS OR EXPENSE
REIMBURSEMENTS, IF ANY)
Management fees . . . . . . . . . . . . . . . . . 0.49% 0.50%
Administration fees . . . . . . . . . . . . . . . 0.03 0.10
Rule 12b-1 distribution plan
payments . . . . . . . . . . . . . . . . . . . 0.25 0.25
All other expenses . . . . . . . . . . . . . . . 0.21 0.15
---- ----
Total fund operating expenses . . . . . . . . . 0.98% 1.00%
==== ====
</TABLE>
The information in the following chart indicates applicable
fees for Baird Bond without fee waivers and expense reimbursements:
<TABLE>
<CAPTION>
Baird
Bond (3)
------
<S> <C>
ANNUAL OPERATING EXPENSES (AS A % OF NET ASSETS)
(WITHOUT FEE WAIVERS OR EXPENSE
REIMBURSEMENTS)
Management fees . . . . . . . . . . . . . . . . . 0.50%
Administration fees . . . . . . . . . . . . . . . 0.10
Rule 12b-1 distribution plan
payments . . . . . . . . . . . . . . . . . . . 0.18
All other expenses . . . . . . . . . . . . . . . 0.63
----
Total fund operating expenses . . . . . . . . . 1.41%
====
</TABLE>
______________________
(1) Information presented for AIM Income is for the fiscal year
ended 12/31/94.
(2) Expenses for Baird Bond have been restated to reflect fee waivers and
expense reimbursements in effect as of January 1, 1996.
(3) Information presented for Baird Bond is for the fiscal year
ended 9/30/95.
As a result of 12b-1 distribution plan payments, a long-term
shareholder of either AIM Income or Baird Bond may pay more than the economic
equivalent of the maximum front-end sales charges permitted by rules of the
National Association of Securities Dealers, Inc., ("NASD") although it is
estimated that it would require a substantial number of years to exceed such
maximum charges.
Sales Charges
No sales charges are applicable to the Transaction.
9
<PAGE> 17
AIM Income
Shares of AIM Income 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 2.00% to 4.75% of the offering price on
purchases of under $1,000,000. Certain categories of AIM Income shareholders
may purchase shares of the Fund at net asset value without the imposition of a
sales charge. In addition, purchases of Class A shares of AIM Income 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 Investor's Guide to The
AIM Family of Funds(R) in the attached AFG Prospectus.
Baird Bond
Shares of Baird Bond may be purchased at their net asset value
plus an initial sales charge. The sales charge represents a percentage of the
offering price. For shares of Baird Bond, the sales charge ranges from 2.00%
to 4.00% of the offering price on purchases of under $1,000,000. Baird Bond
imposes a 1% CDSC (but no initial sales load) in the event of a redemption
occurring within 12 months of a purchase of shares of Baird Bond (i) of $100,000
and over (ii) by an investment advisory client of Baird, or (iii) with proceeds
of a redemption of shares of an unrelated mutual fund. For more information,
see "Purchase of Shares" set forth in the Baird Bond Prospectus.
Shares of AIM Income received in connection with the
Transaction which correspond to shares of Baird Bond purchased in an amount of
$1,000,000 or over and subject to the 12 month CDSC period continue to be
subject to a CDSC for the remainder of such period.
Baird Bond also permits certain categories of investors to
purchase shares of the Baird Mutual Funds at net asset value without the
imposition of a sales charge. Some of these categories differ from the
categories of shareholders who may purchase shares of The AIM Family of
Funds(R) at net asset value. As a result, certain shareholders of Baird Bond
who are presently permitted to purchase shares of the Baird Mutual Funds at net
asset value without the imposition of a sales charge, including investment
advisory clients of Baird, may be subject to sales charges upon the purchase of
shares of funds in The AIM Family of Funds(R). See the Investor's Guide to The
AIM Family of Funds(R) in the attached AFG Prospectus.
Minimum Purchases
AIM Income
The minimum initial investment in AIM Income is $500. Lower
minimums apply to investments made by certain retirement plans and accounts.
There are no such minimum investment requirements for investment of dividends
and distributions into an existing account of any of The AIM Family of
Funds(R). See the Investor's Guide to The AIM Family of Funds(R) in the
attached AFG Prospectus.
Baird Bond
The Board of Directors of BFI 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 discussion "Purchase of Shares" in the
Baird Bond Prospectus.
10
<PAGE> 18
Exchanges
AIM Income
AIM Income is a part of The AIM Family of Funds(R) which
consists of 23 portfolios, including a variety of debt and equity portfolios,
taxable and tax-free portfolios, domestic and international portfolios, and
money market funds. AIM Income shareholders may exchange their shares for Class
A shares of other funds in The AIM Family of Funds(R). Exchanges may be made by
mail or, subject to certain conditions, by telephone. AIM Income shareholders
may exchange their shares for shares of other funds in The AIM Family of
Funds(R) at net asset value (without payment of a sales charge).
There is no fee for exchanges among funds in The AIM Family of
Funds(R). A service fee of $5 per transaction will, however, be charged by AIM
Distributors on accounts of market timing investment firms to help to defray
the costs of maintaining an automated exchange service. This service fee will
be charged against the market timing account from which shares are being
exchanged. For more information, consult the Investor's Guide to The AIM
Family of Funds(R) in the attached AFG Prospectus.
Baird Bond
Shareholders of each of the Baird Mutual Funds (including
Baird Bond) 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 other
of the 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 discussion under "Exchange Privileges" set forth in
the Baird Bond Prospectus.
Redemption Procedures
AIM Income
Shares of AIM Income may be redeemed directly through AIM
Distributors or through any dealer who has entered into an agreement with AIM
Distributors. AIM Distributors also repurchases shares. There is no
redemption fee imposed when shares of AIM Income are redeemed or repurchased;
however, dealers may charge service fees for handling repurchase transactions.
Upon receipt of a redemption request in proper form, payment will be made as
soon as practicable, but in any event within seven days after receipt.
Shares of AIM Income will be issued at the time of the
Transaction to shareholders of Baird Bond. Such AIM Income shares will be
issued in book entry form, and will accrue dividends and confer all other
shareholder rights. However, AIM Income shareholders who held their
corresponding Baird Bond shares in certificated form may not redeem or exchange
their AIM Income shares and may not receive AIM Income certificates (if they so
requested), until such Baird Bond certificates are physically surrendered to
AIM.
Shares of AIM Income are redeemed at their net asset value
next computed after a request for redemption in proper form is received by
either AFS or AIM Distributors, except that AIM Income 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. For more information on Redemption
Procedures, see the Investor's Guide to The AIM Family of Funds(R) in the
attached AFG Prospectus.
11
<PAGE> 19
Baird Bond
A shareholder may require any of the Baird Mutual Funds to
redeem the shareholder's shares in whole or part at any time. Redemption
requests must be made in writing and directed to Baird Mutual Funds, c/o
Firstar Trust Company. The redemption price is the net asset value next
determined after receipt by Firstar Trust Company in its capacity as transfer
agent of the written request in proper form with all required documentation. A
contingent deferred sales charge is imposed upon the redemption of shares
initially purchased without a sales charge because the purchase was (i)
$1,000,000 or more with respect to shares of Baird Bond, (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 contingent deferred sales charge is imposed in the event of a redemption
transaction occurring within 12 months following such a purchase. This
contingent deferred sales charge is equal to 1% of the lesser of the net asset
value of such shares at the time of purchase or at the time of redemption. For
more information on redemption procedures for Baird Bond, see the discussion
"Redemption and Repurchase of Shares" set forth in the Baird Bond Prospectus.
12
<PAGE> 20
RISK FACTORS
AIM Income is permitted to invest in non-investment grade debt
securities, foreign securities and futures contracts and related options. The
following is a description of risks associated with such investments. Although
Baird Bond is permitted to invest in futures and options and is not prohibited
from investing in foreign securities, in practice it does not do so. It may
not invest in non-investment grade debt securities or foreign securities.
RISKS REGARDING NON-INVESTMENT GRADE DEBT SECURITIES.
AIM Income seeks to meet its investment objectives, in part,
by investing up to 35% of its net assets in non-investment grade debt
securities, commonly known as "junk bonds." While generally providing greater
income and opportunity for gain, non-investment grade debt securities may be
subject to greater risks than higher-rated securities. Economic downturns tend
to disrupt the market for junk bonds and adversely affect their values and
liquidity. Such economic downturns may be expected to result in increased price
volatility for junk bonds and of the value of shares of AIM Income, and
increased issuer defaults on junk bonds.
In addition, many issuers of junk bonds are substantially
leveraged, which may impair their ability to meet their obligations. In some
cases, junk bonds are subordinated to the prior payment of senior indebtedness,
which potentially limits AIM Income's ability to fully recover principal or to
receive payments when senior securities are subject to a default.
The credit rating of a junk bond does not necessarily address
its market value risk, and ratings may from time to time change to reflect
developments regarding the issuer's financial condition. Junk bonds have
speculative characteristics which are likely to increase in number and
significance with each successive lower rating category.
When the secondary market for junk bonds becomes more
illiquid, or in the absence of readily available market quotations for such
securities, the relative lack of reliable objective data makes it more
difficult for the trustees to value AIM Income's securities, and judgment plays
a more important role in determining such valuations. Increased illiquidity in
the junk bond market also may affect AIM Income's ability to dispose of such
securities at desirable prices.
In the event AIM Income experiences an unexpected level of net
redemptions, its could be forced to sell its junk bonds without regard to their
investment merits, thereby decreasing the asset base upon which the fund's
expenses can be spread and possibly reducing the fund's rate of return. Prices
of junk bonds have been found to be less sensitive to fluctuations in interest
rates, and more sensitive to adverse economic changes and individual corporate
developments than those of higher-rated debt securities.
RISKS REGARDING FOREIGN SECURITIES.
AIM Income may invest up to 40% of its total assets in
securities issued by foreign entities, including American Depositary Receipts
("ADRs") and European Depositary Receipts ("EDRs"). Investments by AIM Income
in foreign securities, whether denominated in U.S. dollars or foreign
currencies, may entail all of the risks set forth below. Investments by AIM
Income in American Depositary Receipts, European Depositary Receipts or similar
securities also may entail some or all of the risks described below.
Currency Risk. The value of the AIM Income'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
13
<PAGE> 21
rises against the foreign currency in which the security is denominated, and
increases when the value of the U.S. dollar falls against such currency.
Political and Economic Risk. The economies of many of the
countries in which AIM Income may invest may not be as developed as the United
States' economy and may be subject to significantly different forces.
Political or social instability, expropriation or confiscatory taxation, and
limitations on the removal of funds or other assets could also adversely affect
the value of AIM Income investments.
Regulatory Risk. Foreign companies are not registered with
the SEC and are generally not subject to the regulatory controls imposed on
United States issuers and, as a consequence, there is generally less publicly
available information about foreign securities than is available about domestic
securities. Foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to domestic companies. Income from foreign securities owned
by AIM Income may be reduced by a withholding tax at the source, which tax
would reduce dividend income payable to its shareholders.
Market Risk. The securities markets in many of the countries
in which AIM Income may invest will have substantially less trading volume than
the major United States markets. As a result, the securities of some foreign
companies may be less liquid and experience more price volatility than
comparable domestic securities. Increased custodian costs as well as
administrative costs (such as the need to use foreign custodians) may be
associated with the maintenance of assets in foreign jurisdictions. There is
generally less government regulation and supervision of foreign stock
exchanges, brokers and issuers which may make it difficult to enforce
contractual obligations. In addition, transaction costs in foreign securities
markets are likely to be higher, since brokerage commission rates in foreign
countries are likely to be higher than in the United States.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS
AIM Income may purchase and sell interest rate futures
contracts or purchase and sell options thereon to hedge its portfolio of debt
securities against changes in interest rates. The use of futures contracts and
related options as hedging devices presents several risks. 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 securities or foreign
currency which are the subject of the hedge. If the price of a hedging
instrument moves less than the price of the stocks, debt securities or foreign
currency which are 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 securities or foreign currency, AIM Income will experience
either a loss or a gain on the hedging instrument which will not be completely
offset by movements in the price of the stock, debt securities or foreign
currency which are the subject of the hedge. The use of options on futures
contracts involves the additional risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option.
Successful use of hedging instruments by AIM Income is also
subject to AIM's ability to predict correctly movements in the direction of
interest rates or of foreign exchange rates (foreign currencies). Because of
possible price distortions in the futures and options 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 AIM Income 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, AIM Income 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.
14
<PAGE> 22
Positions in futures contracts or options may be closed out
only on an exchange on which such contracts are traded. Although AIM Income
intends to purchase or sell futures contracts or purchase options only on
exchanges or boards of trade where there appears to be an active market, there
is no assurance that a liquid market on an exchange or board of trade will
exist for any particular contract or at any particular time. If there is not a
liquid market at a particular time, it may not be possible to close a futures
position or purchase an option at such time. In the event of adverse price
movements under those circumstances, AIM Income would continue to be required
to make daily cash payments of maintenance margin on its futures positions.
The extent to which AIM Income may engage in futures contracts or related
options will be limited by the requirements of the Internal Revenue Code of
1986 as amended (the "Code") for qualification as a regulated investment
company and AIM Income's intent to continue to qualify as such. The result of
a hedging program cannot be foreseen and may cause AIM Income to suffer losses
which it would not otherwise sustain.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
AIM Income
The investment objective of AIM Income is to achieve a high
level of current income consistent with reasonable concern for safety of
principal by investing in fixed rate corporate debt and U.S. Government
obligations. AIM Income may also invest in preferred stock issues, convertible
corporate debt and U.S. Government agency securities, including mortgage-backed
securities. The percent of AIM Income's assets in various types of securities
will vary in light of AIM Income's investment objective and existing market
conditions.
Baird Bond
The investment objective of Baird Bond is to provide a high
level of current income. Baird Bond seeks its investment objective through
investments in a diversified portfolio of investment grade debt securities of
domestic and foreign issuers. At least 80% of Baird Bond's net assets are
invested in (i) U.S. dollar denominated non- convertible corporate debt
securities, including bonds, debentures and notes, (ii) debt securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, and
(iii) commercial paper, repurchase agreements, certificates of deposit, bankers
acceptances and other cash equivalents.
INVESTMENT POLICIES
AIM Income
AIM Income's objective is to achieve a high level of current
income consistent with reasonable concern for safety of principal, by investing
primarily in fixed rate corporate debt, U.S. Government obligations and U.S.
Government Agency Mortgage-Backed Securities. AIM Income may also invest in
preferred stock issues and convertible corporate debt. In selecting portfolio
securities AIM Income will, in accordance with its concern for safety of
principal, consider individual credit risks, but shareholders should recognize
that the market value of even high quality long-term fixed rate securities will
fluctuate with changes in interest rate levels. The percent of AIM Income's
assets in various types of securities will vary in light of AIM Income's
investment objective and existing market conditions.
AIM Income may invest up to 40% of its total assets in
securities issued by foreign entities. Purchases of foreign securities which
are payable in foreign currencies will be affected either favorably or
unfavorably by changes in the value of the foreign currencies against the U.S.
dollar. Investing in foreign securities payable in foreign currencies carries
increased risk to AIM Income. AIM Income will maintain less than 35% of
15
<PAGE> 23
its net assets in debt securities rated below Baa/BBB, which are commonly known
as "junk bonds." See the discussion "Risk Factors" above.
A breakdown of the quality ratings of AIM Income's investments
as of November 30, 1995, is set forth in the following chart. The composition
of AIM Income's portfolio holdings are subject to change.
<TABLE>
<S> <C>
Aaa . . . . . . . . . . . . . . . . . . . . . . . . 25.38%
Aa . . . . . . . . . . . . . . . . . . . . . . . . 5.91%
A . . . . . . . . . . . . . . . . . . . . . . . . 13.16%
Baa . . . . . . . . . . . . . . . . . . . . . . . . 25.78%
Ba . . . . . . . . . . . . . . . . . . . . . . . . 9.84%
B . . . . . . . . . . . . . . . . . . . . . . . . 17.93%
Caa . . . . . . . . . . . . . . . . . . . . . . . . 1.49%
Ca . . . . . . . . . . . . . . . . . . . . . . . . 0
C . . . . . . . . . . . . . . . . . . . . . . . . 0
Unrated . . . . . . . . . . . . . . . . . . . . . . . . 0.51%
--------
Total Average
Annual Assets 100%
</TABLE>
Ordinarily, AIM Income does not purchase securities with the
intention of engaging in short-term trading. However, any particular security
will be sold, and the proceeds reinvested, whenever such action is deemed
prudent in light of AIM Income's investment objectives, regardless of the
holding period of that security. AIM Income will not necessarily dispose of a
security because of a reduction in rating. 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 a Fund, the portion of AIM Income's distributions
constituting taxable capital gains may increase. See the discussion under
"Dividends, Distributions and Tax Matters" set forth in the AFG Prospectus.
Baird Bond
The investment objective of Baird Bond is to provide a high
level of current income. Baird Bond will seek to achieve its investment
objective through investments in a diversified portfolio of investment grade
debt securities of domestic and foreign issuers. Investment grade securities
are (i) corporate bonds, debentures or notes rated at least BBB by S&P or Baa
by Moody's at the time of acquisition; (ii) commercial paper and cash
equivalents rated A-1 by S&P or Prime-1 by Moody's at the time of acquisition;
and (iii) any type of unrated debt security which Baird determines at the time
of acquisition to be of a quality comparable to the foregoing. A description
of the foregoing ratings is set forth in Baird Bond's Statement of Additional
Information under the caption "Description of Bond Ratings." It is anticipated
that at least 80% of Baird Bond's assets will be invested in the following:
o U.S. dollar denominated non-convertible corporate debt
securities including bonds, debentures and notes;
o Debt securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities;
o Mortgage-backed securities, collateralized mortgage
obligations and similar securities;
o Commercial paper, repurchase agreements, certificates of
deposit, bankers acceptances and other cash equivalents.
16
<PAGE> 24
Investments in mortgage-backed securities, collateralized
mortgage obligations and similar securities must be rated either AA by S&P or
Aa by Moody's or unrated but determined by Baird to be of comparable quality.
Baird Bond has adopted an investment policy pursuant to which it will invest,
under normal market conditions, at least 65% of its total assets in U.S.
non-convertible bonds and debentures issued by corporations or municipalities,
their agencies or instrumentalities or issued or guaranteed by the U.S.
Government or its agencies or instrumentalities.
The value of the securities in Baird Bond are subject to price
fluctuations resulting from various factors, including rising or declining
interest rates ("market risks") and the ability of the issuers of such
investments to make scheduled interest and principal payments ("financial
risks"). Baird attempts to minimize these risks when selecting investments by
taking into account interest rates, terms and marketability of obligations, as
well as the capitalization, earnings, liquidity and other indicators of the
issuer's financial condition. Baird Bond's intention to invest only in
investment grade securities (determined at the time of acquisition) will also
limit to some degree financial risks. Obligations rated BBB by S&P and Baa by
Moody's, although investment grade, do exhibit speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments than is the case
for higher-rated obligations. Unrated securities, while not necessarily of
lower quality than rated securities, may not have as broad a market as rated
securities. In addition, there may be less publicly available information with
respect to unrated securities and, to the extent that Baird Bond invests in
unrated securities, it will be more dependent on the research and analysis
performed by Baird. Baird Bond will not acquire a bond, note, or debenture
rated BBB by S&P or Baa by Moody's or an unrated bond, note or debenture which
is determined by Baird to be of comparable quality if after such acquisition
more than 35% of Baird Bond's total assets would be invested in such
securities. Baird Bond may retain up to 5% of its net assets in securities
whose ratings or quality have been downgraded to below investment grade
subsequent to their acquisition.
The value of fixed-income securities will tend to decrease
when interest rates rise and increase when interest rates fall. Baird Bond's
share prices will react similarly. When Baird believes interest rates will
decline significantly, Baird Bond generally will emphasize longer-term
securities. Conversely, when interest rates are expected to rise
significantly, Baird Bond generally will emphasize shorter-term securities.
Securities with shorter maturities, while offering lower yields, generally
provide greater price stability than longer-term securities and are less
effected by changes in interest rates. Baird Bond has the flexibility to
invest in fixed income securities without restriction upon the average maturity
of Baird Bond's securities. To the extent that Baird Bond invests to a
significant degree in longer-term securities, the net asset value of the fund
may be more volatile.
Although Baird Bond is authorized to engage in certain futures
and option transactions and is not prohibited from investing in foreign
securities, it has no intention of doing so at the present time.
INVESTMENT RESTRICTIONS
Set forth below are certain investment restrictions of AIM
Income and Baird Bond. Several of the investment limitations of AIM Income and
Baird Bond are substantially the same. Unless otherwise noted, the following
investment restrictions are fundamental policies. Fundamental policies may not
be changed without the approval of a majority of such fund's outstanding
shares, as defined in the 1940 Act. In addition, unless otherwise noted, AIM
Income 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.
17
<PAGE> 25
The following chart summarizes the differences between the
investment restrictions of AIM Income and Baird Bond:
<TABLE>
<CAPTION>
Investment Restriction AIM Income Baird Bond
---------------------- ---------- ----------
<S> <C> <C>
Futures AIM Income may purchase and sell Baird Bond will not (a) sell futures
interest rate futures contracts or contracts, purchase put options or
purchase and sell options. AIM write call options if, as a result,
Income will comply with California more than 25% of Baird Bond's total
Rule 260.140.85(b) by purchasing and assets would be held with futures and
selling only financial futures options; (b) purchase futures
contracts, options on financial contracts or write put options if, as
futures contracts and municipal bond a result, Baird Bond's total
index futures contracts which are obligations upon settlement or
listed on national securities or exercise of purchased futures
commodities exchanges, by limiting contracts and written put options
the aggregate premiums paid on all would exceed 25% of its total assets;
such options held at any one time to (c) purchase put or call options if,
less than 20% of AIM Income's net as a result, the amount of all
assets and by limiting the aggregate premiums paid for unexpired options
margin deposits required on all such purchased by Baird Bond would exceed
futures contracts or options thereon 5% of its total assets. This is not
to less than 5% of AIM Income's a fundamental policy.
total assets. This is not a
fundamental policy.
Short sales and AIM Income may not make short sales Baird Bond will not purchase
purchases of securities of securities or purchase securities securities on margin, participate in
on margin on margin, but it may obtain such a joint trading account or sell
short-term credits as are necessary securities short (except for such
for the clearance of purchases and short term credits as are necessary
sales of securities and may make for the clearance of transactions);
margin payments in connection with provided, however, that Baird Bond
transactions in financial futures may (i) enter into interest rate swap
contracts and options thereon. transactions (ii) purchase or sell
futures contracts, (iii) make initial
and variation margin payments in
connection with purchases or sales of
futures contracts or options on
futures contracts, (iv) write or
invest in put or call options and (v)
enter into foreign currency exchange
contracts.
Illiquid securities AIM Income may not invest more that Baird Bond will not invest in
15% of its average net assets at the illiquid securities. This is not a
time of purchase in investments fundamental policy.
which are not readily marketable.
This is not a fundamental policy.
</TABLE>
18
<PAGE> 26
<TABLE>
<CAPTION>
Investment Restriction AIM Income Baird Bond
---------------------- ---------- ----------
<S> <C> <C>
Securities of one AIM Income may not purchase the With respect to 75% of its total
issuer securities of any issuer if such assets, Baird Bond may not purchase
purchase would cause more than 5% of the securities of any issuer if such
the value of its assets to be purchase would cause more than 5% of
invested in the securities of such the value of the Fund's total assets
issuer (except U.S. Government to be invested in the securities of
securities, including securities any one issuer (except securities of
issued by its agencies and the U.S. government or any agency or
instrumentalities). AIM Income may instrumentality thereof), or purchase
not purchase the securities of any more than 10% of the outstanding
issuer if such purchase would cause voting securities of any one issuer.
more than 5% of the voting
securities, or more than 10% of the
securities of any class of such
issuer, to be held by AIM Income.
Issue senior securities No corresponding restriction. Baird Bond will not issue senior
securities, except as permitted under
the 1940 Act; provided, however,
Baird Bond may enter into options,
futures, options on futures, foreign
currency exchange contracts and
interest rate swap transactions.
Loans AIM Income may not make loans, Baird Bond will not lend money
except (a) through the purchase of a (except by purchasing debt securities
portion of an issue of bonds or or entering into repurchase
other obligations of types commonly agreements) or lend portfolio
offered publicly and purchased by securities.
financial institutions, (b) through
the purchase of short-term
obligations (maturing within a
year), including repurchase
agreements, and (c) AIM Income may
lend its portfolio securities,
provided that the value of the
securities loaned does not exceed
33-1/3% of AIM Income's total
assets. As a nonfundamental matter,
AIM Income will comply with Texas
Rule 123.2(6), and follow SEC
guidelines, that provide that loans
of its securities will be fully
collateralized.
</TABLE>
19
<PAGE> 27
<TABLE>
<CAPTION>
Investment Restriction AIM Income Baird Bond
---------------------- ---------- ----------
<S> <C> <C>
Industry concentration AIM Income may not concentrate 25% Baird Bond will not concentrate 25%
or more of its investments in a or more of the value of its total
particular industry. assets, determined at the time an
investment is made, exclusive of U.S.
government securities, in securities
issued by companies primarily engaged
in the same industry.
Underwriting AIM Income may not act as a Baird Bond will not act as a
securities underwriter. underwriter or distributor of
securities other than shares of Baird
Bond except to the extent that Baird
Bond's participation as part of a
group in bidding, or by bidding
alone, for the purchase of
permissible investments directly from
an issuer for Baird Bond's own
portfolio, may be deemed to be an
underwriting and except to the extent
Baird Bond may be deemed an
underwriter under the Securities Act
of 1933, as amended (the "Securities
Act"), by virtue of disposing of
portfolio securities.
Oil, gas or other AIM Income may not invest in Baird Bond will not purchase any
mineral exploration or interests in oil, gas or other interest in any oil, gas or any other
development mineral exploration or development mineral exploration or development
programs. This is not a fundamental program, including any oil, gas or
policy. mineral leases.
Real Estate AIM Income may not invest in real Baird Bond will not purchase or sell
estate, although AIM Income may real estate, interests in real estate
purchase securities secured by real or real estate mortgage loans and
estate or interests therein or will not make any investments in real
issued by issuers which invest in estate limited partnerships, but
real estate. Baird Bond may purchase and sell
securities that are backed by real
estate or issued by companies that
invest or deal in real estate, and
Baird Bond may purchase mortgage-
backed securities and similar
securities in accordance with Baird
Bond's investment objectives and
policies.
</TABLE>
20
<PAGE> 28
<TABLE>
<CAPTION>
Investment Restriction AIM Income Baird Bond
---------------------- ---------- ----------
<S> <C> <C>
Borrowing AIM Income may not borrow, except Baird Bond will not borrow money
that AIM Income may enter into except for temporary bank borrowings
financial futures contracts and that (not in excess of 5% of the value of
the right is reserved to borrow from its total assets) for emergency or
banks, provided that no borrowing extraordinary purposes, and will not
may exceed one-third of the value of pledge any of its assets except to
its total assets (including the secure borrowings and only to an
amount of such borrowings) less its extent not greater than 10% of the
liabilities (excluding the amount of value of its net assets; provided,
such borrowings) and may secure such however, Baird Bond may enter into
borrowings by pledging up to one- interest rate swap transactions and
third of the value of its total options, futures, options on futures
assets. (For the purposes of this and forward foreign currency exchange
restriction, collateral arrangements contracts.
with respect to margin for a
financial futures contract are not
deemed to be a pledge of assets.)
AIM Income will not purchase
securities while borrowings from
banks in an amount in excess of 5%
of its total assets are outstanding.
In addition, AIM Income will limit
borrowings from banks, reverse
repurchase agreements and dollar
roll transactions to an aggregate of
33-1/3% of its total assets at the
time of investment.
Commodities AIM Income may not buy or sell Baird Bond will not purchase or sell
commodities or commodity contracts, commodities or commodities contracts
although AIM Income may purchase and (except that Baird Bond Fund may
sell financial futures contracts and enter into futures contracts and
options thereon. options on futures contracts).
Securities with AIM Income may not invest in No corresponding restriction.
unlimited liability securities with unlimited liability
except for assessability allowed by
statutes with respect to wages.
</TABLE>
21
<PAGE> 29
<TABLE>
<CAPTION>
Investment Restriction AIM Income Baird Bond
---------------------- ---------- ----------
<S> <C> <C>
Puts and calls AIM Income may not invest in puts, Baird Bond is permitted to write or
calls, straddles, spreads or any invest in put or call options.
combination thereof, except,
however, that AIM Income may
purchase and sell options on
financial futures contracts and may
sell covered call options. AIM
Income may not, as a non-fundamental
restriction, write a covered call
option if, immediately thereafter,
the aggregate value of the
securities underlying all such
options, determined as of the date
the options were written, would
exceed 5% of the net assets of AIM
Income.
Warrants No corresponding restriction. Baird Bond will not purchase
warrants. This is not a fundamental
policy.
Investment companies AIM Income may not acquire for value Baird Bond will not purchase
the securities of any other securities of other investment
investment company, except in companies except as a part of a plan
connection with a merger, of merger, consolidation or
consolidation, reorganization or reorganization approved by the
acquisition of assets and except for shareholders of Baird Bond or
the investment in such securities of securities of money market mutual
funds representing compensation funds investing in U.S. government
otherwise payable to its trustees securities. This is not a
pursuant to any deferred fundamental policy.
compensation plan existing at any
time between AFG and its trustees.
Investing for control AIM Income may not invest for the Baird Bond will not make investments
purpose of influencing management or for the purpose of exercising control
exercising control. This is not a or management of any company except
fundamental policy. that Baird Bond may vote portfolio
securities in the discretion of BFI.
This is not a fundamental policy.
</TABLE>
22
<PAGE> 30
<TABLE>
<CAPTION>
Investment Restriction AIM Income Baird Bond
---------------------- ---------- ----------
<S> <C> <C>
Unseasoned issuers AIM Income may not invest in Baird Bond will not invest in
securities of companies which have a securities of issuers which have a
record of less than three years of record of less than 3 years
continuous operation if such continuous operation, including the
purchase at the time thereof would operation of any predecessor business
cause more than 5% of its total of a company which came into
assets to be invested in the existence as a result of a merger,
securities of such companies (with consolidation, reorganization or
such period of three years to purchase of substantially all of the
include the operation of any assets of such predecessor business.
predecessor company or companies, This is not a fundamental policy.
partnership or individual enterprise
if the company whose securities are
proposed for investment by AIM
Income has come into existence as
the result of a merger,
consolidation, reorganization or
purchase of substantially all of the
assets of such predecessor company
or companies, partnership or
individual enterprise). This is not
a fundamental policy.
Securities of companies No corresponding restriction. Baird Bond will not acquire or retain
with overlapping any security issued by a company, an
officers or directors officer or director of which is an
of the fund or its officer or director of Baird Bond or
investment advisor an officer, director or other
affiliated person of its investment
adviser. This is not a fundamental
policy.
Purchase of securities AIM Income may not purchase or Baird Bond will not acquire or retain
of issuers owned by retain the securities of any issuer, any security issued by a company in
officers or directors if the officers and trustees of AFG, which directors or officers of BFI,
of advisors or its advisors or distributor who own or directors or officers of its
distributors individually more than 1/2 of 1% of investment adviser, individually
the securities of such issuer, owning more than 1/2% of such
together own more than 5% of the company's securities, in the
securities of such issuer. This is aggregate own more than 5% of the
not a fundamental policy. securities of such company. This is
not a fundamental policy.
</TABLE>
23
<PAGE> 31
PORTFOLIO MANAGERS
AIM uses a team approach and a disciplined investment process
in providing investment advisory services to all of its accounts, including AIM
Income. AIM's investment staff consists of 95 individuals. While individual
members of AIM's investment staff are assigned primary responsibility for the
day-to-day management of each of AIM's accounts, all accounts are reviewed on a
regular basis by AIM's Investment Policy Committee to ensure that they are
being invested in accordance with the account's and AIM's investment policies.
The individuals who are primarily responsible for the day-to-day management of
AIM Income and their titles, if any, with AIM or its affiliates and AIM Income,
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 shown below.
Robert G. Alley and John L. Pessarra have been responsible for
the management of AIM Income since 1992, and Carolyn L. Gibbs has been
responsible for AIM Income since 1995. Mr. Alley is Senior Vice President of
A I M Capital Management, Inc. ("AIM Capital"), a wholly-owned subsidiary of
AIM, and Vice President of AIM and of AFG. Mr. Alley has been associated with
AIM since 1992 and has a total of 23 years of experience as an investment
professional. Prior to joining AIM, he was Senior Fixed Income Manager for
Waddell and Reed, Inc. Mr. Pessarra is Vice President of AIM Capital, has been
associated with AIM since 1990 and has a total of 11 years of experience as an
investment professional. Ms. Gibbs is Assistant Vice President of AIM Capital,
has been associated with AIM since 1992 and has over 10 years of experience as
an investment professional. Prior to 1992, Ms. Gibbs was a financial analyst
with Northwest Airlines.
See the discussion relating to portfolio managers under
"Management of the Funds - Baird Blue Chip Fund and Baird Quality Bond Fund"
set forth in the Baird Bond Prospectus.
24
<PAGE> 32
FINANCIAL INFORMATION
AIM Income
Shown below are the condensed financial highlights for a Class
A share outstanding for the six months ended June 30, 1995 and each of the years
in the nine-year period ended December 31, 1994. The following information
(other than the six month period ended June 30, 1995) has been audited by KPMG
Peat Marwick LLP, independent accountants, whose unqualified report therein is
included in the Statement of Additional Information. The following financial
material should be read in conjunction with the financial statements and notes
thereto also included in the Statement of Additional Information.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30,
1995 1994 1993 1992(A) 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41
Income from investment
operations: Net investment
income 0.29 0.58 0.60 0.60 0.61
Net gains (losses) on
securities (both realized and
unrealized) 0.62 (1.22) 0.61 (0.03) 0.66
-------- -------- -------- -------- --------
Total from investment
operations 0.91 (0.64) 1.21 0.57 1.27
-------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income (0.30) (0.49) (0.60) (0.61) (0.61)
Distributions from
net realized capital gains --- (0.01) (0.19) --- ---
Distributions from capital
--- (0.11) --- --- ---
-------- -------- -------- -------- --------
Total distributions (0.30) (0.61) (0.79) (0.61) (0.61)
-------- -------- -------- -------- --------
Net asset value, end of $ 7.81 $ 7.20 $ 8.45 $ 8.03 $ 8.07
period ======== ======== ======== ======== ========
Total return(b) 12.87% (7.65)% 15.38% 7.42% 18.00%
======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $222,189 $201,677 $244,168 $218,848 $231,798
======== ======== ======== ======== ========
Ratio of expenses to average
net assets 0.97%(c) 0.98% 0.98% 0.99%(d) 1.00%(d)
======== ======== ======== ======== ========
Ratio of net investment income
to average net assets 7.74%(c) 7.53% 7.01% 7.54%(d) 7.97%(d)
======== ======== ======== ======== ========
Portfolio turnover rate 172% 185% 99% 82% 67%
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1990 1989 1988 1987 1986
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 7.80 $ 7.53 $ 7.55 $ 8.20 $ 7.53
Income from investment
operations: Net investment
income 0.65 0.66 0.68 0.67 0.71
Net gains (losses) on
securities (both realized and
unrealized) (0.39) 0.32 (0.02) (0.63) 0.60
-------- --------- -------- -------- --------
Total from investment
operations 0.26 0.98 0.66 0.04 1.31
-------- --------- -------- -------- --------
Less distributions:
Dividends from net
investment income (0.65) (0.71) (0.68) (0.69) (0.64)
Distributions from
net realized capital gains --- --- --- --- ---
Distributions from capital --- --- --- --- ---
-------- --------- -------- -------- --------
Total distributions (0.65) (0.71) (0.68) (0.69) (0.64)
-------- --------- -------- -------- --------
Net asset value, end of $ 7.41 $ 7.80 $ 7.53 $ 7.55 $ 8.20
period ======== ======== ======== ======== ========
Total return(b) 3.65% 13.56% 9.01% 0.56% 18.04%
======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $215,987 $229,222 $218,946 $237,466 $273,121
======== ======== ======== ======== ========
Ratio of expenses to average
net assets 1.00% 0.96% 0.95% 0.84% 0.82%
======== ======== ======== ======== ========
Ratio of net investment income
to average net assets 8.73% 8.56% 8.81% 8.64% 8.93%
======== ======== ======== ======== ========
Portfolio turnover rate 106% 222% 361% 195% 85%
======== ======== ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges and for periods less than one year are
not annualized.
(c) Ratios are annualized and are based on average net assets of
$209,447,230.
(d) After waiver of advisory fees and expense reimbursements. Ratios of
expenses to average net assets prior to waiver of advisory fees and
expense reimbursements were 1.00% and 1.03% for 1992 and 1991,
respectively. Ratios of net investment income to average net assets
prior to waiver of advisory fees and expense reimbursements were 7.53%
and 7.94% for 1992 and 1991, respectively.
25
<PAGE> 33
Baird Bond
The following information has been audited by Price Waterhouse
LLP, independent accountants, whose unqualified report thereon is included in
the Statement of Additional Information. The following financial information
should be read in conjunction with the financial statements and notes thereto
also included in the Statement of Additional Information.
<TABLE>
<CAPTION>
FOR THE YEAR FROM
FOR THE YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992*
--------------------------------- TO SEPTEMBER 30,
1995 1994 1993
---------- ---------- -----------------------
<S> <C> <C> <C>
Net asset value, beginning of year . . . . . $ 9.00 $ 10.31 $ 10.00
Income from investment operations:
Net investment income . . . . . . . . 0.64 0.67 0.63
Net realized and unrealized gain
(loss) on investments . . . . . . . 0.46 (1.20) 0.31
------- -------- --------
Total from investment operations . . . . . . 1.10 (0.53) 0.94
Less distributions:
Dividends from net investment income . (0.64) (0.67) (0.63)
Distribution from net realized gains . - (0.11) -
------- -------- --------
Total from distributions . . . . . . . . . . (0.64) (0.78) (0.63)
------- -------- --------
Net asset value, end of year . . . . . . . . $ 9.46 $ 9.00 $ 10.31
======= ======== ========
Total Investment Return**** . . . . . . . . . 12.6% (5.4%) 9.8%
Ratios/Supplemental Data:
Net assets, end of year (in 000's $) . 7,701 7,961 6,240
Ratio of expenses (after reimbursement)
to average net assets** . . . . . . 0.6% 0.6% 0.4%
Ratio of net investment income
to average net assets*** . . . . . 7.0% 7.0% 6.2%
Portfolio turnover rate . . . . . . . 197.5% 99.6% 124.1%
</TABLE>
* Commencement of Operations.
** Computed after giving effect to adviser's expense limitation
undertaking. If the fund had paid all of its expenses, the ratios
would have been 1.4%, 1.7% and 2.1%, respectively, for the years
ended September 30, 1995, 1994 and 1993.
*** The ratio of net investment income prior to adviser's expense
limitation undertaking to average net assets for the years ended
September 30, 1995, 1994 and 1993 would have been 6.2%, 5.9% and
4.5%, respectively.
**** Total return does not include the sales load.
26
<PAGE> 34
MANAGEMENT DISCUSSION AND ANALYSIS OF PERFORMANCE
A discussion of the performance of AIM Income for the
six-month period ended June 30, 1995 is set forth in Appendix III to this Proxy
Statement/Prospectus. A discussion of the performance of Baird Bond for its
fiscal year ended September 30, 1995 is set forth in Appendix IV to this Proxy
Statement/Prospectus.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE TRANSACTION
The terms and conditions under which the Transaction may be
consummated are set forth in the Agreement. Significant provisions of the
Agreement are summarized below; however, this summary is qualified in its
entirety by reference to the Agreement, a copy of which is attached as Appendix
II to this Proxy Statement/Prospectus.
TRANSFER OF ASSETS
AIM Income will acquire substantially all of the assets of
Baird Bond in exchange for shares of AIM Income. The actual transfer of such
assets (the "Closing") is expected to occur on March 29, 1996, at 2:00 p.m.
Central Time (the "Effective Time") on the basis of values calculated as of the
close of business on the preceding business day in accordance with the policies
of AIM Income.
At the Closing, AFG will issue directly to the shareholders of
Baird Bond that number of shares of AIM Income equal in aggregate net asset
value to the aggregate value of Baird Bond's assets then transferred. It is
expected that the value of each shareholder's account with AIM Income
immediately after the Transaction will be the same as the value of such
shareholder's account with Baird Bond immediately prior to the Transaction.
The value calculations will be made pursuant to procedures customarily used by
AIM Income. Securities for which there is no readily ascertainable market
value will be valued by mutual agreement of BFI and AFG, provided such value is
consistent with AFG's pricing procedures. Promptly after the Closing, BFI will
take steps to pay any outstanding liabilities of Baird Bond and Baird Bond's
status as a designated series of shares of BFI will be terminated. Any assets
held by Baird Bond after the Transaction that are not used by BFI to discharge
the debts of Baird Bond 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 BFI and AFG. 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 BFI and AFG have made representations and warranties
in the Agreement that are customary in matters such as the Transaction. The
obligations of BFI and AFG pursuant to the Agreement are subject to various
conditions, including the following: (a) the assets of Baird Bond to be
acquired by AIM Income shall constitute at least 90% of the fair market value
of the net assets and at least 70% of the fair market value of the gross assets
held by Baird Bond 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 AIM Equity Funds,
Inc., acting on behalf of AIM Blue Chip Fund, and that certain Agreement and
Plan of Reorganization dated December 20, 1995 between Baird Capital
Development Fund, Inc. and AIM Equity Funds, Inc., acting on behalf of AIM
Capital Development Fund, shall have been consummated; (c) the transactions
contemplated by that certain Acquisition Agreement dated December 20, 1995
between AIM and Baird shall have
27
<PAGE> 35
been consummated; (d) AFG's Registration Statement on Form N-14 under the 1933
Act and the 1940 Act shall have been filed with the SEC and such Registration
Statement shall have become effective, and no stop-order suspending the
effectiveness of the Registration Statement shall have been issued, and no
proceeding for that purpose shall have been initiated or threatened by the SEC
(and not withdrawn or terminated); (e) the shareholders of Baird Bond shall
have approved the Agreement; (f) upon written request of AFG, Baird Bond shall,
prior to the Closing, have disposed of equity securities held by it to assure
that the consummation of the Transaction shall not result in the investment
portfolios of AFG owning in the aggregate ten percent or more of the voting
securities of any issuer, or Baird Bond shall have cooperated with and assisted
AFG 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 (g) the receipt of an opinion
from Ballard Spahr Andrews & Ingersoll, that the Transaction will not result in
the recognition of gain or loss for Federal income tax purposes for Baird Bond,
AIM Income or their shareholders.
AIM Income and Baird Bond have each agreed to bear their
respective expenses in connection with the Transaction. Baird has agreed with
Baird Bond that all costs, fees and expenses incurred in connection with the
Transaction (aggregated with the costs incurred by other Baird Mutual Funds
involved in transactions similar to the Transaction) in excess of $10,000 which
are reasonable and of a type normally incurred in transactions of this nature
will be borne by Baird. AIM has agreed to pay Baird one-half of those
expenses, and all of such expenses in excess of $120,000. The costs and
expenses to be borne by Baird Bond are estimated to be $570.
The Board of Directors of BFI may waive without shareholder
approval any default by AFG or any failure by AFG to satisfy any of the
conditions to BFI's obligations as long as such a waiver will not have a
material adverse effect on the benefits intended under the Agreement for the
shareholders of Baird Bond. The Agreement may be terminated and the Transaction
may be abandoned by either BFI or AFG at any time by mutual agreement of BFI
and AFG, or by either party in the event that Baird Bond shareholders do not
approve the Agreement or if the Closing does not occur on or before June 30,
1996.
If the Agreement is approved, an account will be established
for each shareholder of Baird Bond containing the appropriate number of shares
of AIM Income. Such accounts will contain certain information about the
shareholder that is identical to the account currently maintained for each
shareholder of Baird Bond.
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 Code; (ii) in accordance with Sections 361(a) and 361(c)(1) of
the Code, no gain or loss will be recognized by Baird Bond upon the transfer of
its assets to AIM Income; (iii) in accordance with Section 354(a)(1) of the
Code, no gain or loss will be recognized by any shareholder of Baird Bond upon
the exchange of shares of Baird Bond solely for shares of AIM Income; (iv) in
accordance with Section 358(a) of the Code, the tax basis of the shares of AIM
Income to be received by a shareholder of Baird Bond will be the same as the
tax basis of the shares of Baird Bond surrendered in exchange therefor; (v) in
accordance with Section 1223(1) of the Code, the holding period of the shares
of AIM Income to be received by a shareholder of Baird Bond will include the
holding period for which such shareholder held the shares of Baird Bond
exchanged therefor provided that such shares of Baird Bond are capital assets
in the hands of such shareholder as of the Closing; (vi) in accordance with
Section 1032 of the Code, no gain or loss will be recognized by AIM Income on
the receipt of assets of Baird Bond in exchange for shares of AIM Income; (vii)
in accordance with Section 362(b) of the Code, the tax basis of the assets of
Baird Bond in the hands of AIM Income will be the same as the tax basis of such
assets in the hands of Baird Bond immediately prior to the Transaction; (viii)
in accordance with Section 1223(2) of the Code, the holding period of the
assets of Baird Bond to be received by AIM Income will include the holding
period of such assets in the hands of Baird Bond immediately prior to the
Transaction; and (ix) AIM Income will succeed to and take into account the
items of Baird
28
<PAGE> 36
Bond 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 by the shareholders of Baird
Bond to sell, exchange or otherwise dispose of a number of shares of AIM Income
received in the Transaction that would reduce the Baird Bond Shareholders'
ownership of AIM Income shares to a number of shares having a value, as of the
Closing Date, of less than 50% of the value of all of the formerly outstanding
shares of Baird Bond as of the Closing Date; (B) following the Transaction, AIM
Income will continue the historic business of Baird Bond (for this purpose
"historic business" shall mean the business most recently conducted by Baird
Bond which was not entered into in connection with the Transaction) or use a
significant portion of Baird Bond's historic business assets in its business;
(C) at the direction of Baird Bond, AIM Income will issue directly to Baird
Bond's shareholders pro rata the shares of AIM Income that Baird Bond
constructively receives in the Transaction and Baird Bond will distribute its
other properties (if any) to its shareholders on, or as promptly as practicable
after, the Closing; (D) AIM Income has no plan or intention to reacquire any of
its shares issued in the Transaction, except to the extent that AIM Income is
required by the 1940 Act to redeem any of its shares presented for redemption;
(E) AIM Income does not plan or intend to sell or otherwise dispose of any of
the assets of Baird Bond 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; and (F)
AIM Income, Baird Bond and the shareholders of Baird Bond will pay their
respective expenses, if any, incurred in connection with the Transaction.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF THE TRANSACTION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS
AND CIRCUMSTANCES OF ANY SHAREHOLDER OF BAIRD BOND. BAIRD BOND 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.
CAPITAL LOSS CARRYFORWARD
Baird Bond currently has a capital loss carryforward available
to offset future capital gains of approximately $214,202. Under Section 381 of
the Code, AIM Income will succeed to the capital loss carryforwards of Baird
Bond. The carryforward period for capital losses is limited to eight years and
accordingly, absent realized capital gains, these capital loss carryforwards
will expire in 2003.
As a result of the Transaction, Baird Bond will undergo an
ownership change, as defined under Section 382 of the Code. The amount of Baird
Bond's capital loss carryforwards which can be taken into account each year by
AIM Income to offset any realized capital gains will be limited generally to an
amount equal to the fair market value of Baird Bond on the date the Transaction
is consummated multiplied by the adjusted federal long-term rate in effect at
that time.
The amount of such capital loss carryforwards may be different
at the Effective Time. The Agreement does not provide for any adjustment to the
number of shares that Baird Bond shareholders will receive to reflect any
potential income tax effect on the shareholders of Baird Bond which might
result from any differences in the proportionate amounts of the capital loss
carryforward because of the difficulty of predicting the potential use by AIM
Income of such capital loss carryforward. It is anticipated that there will be
no distributions to shareholders of current or future net realized gains on
investments until the capital loss carryforwards are offset or expire, although
any such gains would be reflected in the calculation of net asset value.
29
<PAGE> 37
ACCOUNTING TREATMENT
The Transaction will be accounted for on a continuing entity
(pooling of interests) basis. Accordingly, the book cost basis to AIM Income of
the assets of Baird Bond will be the same as the book cost basis of such assets
to Baird Bond.
RIGHTS OF SHAREHOLDERS
ELECTION OF TRUSTEES/DIRECTORS AND ANNUAL SHAREHOLDER MEETINGS
The shareholders of AFG are entitled to vote for election of
the trustees only to the extent such vote may be required by the 1940 Act, by
the Declaration of Trust or by AFG's Bylaws. 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. BFI 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 TRUSTEES/DIRECTORS
AFG's Declaration of Trust provides that the trustees of AFG
shall hold office during the lifetime of the Trust except as follows: (a) any
trustees may resign or retire; (b) any trustee may be removed by the other
trustee or the shareholders of AFG (as discussed below); or (c) any trustee who
has died or become incapacitated and is unable to serve may be retired by a
written instrument signed by a majority of the trustees. 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.
VACANCIES OF TRUSTEES/DIRECTORS
AFG's Declaration of Trust provides that in the case of
refusal to serve, death, resignation, retirement or removal of a trustee, or in
the case of an increase in the number of trustees, the remaining trustees may
either fill the vacancy, leave the vacancy unfilled or reduce the number of
trustees. Any appointment of a trustee shall be evidenced by a written
instrument signed by a majority of the trustees in office.
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.
REMOVAL OF TRUSTEES/DIRECTORS
A trustee of AFG may be removed by the vote of a majority of
shareholders present at any meeting of the shareholders of AFG at which a
quorum is present or at any time by written instrument signed by at least
two-thirds of the trustees and specifying when such removal becomes effective.
AFG's bylaws provide that holders of 10% of the outstanding shares of AFG may
require that the trustees call a special meeting for the removal of a trustee.
Wisconsin corporate law permits, and BFI's Bylaws provide for, the removal of a
director by shareholders, with or without cause, if approved by a majority of
votes cast.
30
<PAGE> 38
SPECIAL MEETINGS OF SHAREHOLDERS
AFG's Bylaws provide that trustees may call special meetings
of shareholders. Additionally, AFG's bylaws provide that holders of 10% of the
outstanding shares of AFG may require that the trustees call a special meeting
for the removal of a trustee. Wisconsin law provides that a special meeting of
shareholders may be called by the Board of Directors or any person authorized
by the bylaws. BFI'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.
SHAREHOLDER LIABILITY
The Delaware Business Trust Act provides that shareholders of
a Delaware business trust shall be entitled to the same limitations of
liability extended to shareholders of private for-profit corporations; however,
there is a remote possibility that, under certain circumstances, shareholders
of a Delaware business trust may be held personally liable for that trust's
obligations to the extent that the courts of another state which does not
recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. AFG's Agreement and Declaration of
Trust, as amended (the "Declaration of Trust"), provides that shareholders of
AFG shall not be subject to any personal liability for acts or obligations of
AFG and that every written agreement, obligation or other undertaking made or
issued by AFG shall contain a provision to the effect that shareholders are not
personally liable thereunder. In addition, the Declaration of Trust provides
for indemnification out of AFG property for any shareholder held personally
liable solely by reason of his or her being or having been a shareholder.
Therefore, the risk of any shareholder incurring financial loss beyond his
investment due to shareholder liability is limited to circumstances in which
AFG itself is unable to meet its obligations and the express disclaimer of
shareholder liabilities is determined not to be effective. Given the nature of
AFG's assets and operations, the possibility of AFG's being unable to meet its
obligations is considered remote, and given the nature of AFG's operations,
even if a claim were brought against AFG and a court determined that
shareholders were personally liable, it would not be likely to impose a
material obligation on a shareholder.
Wisconsin corporate law also generally shields shareholders
from liability for a corporation's obligations. Under Wisconsin law, however,
a shareholder may be liable to the extent that he or she knowingly receives any
distribution which exceeds the amount which he or she could properly receive
under Wisconsin law. A shareholder may also be liable, up to an amount equal
to the par value of shares owned by the shareholder, for all debts owing to
employees of the corporation for services performed for such corporation, but
not exceeding six months' service in any one case.
LIABILITY OF DIRECTORS/TRUSTEES AND OFFICERS
Under AFG's Declaration of Trust, the trustees of AFG shall
not be liable for any act or omission or any conduct whatsoever in their
capacity as trustees, except for liability to the trust or shareholders due to
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of trustee. While AFG's
Declaration of Trust does not contain any provision limiting the liability of
officers, under Delaware business trust law, the officers of AFG are not
personally liable to any person other than AFG or shareholders for any act,
omission or obligation of AFG or its trustees. AFG's Declaration of Trust and
Bylaws allow for the indemnification of trustees and officers to the fullest
extent permitted by Delaware law and AFG's Bylaws. Delaware law allows a
business trust to indemnify and hold harmless any trustee or other person from
and against any and all claims and demands whatsoever.
Wisconsin law provides that the directors of BFI are not
liable for any breach of, or failure to perform, any duty resulting solely from
his or her status as director, unless the person asserting liability proves
that the breach or failure to perform constitutes: (1) wilful failure to deal
fairly with BFI in connection with a matter
31
<PAGE> 39
in which the director has a material conflict of interest; (2) a violation of
criminal law (unless the director had reasonable cause to believe that the
conduct was lawful or no reasonable cause to believe that the conduct was
unlawful); (3) a transaction from which the director derived improper personal
profit; or (4) wilful misconduct. Neither Wisconsin corporate law nor BFI's
Articles of Incorporation or Bylaws specifically limits the liability of
officers. Wisconsin law provides for the indemnification of a director or
officer, to the extent that her 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.
DISSOLUTION
AFG's Declaration of Trust provides that AFG may be terminated
at any time (i) by the vote of a majority of shareholders present at any
meeting of the shareholders of AFG at which a quorum is present or (ii) by the
trustees by written notice to shareholders provided that as of the date on
which the Trustees have determined to so terminate AFG there are fewer than 100
holders of record of AFG. Any portfolio of AFG, including AIM Income, may be
terminated at any time (i) by a vote of the shareholders entitled to vote and
holding at least a majority of the shares of such portfolio provided that the
trustees have submitted the termination of such portfolio to the shareholders
for their approval or (ii) by the trustees by written notice to such
shareholders provided that, as of the date on which the trustees have
determined to terminate the portfolio, there are fewer than 100 holders of
record of such portfolio.
Under Wisconsin corporate law, the Board of Directors of BFI
may propose dissolution of BFI or any series of the corporation's common stock
(such as Baird Bond) for submission to the shareholders, which submission may
be conditioned on any basis. To be adopted, a proposal to dissolve the
corporation must be approved by a majority of all of the votes entitled to be
cast on the proposal.
VOTING RIGHTS
Currently, AFG's Declaration of Trust grants shareholders
power to do the following: (i) elect trustees, provided that a meeting of
shareholders has been called for that purpose; (ii) remove trustees, provided
that a meeting of shareholders has been called for that purpose; (iii)
terminate AFG or any Portfolio (such as AIM Income) or class of shares of AFG,
unless, as of the date on which the trustees have determined to so terminate
AFG or such Portfolio or class, there are fewer than 100 holders of record or
such terminating Portfolio or class of shares of AFG, provided, further, that
the Trustees have called a meeting of the Shareholders for the purpose of
approving any such termination; (iv) approve the sale of all or substantially
all the assets of AFG or of any Portfolio or call of shares of AFG, unless the
primary purpose of such sale is to change AFG's domicile or form of
organization; (v) approve the merger or consolidation of AFG or any Portfolio
or class of shares of AFG with and into another company, unless (A) the primary
purpose of such merger or consolidation is to change AFG's domicile or form of
organization, or (B) after giving effect to such merger or consolidation, based
on the number of shares outstanding as of a date selected by the trustees, the
shareholders of AFG or such Portfolio or class will have a majority of the
outstanding shares of the surviving company or portfolio or class, as the case
may be, (vi) approve any amendment to their voting rights; and (vii) approve
such additional matters as may be required by law or as the trustees, in their
sole discretion, shall determine.
Shareholders of a Wisconsin corporation such as BFI are
entitled to vote on numerous matters affecting the corporation (such as mergers
and sales of substantially all of the assets of the corporation) as provided by
Wisconsin corporation law.
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<PAGE> 40
SUPERMAJORITY VOTING PROVISIONS
Neither Delaware law nor AFG's Declaration of Trust and Bylaws provide
for supermajority voting provisions. Wisconsin law requires a supermajority
vote of the shareholders to approve a merger or share exchange unless the
shareholders receive a "fair price" for their shares or the corporation's
articles of incorporation contain a provision expressly electing not be
governed by such supermajority provisions. BFI'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
Neither Delaware law nor AFG's Declaration of Trust or Bylaws
provides AFG's shareholders with dissenters' rights.
Although Wisconsin corporate law provides dissenters' rights
to shareholders, the SEC takes the position that Rule 22c-1 under the 1940 Act
effectively preempts such dissenters' rights. Instead, shareholders have the
right to redeem their shares. See "Redemption Procedures - Baird Bond" above.
AMENDMENT TO ORGANIZATIONAL DOCUMENTS
The trustees of AFG may, without shareholder approval, amend
the Declaration of Trust at any time, except that no amendment may be made to
change the voting power of the shareholders of AFG as set forth in the
Declaration of Trust.
The Board of Directors of BFI 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 BFI'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 BFI's Articles of Incorporation.
OTHER SIGNIFICANT CONSIDERATIONS
As stated above, BFI is organized as a Wisconsin corporation
and AFG is a Delaware business trust. There is much that is similar between
the two forms of organization. For example, the responsibilities, powers and
fiduciary duties of the trustees of AFG are substantially the same as those of
the directors of BFI. There are, however, certain differences between the two
forms of organization. The operations of BFI, as a Wisconsin corporation, are
governed by its Articles of Incorporation and applicable Wisconsin law. The
operations of AFG, as a Delaware business trust, are governed by its
Declaration of Trust and Delaware law.
33
<PAGE> 41
OWNERSHIP OF AIM INCOME AND BAIRD BOND SHARES
CONTROL PERSONS
Ownership of AIM Income
As of December 15, 1995, Merrill Lynch Pierce Fenner & Smith
AIDS/Street Account, Mutual Fund Operations, P.O. Box 45286, Jacksonville,
Florida 33232, Attention: Private Client Group, owned of record 404,046 Class
B shares of AIM Income, or 7.9% of the outstanding shares of such class.
Ownership of Baird Bond
As of November 30, 1995, Baird, a Wisconsin corporation, owned
of record 652,700 shares of Baird Bond, or 81.45% of the outstanding shares of
the fund. On such date, Clark and Co., P.O. Box 39, Westerville, OH 43086-0039
owned of record 50,448 shares of Baird Bond, or 6.3% of the outstanding
shares of the fund.
Listed below is the name, address and percent ownership of
each person who as of November 30, 1995, to the knowledge of BFI, owned
beneficially 5% or more of the outstanding shares of the Fund:
<TABLE>
<CAPTION>
Percent
Beneficial
Name and Address Number of Shares Owned Ownership
---------------- ---------------------- ----------
<S> <C> <C>
Robert W. Baird & Co. Incorporated 50,000 6.24%
777 East Wisconsin Avenue
Milwaukee, WI 53202
R.H. Wagner Foundation, Ltd. 49,336 6.16%
P.O. Box 181
Lyons, WI 53148
Trout and Salmon Foundation 42,657 5.32%
P.O. Box 897
Sheboygan, WI 53082
</TABLE>
OWNERSHIP OF OFFICERS AND TRUSTEES/DIRECTORS
To the best of the knowledge of AFG, the beneficial ownership
of shares of AIM Income by officers and trustees of AFG as a group constituted
less than 1% of the outstanding shares of AIM Income as of the date of this
Proxy Statement/Prospectus. To the best of the knowledge of BFI, the
beneficial ownership of shares of Baird Bond by officers or directors of Baird
Bond as a group constituted less than 1% of the outstanding shares of Baird
Bond as of the date of this Proxy Statement/Prospectus.
CAPITALIZATION
The following table sets forth as of September 30, 1995, (i) the
capitalization of AIM Income, (ii) the capitalization of Baird Bond, and (iii)
the pro-forma capitalization of AIM Income as adjusted to give effect to the
transactions contemplated by the Agreement.
34
<PAGE> 42
<TABLE>
<CAPTION>
PRO FORMA
AIM INCOME
AIM INCOME BAIRD BOND AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Net Assets $229,719,617 $7,701,015 $237,420,632
Shares Outstanding 28,890,770 814,278 29,859,710
Net Asset Value Per Share $7.95 $9.46 $7.95
</TABLE>
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of AIM
Income 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 BFI and AFG have filed with the SEC pursuant to the requirements of the
Securities Act and the 1940 Act, to which reference is hereby made. The SEC
file number for BFI's registration statement containing the Prospectus and
Statement of Additional Information relating to Baird Bond is Registration No.
33-48892. Such Prospectus is incorporated herein by reference. The SEC file
number for AFG's registration statement containing the Prospectus and Statement
of Additional Information relating to AIM Income is Registration No. 2-27334.
Such Prospectus and Statement of Additional Information are incorporated herein
by reference.
AFG and BFI 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 BFI and AFG (including the Registration Statement of AFG
relating to AIM Income on Form N-14 of which this Proxy Statement/Prospectus is
a part and which is hereby incorporated by reference) 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 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 AIM INCOME AND BAIRD BOND
For more information with respect to AFG and AIM Income
concerning the following topics, please refer to the AFG Prospectus as
indicated: (i) see the discussion "Investment Objectives," "Summary," "About
the Funds," "Investment Programs," "Management" and "General Information" for
further information regarding AFG and AIM Income; (ii) see the discussion
"Summary," "Investment Programs," "Management" and "General Information" for
further information regarding management of AIM Income; (iii) see the
discussion "Summary," "Management," "Organization of the Trust," "Dividends,
Distributions and Tax Matters" and "General Information" for further
information regarding the capital stock of AIM Income; (iv) see the discussion
"Management," "How to Purchase Shares," "Terms and Conditions of Purchase of
the AIM Funds," "Special Plans," "Exchange Privilege," "Determination of Net
Asset Value" and "How to Redeem Shares" for further information regarding the
purchase, redemption and repurchase of AIM Income shares.
35
<PAGE> 43
For more information with respect to BFI and Baird Bond
concerning the following topics, please refer to the Baird Bond Prospectus as
indicated: (i) see the discussion "Introduction", "Investment Objectives and
Policies" and "Portfolio Securities and Investment Practices" for further
general information regarding BFI and Baird Bond; (ii) see the discussion
"Management of the Funds," "Financial Highlights" and "Purchase of Shares" for
further information regarding management of Baird Bond; (iii) see the
discussion "Dividend Reinvestment," "Dividends, Distributions and Taxes,"
"Capital Structure" and "Shareholder Reports" for further information regarding
the capital stock of Baird Bond; (iv) see the discussion "Management of the
Funds," "Determination of Net Asset Value," "Purchase of Shares,"
"Reinstatement Privilege," "Dividend Reinvestment," "Directed Reinvestment,"
"Systematic Withdrawal Plan," "Automatic Exchange Plan," "Exchange Privileges,"
"Individual Retirement Account and Simplified Employee Pension Plan" and
"Defined Contribution Retirement and 401(k) Plan" for further information
regarding the purchase, redemption and repurchase of Baird Bond shares.
36
<PAGE> 44
APPENDIX I
AIM BALANCED FUND
AIM GLOBAL UTILITIES FUND
AIM GROWTH FUND
AIM HIGH YIELD FUND
AIM INCOME FUND
AIM INTERMEDIATE GOVERNMENT FUND
AIM MONEY MARKET FUND
AIM MUNICIPAL BOND FUND
AIM VALUE FUND
(SERIES PORTFOLIOS OF AIM FUNDS GROUP)
SUPPLEMENT DATED DECEMBER 28, 1995 TO THE
PROSPECTUS DATED MAY 1, 1995, AS REVISED NOVEMBER 22, 1995
Effective January 1, 1995, Craig A. Smith will become an additional
person who will be primarily responsible for the day-to-day management of AIM
BALANCED FUND and AIM GLOBAL UTILITIES FUND. Mr. Smith is Vice President of
A I M Capital Management, Inc., has been associated with AIM since 1989, and
has 6 years of experience as an investment professional.
Effective January 2, 1996, the net asset value per share (or share
price) of each AIM Fund other than AIM MONEY MARKET FUND will be determined as
of the close of trading of the New York Stock Exchange (generally 4:00 p.m.
Eastern Time) on each business day of a fund. The net asset value per share (or
share price) of AIM MONEY MARKET FUND will be determined as of 12:00 noon and
the close of trading of the New York Stock Exchange on each business day of the
fund. For purposes of determining net asset value per share, futures and options
contacts generally will be valued 15 minutes after the close of trading of the
New York Stock Exchange.
Shares of the AIM Funds are purchased, exchanged or redeemed at the net
asset value next determined after receipt of an order for purchase, exchange or
redemption in proper form. Accordingly, orders for purchases, exchanges and
redemptions of shares of an AIM Fund other than AIM MONEY MARKET FUND 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 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. Orders for purchases, exchanges and redemptions of shares of AIM MONEY
MARKET FUND received by dealers prior to 12:00 noon or 4:00 p.m. Eastern Time on
any business day of the fund will be confirmed at the price next determined.
<PAGE> 45
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS(R)
AIM BALANCED FUND
AIM GLOBAL UTILITIES FUND
AIM GROWTH FUND
AIM HIGH YIELD FUND
AIM INCOME FUND
AIM INTERMEDIATE GOVERNMENT FUND
AIM MONEY MARKET FUND
AIM MUNICIPAL BOND FUND
AIM VALUE FUND
(SERIES PORTFOLIOS OF AIM FUNDS GROUP)
PROSPECTUS
MAY 1, 1995
AS REVISED
NOVEMBER 22, 1995
This Prospectus contains information about the nine mutual funds
listed above (the "Funds") which are separate series portfolios
of AIM Funds Group (the "Trust"), a Delaware business trust. The
investment objectives of the Funds are listed on the inside cover
page.
This Prospectus sets forth basic information about the Funds that
prospective investors should know before investing. It should be
read and retained for future reference. A Statement of Additional
Information, dated May 1, 1995, as revised August 22, 1995 and
supplemented September 20, 1995 and October 20, 1995, has been
filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Statement of Additional
Information is available without charge upon written request to
the Trust at P.O. Box 4739, Houston, Texas 77210-4739.
AIM HIGH YIELD FUND MAY INVEST UP TO 100% OF ITS NET ASSETS IN
NON-INVESTMENT GRADE DEBT SECURITIES, COMMONLY REFERRED TO AS
"JUNK BONDS." JUNK BONDS ARE CONSIDERED TO BE SPECULATIVE, AND
ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND
IN HIGHER RATED SECURITIES. PURCHASERS SHOULD CAREFULLY CONSIDER
THE RISKS ASSOCIATED WITH AN INVESTMENT IN THIS FUND PRIOR TO
INVESTING. SEE "INVESTMENT PROGRAMS -- AIM HIGH YIELD FUND,"
"CERTAIN INVESTMENT STRATEGIES AND POLICIES -- RISK FACTORS
REGARDING NON-INVESTMENT GRADE DEBT SECURITIES" AND "APPENDIX C
-- DESCRIPTIONS OF RATING CATEGORIES."
THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE FUNDS' SHARES ARE
NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THERE CAN BE NO ASSURANCE THAT AIM MONEY MARKET FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 46
INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
The investment objectives of the Funds are as follows:
AIM BALANCED FUND: To achieve as high a total return as possible, consistent
with preservation of capital, by investing in a broadly diversified portfolio of
high-yielding securities, including common stocks, preferred stocks, convertible
securities and bonds.
AIM GLOBAL UTILITIES FUND: To achieve a high level of current income, and as a
secondary objective to achieve capital appreciation, by investing primarily in
the common and preferred stocks of public utility companies.
AIM GROWTH FUND: To achieve long-term growth of capital by investing primarily
in the common stocks of established medium-to-large size companies with
prospects for above-average, long-term earnings growth.
AIM HIGH YIELD FUND: To achieve a high level of current income by investing
primarily in publicly traded debt securities of less than investment grade.
AIM INCOME FUND: To achieve a high level of current income consistent with
reasonable concern for safety of principal by investing primarily in fixed rate
corporate debt and U.S. Government obligations.
AIM INTERMEDIATE GOVERNMENT FUND: To achieve a high level of current income
consistent with reasonable concern for safety of principal by investing in debt
securities issued, guaranteed or otherwise backed by the United States
Government.
AIM MONEY MARKET FUND: To provide as high a level of current income as is
consistent with the preservation of capital and liquidity.
AIM MUNICIPAL BOND FUND: To achieve a high level of current income exempt from
federal income taxes consistent with the preservation of principal by investing
in a diversified portfolio of municipal bonds.
AIM VALUE FUND: To achieve long-term growth of capital by investing primarily
in equity securities judged by the Fund's investment advisor to be undervalued
relative to the investment advisor's appraisal of the current or projected
earnings of the companies issuing the securities, or relative to current market
values of assets owned by the companies issuing the securities or relative to
the equity market generally. Income is a secondary objective.
SUMMARY
- --------------------------------------------------------------------------------
THE FUNDS. AIM Funds Group (the "Trust") is a Delaware business trust
organized as an open-end, series, management investment company. Currently the
Trust offers nine separate series portfolios, each of which pursues unique
investment objectives. This Prospectus relates to all of such portfolios (the
"Funds"), which are listed on the cover.
THE ADVISOR. A I M Advisors, Inc. ("AIM") serves as each Fund's investment
advisor pursuant to a Master Investment Advisory Agreement (the "Advisory
Agreement").
AIM acts as manager or advisor to 38 investment company portfolios. As of
October 31, 1995, the total assets of the investment company portfolios advised
or managed by AIM or its affiliates were approximately $39.3 billion. Under the
terms of the Advisory Agreement, AIM supervises all aspects of each Fund's
operations and provides investment advisory services to each Fund. As
compensation for these services AIM receives a fee based on each Fund's average
daily net assets. Under a Master Administrative Services Agreement, AIM may be
reimbursed by each Fund for its costs of performing, or arranging for the
performance of, certain accounting, shareholder servicing and other
administrative services for the Funds.
MULTIPLE DISTRIBUTION SYSTEM. Investors may select Class A or Class B shares
of each Fund and, in the case of AIM MONEY MARKET FUND, Class C shares, all of
which are offered by this Prospectus at an offering price that reflects
differing sales charges and expense levels. See "Terms and Conditions of
Purchase of the AIM Funds -- Sales Charges and Dealer Concessions."
Class A Shares -- Shares are offered at net asset value plus any
applicable initial sales charge.
Class B Shares -- Shares are offered at net asset value, without an
initial sales charge, and are subject to a maximum contingent deferred
sales charge of 5% on certain redemptions made within six years from the
date such shares were purchased. Class B shares automatically convert to
Class A shares of the same Fund eight years following the end of the
calendar month in which a purchase was made. Class B shares are subject to
higher expenses than Class A shares.
Class C Shares (AIM MONEY MARKET FUND only) -- Shares are offered at
net asset value, without an initial sales charge and without contingent
deferred sales charges.
2
<PAGE> 47
SUITABILITY FOR INVESTORS. The Multiple Distribution System permits an
investor to choose the method of purchasing shares that is most beneficial given
the amount of the purchase, the length of time the shares are expected to be
held, whether dividends will be paid in cash or reinvested in additional shares
of a Fund and other circumstances. 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 of AIM MONEY MARKET FUND are
exchanged for shares of other funds advised by AIM that are sold with an initial
sales charge. Investors should consider whether, during the anticipated life of
their investment in a Fund, the accumulated distribution fees and any applicable
contingent deferred sales charges on Class B shares prior to conversion would be
less than the initial sales charge and accumulated distribution fees on Class A
shares purchased at the same time, and to what extent such differential would be
offset by the higher return on Class A shares. To assist investors in making
this determination, the table under the caption "Table of Fees and Expenses"
sets forth examples of the charges applicable to each class of shares. Class A
shares will normally be more beneficial than Class B shares to the investor who
qualifies for reduced initial sales charges, as described below. Therefore,
A I M Distributors, Inc. will reject any order for purchase of more than
$250,000 for Class B shares.
PURCHASING SHARES. Initial investments in any class of shares must be at least
$500 and additional investments must be at least $50. The minimum initial
investment is modified for investments through tax-qualified retirement plans
and accounts initially established with an Automatic Investment Plan. The
distributor of the Funds' shares is A I M Distributors, Inc. ("AIM
Distributors"), P.O. Box 4739, Houston, Texas 77210-4739. See "How to Purchase
Shares" and "Special Plans."
EXCHANGE PRIVILEGE. The Funds are among those mutual funds distributed by AIM
Distributors (collectively, "The AIM Family of Funds). Class A, Class B and
Class C shares of the Funds may be exchanged for shares of other funds in The
AIM Family of Funds in the manner and subject to the policies and charges set
forth herein. See "Exchange Privilege."
REDEEMING SHARES. Holders of Class A shares may redeem all or a portion of
their shares at net asset value on any business day, generally without charge. A
contingent deferred sales charge of 1% may apply to certain redemptions of Class
A shares, where purchases of $1 million or more were made at net asset value.
See "How to Redeem Shares -- Contingent Deferred Sales Charge Program for Large
Purchases."
Holders of Class B shares may redeem all or a portion of their shares at net
asset value on any business day, less a contingent deferred sales charge for
redemptions made within six years from the date such shares were purchased.
Class B shares redeemed after six years from the date such shares were purchased
will not be subject to any contingent deferred sales charge. See "How to Redeem
Shares -- Multiple Distribution System."
Holders of Class C shares of AIM MONEY MARKET FUND may redeem all or a portion
of their shares at net asset value on any business day, without charge.
DISTRIBUTIONS. AIM GLOBAL UTILITIES FUND, AIM HIGH YIELD FUND, AIM INCOME
FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM MONEY MARKET FUND and AIM MUNICIPAL
BOND FUND currently declare dividends from net investment income on a daily
basis and pay such dividends on a monthly basis. AIM BALANCED FUND currently
declares and pays dividends from net investment income on a quarterly basis. AIM
GROWTH FUND and AIM VALUE FUND currently declare and pay dividends from net
investment income, if any, on an annual basis. All of the Funds make
distributions of realized capital gains, if any, on an annual basis, although
AIM MONEY MARKET FUND may distribute net realized short-term capital gains more
frequently. Dividends and distributions paid with respect to Class A shares of a
Fund may be paid by check, reinvested in additional Class A shares of the Fund
or reinvested in shares of another fund in The AIM Family of Funds, subject to
certain conditions. Dividends and distributions paid with respect to Class B
shares of a Fund may be paid by check or reinvested in additional Class B shares
of other funds in The AIM Family of Funds at net asset value. Dividends and
distributions paid with respect to Class C shares of AIM MONEY MARKET FUND may
be paid by check, reinvested in additional Class C shares of the Fund, or
reinvested in shares of another fund in The AIM Family of Funds, subject to
certain conditions. See "Dividends, Distributions and Tax Matters" and "Special
Plans."
RISK FACTORS. Subject to certain restrictions designed to reduce any
associated risks, AIM MONEY MARKET FUND may invest in securities such as money
market instruments which are not rated (but are determined by AIM to be of
comparable quality to securities which have received the highest ratings),
certain repurchase agreements, and U.S. dollar-denominated obligations issued by
foreign banks. Accordingly, an investment in AIM MONEY MARKET FUND may entail
somewhat different risks from an investment in an investment company which does
not engage in such investment practices. See "Investment Programs."
AIM HIGH YIELD FUND, and to a lesser extent AIM BALANCED FUND, AIM GLOBAL
UTILITIES FUND, AIM INCOME FUND and AIM MUNICIPAL BOND FUND, seek to meet their
respective investment objectives by investing in non-investment grade debt
securities, commonly known as "junk bonds." Investments in junk bonds, while
generally providing greater income and opportunity for gain, may be subject to
greater risks than higher rated securities. Such risks may include: greater
market fluctuations and risk of loss of income and principal, limited liquidity
and secondary market support, greater sensitivity to economic and business
downturns, and certain other risks. See "Certain Investment Strategies and
Policies -- Risk Factors Regarding Non-Investment Grade Debt Securities."
Investors should carefully consider the relative risks and rewards of investing
in each of the above-named Funds prior to investing, and should not consider an
investment in any of those Funds to represent a complete investment program.
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.
3
<PAGE> 48
THE FUNDS
- --------------------------------------------------------------------------------
TABLE OF FEES AND EXPENSES
The following table is designed to help an investor in the Funds understand
the various costs that an investor will bear, both directly and indirectly.
<TABLE>
<CAPTION>
AIM
AIM GLOBAL AIM AIM AIM
BALANCED UTILITIES GROWTH HIGH YIELD INCOME
FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B A B A B A B A B
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum sales load imposed
on purchase of shares
(as a % of the offering
price)................. 4.75% None 5.50% None 5.50% None 4.75% None 4.75% None
Maximum sales load on
reinvested dividends... None None None None None None None None None None
Deferred sales load (as a
% of original purchase
price or redemption
proceeds, whichever
is lower).............. None* 5.0% None* 5.0% None* 5.0% None* 5.0% None* 5.0%
Redemption fees........... None None None None None None None None None None
Exchange fee**............ None None None None None None None None None None
Annual Fund Operating
Expenses (as a % of
average net assets)
Management fees(1)........ 0.75% 0.75% 0.60% 0.60% 0.79% 0.79% 0.56% 0.56% 0.49% 0.49%
Rule 12b-1 distribution
plan payments.......... 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
All other expenses........ 0.68% 0.70% 0.33% 0.47% 0.32% 0.53% 0.19% 0.24% 0.24% 0.34%(2)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total fund
operating
expenses........ 1.68% 2.45% 1.18% 2.07% 1.36% 2.32% 1.00% 1.80% 0.98% 1.83%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AIM
INTERMEDIATE AIM AIM AIM
GOVERNMENT MONEY MUNICIPAL VALUE
FUND MARKET FUND BOND FUND FUND
------------ -------------------- ------------ ------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B A B C A B A B
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales load imposed on
purchase of shares (as a % of
the offering price)........... 4.75% None 5.50% None None 4.75% None 5.50% None
Maximum sales load on reinvested
dividends..................... None None None None None None None None None
Deferred sales load (as a % of
original purchase price or
redemption proceeds, whichever
is lower)..................... None* 5.0% None* 5.0% None None* 5.0% None* 5.0%
Redemption fees.................. None None None None None None None None None
Exchange fee**................... None None None None None None None None None
Annual Fund Operating Expenses (as
a % of average net assets)
Management fees(1)............... 0.50% 0.50% 0.55% 0.55% 0.55% 0.47% 0.47% 0.64% 0.64%
Rule 12b-1 distribution plan
payments...................... 0.25% 1.00% 0.25% 1.00% 0.25% 0.25% 1.00% 0.25% 1.00%
All other expenses............... 0.29% 0.32%(2) 0.20% 0.23% 0.20% 0.17% 0.20%(2) 0.27% 0.44%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total fund operating
expenses............... 1.04% 1.82% 1.00% 1.78% 1.00% 0.89% 1.67% 1.16% 2.08%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ------------------------
(1) "Management fees" for both classes of AIM GROWTH FUND and AIM VALUE FUND
have been restated to reflect the current level of such fees. "Management
fees" for both classes of AIM BALANCED FUND have been restated to reflect
the elimination of fee waivers. Management fees and other expenses have been
restated for all classes of AIM MONEY MARKET FUND to reflect the current
level of such fees. In addition, the rules of the Securities and Exchange
Commission require that the maximum sales charges be reflected in the table
even though certain investors may qualify for reduced sales charges. See
"How to Purchase Shares."
(2) After fee waivers or expense reimbursements. Had expenses not been
reimbursed, "all other expenses" would have been 0.55%, 0.37% and 0.37% with
respect to Class B of AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND and
AIM MUNICIPAL BOND FUND.
* Purchases of $1 million or more are not subject to an initial sales charge.
However, a contingent deferred sales charge of 1% applies to certain
redemptions made within 18 months from the date such shares were purchased.
See the Investor's Guide, under the caption "How to Redeem Shares --
Contingent Deferred Sales Charge Program for Large Purchases."
** No fee will be charged for exchanges among The AIM Family of Funds; however,
a $5 service fee will be charged for exchanges by accounts of market timers.
4
<PAGE> 49
- --------------------------------------------------------------------------------
EXAMPLES. You would pay the following expenses on a $1,000 investment in
Class A shares of the Funds, assuming (1) a 5% annual return and (2)
redemption at the end of each time period:
<TABLE>
<CAPTION>
AIM AIM AIM AIM AIM
AIM GLOBAL AIM HIGH AIM INTERMEDIATE MONEY MUNICIPAL AIM
BALANCED UTILITIES GROWTH YIELD INCOME GOVERNMENT MARKET BOND VALUE
FUND FUND FUND FUND FUND FUND FUND FUND FUND
--------- --------- ------ ----- ------ ------------ ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year...... $ 64 $ 66 $ 68 $ 57 $ 57 $ 58 $ 65 $ 56 $ 66
3 years..... 98 90 96 78 77 79 85 75 90
5 years..... 134 116 125 100 99 102 107 95 115
10 years.... 237 190 210 164 162 169 170 152 188
</TABLE>
The above examples assume payment of a sales charge at the time of purchase;
actual expenses may vary for purchases of $1 million or more, which are made at
net asset value and are subject to a contingent deferred sales charge for 18
months following the end of the calendar month of purchase.
You would pay the following expenses on a $1,000 investment in Class B shares
of the Funds, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
AIM AIM AIM AIM AIM
AIM GLOBAL AIM HIGH AIM INTERMEDIATE MONEY MUNICIPAL AIM
BALANCED UTILITIES GROWTH YIELD INCOME GOVERNMENT MARKET BOND VALUE
FUND FUND FUND FUND FUND FUND FUND FUND FUND
--------- --------- ------ ----- ------ ------------ ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year...... $ 75 $ 71 $ 74 $ 68 $ 69 $ 68 $ 68 $ 67 $ 71
3 years..... 106 95 102 87 88 87 86 83 95
5 years..... 141 121 134 107 109 109 106 101 122
10 years.... 279 240 266 212 215 214 209 198 241
</TABLE>
You would pay the following expenses on the same $1,000 investment in Class B
shares, assuming no redemption at the end of each time period:
<TABLE>
<CAPTION>
AIM AIM AIM AIM AIM
AIM GLOBAL AIM HIGH AIM INTERMEDIATE MONEY MUNICIPAL AIM
BALANCED UTILITIES GROWTH YIELD INCOME GOVERNMENT MARKET BOND VALUE
FUND FUND FUND FUND FUND FUND FUND FUND FUND
--------- --------- ------ ----- ------ ------------ ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year...... $ 25 $ 21 $ 24 $ 18 $ 19 $ 18 $ 18 $ 17 $ 21
3 years..... 76 65 72 57 58 57 56 53 65
5 years..... 131 111 124 97 99 99 96 91 112
10 years.... 279 240 266 212 215 214 209 198 241
</TABLE>
You would pay the following expenses on a $1,000 investment in Class C shares
of AIM MONEY MARKET FUND, assuming (1) a 5% annual return and (2) redemption at
the end of each time period:
<TABLE>
<CAPTION>
AIM
MONEY
MARKET
FUND
----
<S> <C>
1 year.................................. $ 10
3 years................................. 32
5 years................................. 55
10 years................................ 122
</TABLE>
As a result of 12b-1 distribution plan payments, a long-term shareholder of
the Funds 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. Given the maximum front-end and contingent deferred sales charges
and the 12b-1 distribution plan payments applicable to Class A shares and Class
B shares of the Funds, it is estimated that it would require a substantial
number of years to exceed the maximum permissible front-end sales charges.
The above examples should not be considered to be representative of the
Funds' actual or future expenses, which may be greater or less than those
shown. In addition, while the examples assume a 5% annual return, each Fund's
actual performance will vary and may result in an actual return that is
greater or less than 5%. The examples assume reinvestment of all dividends and
distributions and that the percentage amounts for total fund operating
expenses remain the same for each year.
5
<PAGE> 50
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following per share data, ratios and supplemental data for the Class A
shares of AIM BALANCED FUND (formerly, AIM Convertible Securities, Inc.), AIM
GLOBAL UTILITIES FUND (formerly, AIM Utilities Fund), AIM GROWTH FUND, AIM HIGH
YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND (formerly, AIM
Government Securities Fund), AIM MUNICIPAL BOND FUND and AIM VALUE FUND for (i)
all periods presented for AIM BALANCED FUND and (ii) the year ended December 31,
1994 and the period ended December 31, 1993 for the Funds other than AIM
BALANCED FUND have been audited by KPMG Peat Marwick LLP,independent auditors,
whose reports thereon were unqualified. The per share data, ratios and
supplemental data for the Class A shares of AIM GLOBAL UTILITIES FUND, AIM
GROWTH FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT
FUND, AIM MUNICIPAL BOND FUND and AIM VALUE FUND for each of the periods
presented other than those described above have been derived from financial
statements audited by Price Waterhouse LLP, independent accountants, whose
reports thereon were also unqualified. This information should be read in
conjunction with the Funds' financial statements included in the Statement of
Additional Information. The investment advisor to the above-named Funds, other
than AIM BALANCED FUND, changed on June 30, 1992.+
(PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM BALANCED FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR SEPTEMBER 1,
ENDED 1993 TO YEAR ENDED AUGUST 31,
DECEMBER 31, DECEMBER 31, -----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 16.10 $ 15.97 $ 12.77 $ 12.04 $ 9.73 $ 10.67 $ 9.08
Income from investment operations:
Net investment income......................... 0.44 0.10 0.32 0.29 0.28 0.32 0.39
Net gains or losses on securities (both
realized and unrealized).................... (1.31) 0.18 3.18 0.74 2.33 (0.91) 1.63
------- ------- ------- ------- ------- -------- --------
Total from investment operations.............. (0.87) 0.28 3.50 1.03 2.61 (0.59) 2.02
------- ------- ------- ------- ------- -------- --------
Less distributions:
Dividends from net investment income.......... (0.39) (0.15) (0.30) (0.30) (0.30) (0.35) (0.43)
Distributions from net realized capital
gains....................................... (0.22) -- -- -- -- -- --
------- ------- ------- ------- ------- -------- --------
Total distributions........................... (0.61) (0.15) (0.30) (0.30) (0.30) (0.35) (0.43)
------- ------- ------- ------- ------- -------- --------
Net asset value, end of period................. $ 14.62 $ 16.10 $ 15.97 $ 12.77 $ 12.04 $ 9.73 $ 10.67
======= ======= ======= ======= ======= ======== ========
Total return(a)................................ (5.44)% 1.76% 27.75% 8.66% 27.41% (5.67)% 22.96%
======= ======= ======= ======= ======= ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted)...... $37,572 $23,520 $19,497 $11,796 $11,750 $ 10,965 $ 14,405
======= ======= ======= ======= ======= ======== ========
Ratio of expenses to average net assets....... 1.25%(b)(c) 2.17%(d) 2.07% 2.12% 2.39% 2.15% 1.94%
======= ======= ======= ======= ======= ======== ========
Ratio of net investment income to average net
assets...................................... 3.07%(b)(c) 1.81%(d) 2.23% 2.32% 2.74% 3.18% 3.99%
======= ======= ======= ======= ======= ======== ========
Portfolio turnover rate....................... 76% 233% 154% 166% 208% 307% 149%
======= ======= ======= ======= ======= ======== ========
Borrowings for the period:
Amount of debt outstanding at end of period... -- -- -- -- -- -- $260,000
Average amount of debt outstanding during the
period(e)................................... -- -- -- -- -- $138,181 $ 83,195
Average number of shares outstanding during
the period (000s omitted)(e)................ 2,061 1,305 1,046 939 1,051 1,238 1,589
Average amount of debt per share during the
period...................................... -- -- -- -- -- $ 0.110 $ 0.052
<CAPTION>
Year Ended August 31,
-----------------------------
1988 1987 1986
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period........... $ 11.89 $ 12.89 $ 11.82
Income from investment operations:
Net investment income......................... 0.42 0.55 0.67
Net gains or losses on securities (both
realized and unrealized).................... (2.65) 0.15 1.65
------- ------- -------
Total from investment operations.............. (2.23) 0.70 2.32
------- ------- -------
Less distributions:
Dividends from net investment income.......... (0.50) (0.66) (0.72)
Distributions from net realized capital
gains....................................... (0.08) (1.04) (0.53)
------- ------- -------
Total distributions........................... (0.58) (1.70) (1.25)
------- ------- -------
Net asset value, end of period................. $ 9.08 $ 11.89 $ 12.89
======= ======= =======
Total return(a)................................ (18.57)% 5.78% 20.33%
======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)...... $16,789 $27,973 $20,376
======= ======= =======
Ratio of expenses to average net assets....... 2.31% 1.87% 1.50%
======= ======= =======
Ratio of net investment income to average net
assets...................................... 4.50% 4.54% 5.43%
======= ======= =======
Portfolio turnover rate....................... 118% 250% 192%
======= ======= =======
Borrowings for the period:
Amount of debt outstanding at end of period... -- -- --
Average amount of debt outstanding during the
period(e)................................... -- -- --
Average number of shares outstanding during
the period (000s omitted)(e)................ 2,131 2,010 1,709
Average amount of debt per share during the
period...................................... -- -- --
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges and are not annualized for periods
of less than one year.
(b) Ratios are based on average net assets of $31,893,214.
(c) After reduction of advisory fees. Ratios of expenses and net investment
income to average net assets prior to reduction of advisory fees are 1.68%
and 2.64%, respectively.
(d) Annualized.
(e) Averages computed on a daily basis.
6
<PAGE> 51
AIM GLOBAL UTILITIES FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
JANUARY 18,
1988*
YEAR ENDED DECEMBER 31, TO
-------------------------------------------------------------------------- DECEMBER 31,
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 14.09 $ 13.31 $ 13.75 $ 12.45 $ 13.73 $ 10.99 $ 10.00
Income from investment operations:
Net investment income........... 0.59 0.60 0.67 0.70 0.66 0.77 0.82
Net gains or losses on
securities (both realized and
unrealized)................... (2.20) 1.02 0.36 2.12 (1.10) 3.06 0.83
-------- -------- -------- ------- ------- ------- -------
Total from investment
operations.................... (1.61) 1.62 1.03 2.82 (0.44) 3.83 1.65
-------- -------- -------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income........................ (0.60) (0.61) (0.68) (0.66) (0.70) (0.69) (0.66)
Distributions from net realized
capital gains................. -- (0.23) (0.79) (0.86) (0.14) (0.40) --
Returns of capital.............. (0.03) -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- -------
Total distributions............. (0.63) (0.84) (1.47) (1.52) (0.84) (1.09) (0.66)
-------- -------- -------- ------- ------- ------- -------
Net asset value, end of period.... $ 11.85 $ 14.09 $ 13.31 $ 13.75 $ 12.45 $ 13.73 $ 10.99
======== ======== ======== ======= ======= ======= =======
Total return(a)................... (11.57)% 12.32% 7.92% 23.65% (2.98)% 36.11% 17.03%
======== ======== ======== ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted)...................... $150,515 $200,016 $111,771 $91,939 $69,541 $58,307 $20,104
======== ======== ======== ======= ======= ======= =======
Ratio of expenses to average net
assets........................ 1.18%(b) 1.16% 1.17% 1.23% 1.21%(c) 1.05%(c) 1.22%(c)(e)
======== ======== ======== ======= ======= ======= =======
Ratio of net investment income
to average net assets......... 4.67%(b) 4.21% 4.96% 5.36% 5.21%(d) 6.13%(d) 7.63%(d)(e)
======== ======== ======== ======= ======= ======= =======
Portfolio turnover rate......... 101% 76% 148% 169% 123% 115% 87%
======== ======== ======== ======= ======= ======= =======
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges and are not annualized for periods
of less than one year.
(b) Ratios are based on average daily net assets of $169,146,295.
(c) Ratios of expenses to average net assets prior to reduction of advisory fees
were 1.22%, 1.11% and 1.69% (annualized) for 1990-1988, respectively.
(d) Ratios of net investment income to average net assets prior to reduction of
advisory fees were 5.20%, 6.07% and 7.16% (annualized) for 1990-1988,
respectively.
(e) Annualized.
AIM GROWTH FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $ 11.32 $ 12.28 $ 14.73 $ 12.35 $ 13.92 $ 11.93 $ 11.04
Income from investment operations:
Net investment income................. -- -- 0.06 0.11 0.21 0.25 0.23
Net gains or losses on securities
(both realized and unrealized)...... (0.57) 0.41 (0.04) 4.33 (0.91) 3.16 0.89
-------- -------- -------- -------- -------- -------- --------
Total from investment operations...... (0.57) 0.41 0.02 4.44 (0.70) 3.41 1.12
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income.............................. -- -- (0.06) (0.13) (0.20) (0.27) (0.23)
Distributions from net realized
capital gains....................... (0.43) (1.37) (2.41) (1.93) (0.67) (1.15) --
-------- -------- -------- -------- -------- -------- --------
Total distributions................... (0.43) (1.37) (2.47) (2.06) (0.87) (1.42) (0.23)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period......... $ 10.32 $ 11.32 $ 12.28 $ 14.73 $ 12.35 $ 13.92 $ 11.93
======== ======== ======== ======== ======== ======== ========
Total return(a)........................ (4.99)% 3.64% 0.19% 37.05% (5.04)% 28.87% 10.13%
======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................ $123,271 $146,723 $168,395 $185,461 $153,245 $187,805 $180,793
======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets.............................. 1.22%(b) 1.17% 1.17% 1.21% 1.16% 1.00% 0.98%
======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets.................. 0.02%(b) 0.02% 0.42% 0.73% 1.41% 1.62% 1.73%
======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate............... 201% 192% 133% 73% 61% 53% 38%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1987 1986 1985
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period... $ 12.91 $ 14.95 $ 12.82
Income from investment operations:
Net investment income................. 0.24 0.26 0.39
Net gains or losses on securities
(both realized and unrealized)...... 0.30 1.57 2.98
-------- -------- --------
Total from investment operations...... 0.54 1.83 3.37
-------- -------- --------
Less distributions:
Dividends from net investment
income.............................. (0.31) (0.35) (0.44)
Distributions from net realized
capital gains....................... (2.10) (3.52) (0.80)
-------- -------- --------
Total distributions................... (2.41) (3.87) (1.24)
-------- -------- --------
Net asset value, end of period......... $ 11.04 $ 12.91 $ 14.95
======== ======== ========
Total return(a)........................ 3.62% 12.85% 27.65%
======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................ $203,329 $213,346 $202,425
======== ======== ========
Ratio of expenses to average net
assets.............................. 0.84% 0.85% 0.79%
======== ======== ========
Ratio of net investment income to
average net assets.................. 1.51% 1.82% 2.80%
======== ======== ========
Portfolio turnover rate............... 78% 66% 39%
======== ======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges.
(b) Ratios are based on average net assets of $130,884,825.
7
<PAGE> 52
AIM HIGH YIELD FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.05 $ 9.40 $ 8.86 $ 7.07 $ 8.94 $ 10.01 $ 9.67
Income from investment operations:
Net investment income............. 0.96 0.97 1.04 1.02 1.09 1.21 1.18
Net gains or losses on securities
(both realized and
unrealized)..................... (1.12) 0.69 0.55 1.81 (1.84) (1.07) 0.34
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations...................... (0.16) 1.66 1.59 2.83 (0.75) 0.14 1.52
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income.......................... (0.96) (1.01) (1.05) (1.04) (1.12) (1.21) (1.18)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period..... $ 8.93 $ 10.05 $ 9.40 $ 8.86 $ 7.07 $ 8.94 $ 10.01
======== ======== ======== ======== ======== ======== ========
Total return(a).................... (1.67)% 18.40% 18.60% 42.18% (9.03)% 1.18% 16.41%
======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted).................. $578,959 $550,760 $324,518 $259,677 $204,932 $261,920 $274,631
======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets.......................... 1.00%(b) 1.12% 1.15% 1.22% 1.21%(c) 0.99% 0.96%(c)
======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets.............. 10.07%(b) 9.82% 11.00% 12.67% 13.59%(d) 12.40% 11.84%(d)
======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate........... 53% 53% 56% 61% 27% 36% 76%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1987 1986 1985
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.54 $ 10.21 $ 9.43
Income from investment operations:
Net investment income............. 1.16 1.26 1.26
Net gains or losses on securities
(both realized and
unrealized)..................... (0.83) 0.31 0.80
-------- -------- --------
Total from investment
operations...................... 0.33 1.57 2.06
-------- -------- --------
Less distributions:
Dividends from net investment
income.......................... (1.20) (1.24) (1.28)
-------- -------- --------
Net asset value, end of period..... $ 9.67 $ 10.54 $ 10.21
======== ======== ========
Total return(a).................... 3.07% 15.97% 23.49%
======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted).................. $242,858 $246,865 $147,123
======== ======== ========
Ratio of expenses to average net
assets.......................... 0.92% 0.92% 0.94%(c)
======== ======== ========
Ratio of net investment income to
average net assets.............. 11.21% 11.84% 12.91%(d)
======== ======== ========
Portfolio turnover rate........... 81% 86% 79%
======== ======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges.
(b) Ratios are based on average net assets of $578,623,456.
(c) Ratios of expenses to average net assets prior to reduction of advisory
fees were 1.22%, 1.00% and 0.98% for 1990, 1988 and 1985, respectively.
(d) Ratios of net investment income to average net assets prior to reduction of
advisory fees were 13.58%, 11.80% and 12.87% for 1990, 1988 and 1985,
respectively.
AIM INCOME FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 8.45 $ 8.03 $ 8.07 $ 7.41 $ 7.80 $ 7.53 $ 7.55
Income from investment operations:
Net investment income.............. 0.58 0.60 0.60 0.61 0.65 0.66 0.68
Net gains or losses on securities
(both realized and unrealized)... (1.22) 0.61 (0.03) 0.66 (0.39) 0.32 (0.02)
-------- -------- -------- -------- -------- -------- --------
Total from investment operations... (0.64) 1.21 0.57 1.27 0.26 0.98 0.66
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income........................... (0.49) (0.60) (0.61) (0.61) (0.65) (0.71) (0.68)
Distributions from net realized
capital gains.................... (0.01) (0.19) -- -- -- -- --
Distributions from capital......... (0.11) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total distributions................ (0.61) (0.79) (0.61) (0.61) (0.65) (0.71) (0.68)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41 $ 7.80 $ 7.53
======== ======== ======== ======== ======== ======== ========
Total return(a)..................... (7.65)% 15.38% 7.42% 18.00% 3.65% 13.56% 9.01%
======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)................... $201,677 $244,168 $218,848 $231,798 $215,987 $229,222 $218,946
======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets........................... 0.98%(b) 0.98% 0.99%(c) 1.00%(c) 1.00% 0.96% 0.95%
======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets............... 7.53%(b) 7.01% 7.54%(c) 7.97%(c) 8.73% 8.56% 8.81%
======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate............ 185% 99% 82% 67% 106% 222% 361%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1987 1986 1985
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of
period............................. $ 8.20 $ 7.53 $ 6.74
Income from investment operations:
Net investment income.............. 0.67 0.71 0.74
Net gains or losses on securities
(both realized and unrealized)... (0.63) 0.60 0.80
-------- -------- --------
Total from investment operations... 0.04 1.31 1.54
-------- -------- --------
Less distributions:
Dividends from net investment
income........................... (0.69) (0.64) (0.75)
Distributions from net realized
capital gains.................... -- -- --
Distributions from capital......... -- -- --
-------- -------- --------
Total distributions................ (0.69) (0.64) (0.75)
-------- -------- --------
Net asset value, end of period...... $ 7.55 $ 8.20 $ 7.53
======== ======== ========
Total return(a)..................... 0.56% 18.04% 24.33%
========= ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)................... $237,466 $273,121 $216,725
========= ======== ========
Ratio of expenses to average net
assets........................... 0.84% 0.82% 0.79%
========= ======== ========
Ratio of net investment income to
average net assets............... 8.64% 8.93% 10.50%
========= ======== ========
Portfolio turnover rate............ 195% 85% 38%
========= ======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges.
(b) Ratios are based on average net assets of $219,115,024.
(c) After reduction of advisory fees and expense reimbursements. Ratios of
expenses to average net assets prior to reduction of advisory fees and
expense reimbursements were 1.00% and 1.03% for 1992 and 1991,
respectively. Ratios of net investment income to average net assets prior
to reduction of advisory fees and expense reimbursements were 7.53% and
7.94% for 1992 and 1991, respectively.
8
<PAGE> 53
AIM INTERMEDIATE GOVERNMENT FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
APRIL 28,
1987*
YEAR ENDED DECEMBER 31, TO
----------------------------------------------------------------------------------- DECEMBER 31,
1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period..................... $ 10.05 $ 10.19 $ 10.34 $ 9.95 $ 9.91 $ 9.70 $ 9.92 $ 10.00
Income from investment
operations:
Net investment income...... 0.68 0.74 0.77 0.82 0.87 0.90 0.89 0.55
Net gains or losses on
securities (both realized
and unrealized).......... (1.02) (0.04) (0.15) 0.41 0.01 0.15 (0.27) (0.14)
-------- -------- -------- -------- ------- ------- ------- -------
Total from investment
operations............... (0.34) 0.70 0.62 1.23 0.88 1.05 0.62 0.41
-------- -------- -------- -------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income........ (0.58) (0.70) (0.74) (0.84) (0.84) (0.84) (0.84) (0.49)
Distributions from net
realized capital gains... (0.04) (0.14) (0.03) -- -- -- -- --
Distributions from
capital.................. (0.10) -- -- -- -- -- -- --
-------- -------- -------- -------- ------- ------- ------- -------
Total distributions........ (0.72) (0.84) (0.77) (0.84) (0.84) (0.84) (0.84) (0.49)
-------- -------- -------- -------- ------- ------- ------- -------
Net asset value, end of
period..................... $ 8.99 $ 10.05 $ 10.19 $ 10.34 $ 9.95 $ 9.91 $ 9.70 $ 9.92
======== ======== ======== ======== ======= ======= ======= =======
Total return(a).............. (3.44)% 7.07% 6.26% 12.98% 9.39% 11.28% 6.43% 4.18%
======== ======== ======== ======== ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted)........... $158,341 $139,586 $123,484 $101,409 $61,463 $57,077 $48,372 $28,052
======== ======== ======== ======== ======= ======= ======= =======
Ratio of expenses to
average net assets(c).... 1.04%(b) 1.00% 0.98% 1.00% 1.00% 1.00% 1.00% 1.20%(e)
======== ======== ======== ======== ======= ======= ======= =======
Ratio of net investment
income to average net
assets(d)................ 7.34%(b) 7.08% 7.53% 8.15% 8.85% 9.10% 9.11% 8.64%(e)
======== ======== ======== ======== ======= ======= ======= =======
Portfolio turnover rate.... 109% 110% 42% 26% 16% 15% 15% 35%
======== ======== ======== ======== ======= ======= ======= =======
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges and are not annualized for periods
of less than one year.
(b) Ratios are based on average net assets of $130,824,143.
(c) Ratios of expenses to average net assets prior to reduction of advisory fee
and expense reimbursement were 1.05%, 1.04%, 1.04%, 1.10%, 1.13%, 1.08% and
1.08% for 1994-1988, respectively.
(d) Ratios of net investment income to average net assets prior to reduction of
advisory fee and expense reimbursement were 7.32%, 7.04%, 7.48%, 8.05%,
8.72%, 9.03% and 9.03% for 1994-1988, respectively.
(e) Annualized.
AIM MUNICIPAL BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $ 8.61 $ 8.27 $ 8.13 $ 7.66 $ 7.81 $ 7.64 $ 7.32
Income from investment operations:
Net investment income.................... 0.46 0.48 0.51 0.52 0.53 0.54 0.53
Net gains or losses on securities (both
realized and unrealized)............... (0.78) 0.46 0.21 0.46 (0.14) 0.18 0.34
-------- -------- -------- -------- -------- -------- --------
Total from investment operations......... (0.32) 0.94 0.72 0.98 0.39 0.72 0.87
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income..... (0.45) (0.48) (0.51) (0.51) (0.53) (0.55) (0.55)
Distributions from net realized capital
gains.................................. (0.03) (0.11) (0.07) -- -- -- --
Returns of capital....................... (0.03) (0.01) -- -- (0.01) -- --
-------- -------- -------- -------- -------- -------- --------
Total distributions...................... (0.51) (0.60) (0.58) (0.51) (0.54) (0.55) (0.55)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period............ $ 7.78 $ 8.61 $ 8.27 $ 8.13 $ 7.66 $ 7.81 $ 7.64
======== ======== ======== ======== ======== ======== ========
Total return(a)........................... (3.79)% 11.66% 9.10% 13.30% 5.27% 9.70% 12.33%
======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)......................... $257,456 $294,209 $271,205 $273,037 $258,194 $262,997 $243,480
======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets................................. 0.89%(b) 0.91% 0.90% 0.94% 0.91% 0.89% 0.87%
======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to average
net assets............................. 5.61%(b) 5.65% 6.15% 6.58% 6.91% 6.97% 7.11%
======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate.................. 43% 24% 160% 289% 230% 305% 381%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1987 1986 1985
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period...... $ 8.41 7.69 $ 6.89
Income from investment operations:
Net investment income.................... 0.51 0.58 0.63
Net gains or losses on securities (both
realized and unrealized)............... (0.65) 1.00 0.83
-------- -------- --------
Total from investment operations......... (0.14) 1.58 1.46
-------- -------- --------
Less distributions:
Dividends from net investment income..... (0.49) (0.60) (0.66)
Distributions from net realized capital
gains.................................. (0.46) (0.26) --
Returns of capital....................... -- -- --
-------- -------- --------
Total distributions...................... (0.95) (0.86) (0.66)
-------- -------- --------
Net asset value, end of period............ $ 7.32 $ 8.41 $ 7.69
======== ======== ========
Total return(a)........................... (1.88)% 21.19% 22.29%
Ratios/supplemental data:
Net assets, end of period
(000s omitted)......................... $237,225 $281,575 $198,892
======== ======== ========
Ratio of expenses to average net
assets................................. 0.80% 0.78% 0.75%
======== ======== ========
Ratio of net investment income to average
net assets............................. 6.71% 6.99% 8.75%
======== ======== ========
Portfolio turnover rate.................. 392% 249% 190%
======== ======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges.
(b) Ratios are based on average net assets of $276,209,259.
9
<PAGE> 54
AIM VALUE FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 20.82 $ 18.24 $ 17.55 $ 13.75 $ 14.53 $ 12.79 $ 11.47 $ 12.26
Income from investment
operations:
Net investment
income............... 0.16 0.04 0.12 0.13 0.26 0.40 0.26 0.25
Net gains on securities
(both realized and
unrealized).......... 0.52 3.34 2.68 5.73 0.01 3.58 2.07 0.53
--------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... 0.68 3.38 2.80 5.86 0.27 3.98 2.33 0.78
--------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income.... (0.16) (0.03) (0.12) (0.14) (0.26) (0.43) (0.26) (0.39)
Distributions from net
realized capital
gains................ (0.20) (0.77) (1.99) (1.92) (0.79) (1.81) (0.75) (1.18)
--------- -------- -------- -------- -------- -------- -------- --------
Total distributions.... (0.36) (0.80) (2.11) (2.06) (1.05) (2.24) (1.01) (1.57)
--------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end
of period.............. $ 21.14 $ 20.82 $ 18.24 $ 17.55 $ 13.75 $ 14.53 $ 12.79 $ 11.47
========= ======== ======== ======== ======== ======== ======== ========
Total return(a)......... 3.28% 18.71% 16.39% 43.45% 1.88% 31.54% 20.61% 5.96%
========= ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental
data:
Net assets, end of
period
(000s omitted)....... $1,358,725 $765,305 $239,663 $152,149 $ 86,565 $ 76,444 $ 60,076 $ 55,527
========== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to
average net assets... 0.98%(b) 1.09% 1.16% 1.22% 1.21%(c) 1.00%(c) 1.00%(c) 1.00%
========= ======== ======== ======== ======== ======== ======== ========
Ratio of net investment
income to average net
assets............... 0.92%(b) 0.30% 0.75% 0.89% 1.87%(d) 2.65%(d) 1.98%(d) 1.91%
========= ======== ======== ======== ======== ======== ======== ========
Portfolio turnover
rate................. 127% 177% 170% 135% 131% 152% 124% 219%
========= ======== ======== ======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1986 1985
--------- --------
<S> <C> <C>
Net asset value,
beginning of period.... $ 12.90 $ 10.88
Income from investment
operations:
Net investment
income............... 0.36 0.39
Net gains on securities
(both realized and
unrealized).......... 0.75 2.04
--------- --------
Total from investment
operations........... 1.11 2.43
--------- --------
Less distributions:
Dividends from net
investment income.... (0.43) (0.34)
Distributions from net
realized capital
gains................ (1.32) (0.07)
--------- --------
Total distributions.... (1.75) (0.41)
--------- --------
Net asset value, end
of period.............. $ 12.26 $ 12.90
========= ========
Total return(a)......... 8.80% 22.71%
========= ========
Ratios/supplemental
data:
Net assets, end of
period
(000s omitted)....... $ 46,642 $ 30,684
========= ========
Ratio of expenses to
average net assets... 1.00%(c) 1.00%(c)
========= ========
Ratio of net investment
income to average net
assets............... 3.15%(d) 4.67%(d)
========= ========
Portfolio turnover
rate................. 134% 46%
========= ========
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges.
(b) Ratios are based on average net assets of $1,084,846,358.
(c) Ratios of expenses to average net assets prior to reduction of advisory fees
were 1.23%, 1.09%, 1.08%, 1.05% and 1.25% for 1990-1988 and 1986-1985,
respectively.
(d) Ratios of net investment income to average net assets prior to reduction of
advisory fees were 1.85%, 2.56%, 1.90%, 3.14% and 4.47% for 1990-1988 and
1986-1985, respectively.
+ Each of the Funds is a separate series of shares of AIM Funds Group, a
Delaware business trust established May 5, 1993 (the "Trust"). The
shareholders of the applicable Funds separately approved a plan of
reorganization pursuant to which, effective October 15, 1993, each of the
predecessor funds to AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM HIGH
YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
MUNICIPAL BOND FUND and AIM VALUE FUND, organized as separate series
portfolios of AIM Funds Group, a Massachusetts business trust ("AFG(MA)"),
and to AIM BALANCED FUND, organized as AIM Convertible Securities, Inc., a
Maryland corporation, was reorganized as a separate series portfolio of the
Trust. AIM Convertible Securities, Inc. had investment objectives and
policies that differed from those of AIM BALANCED FUND. Certain information
reported in these statements pertains to such Funds as separate series
portfolios of AFG(MA) and as a corporation, as applicable, rather than
separate series of the Trust.
In addition, on April 30, 1985 (April 24, 1987 for AIM HIGH YIELD FUND),
the shareholders of AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM HIGH
YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
MUNICIPAL BOND FUND and AIM VALUE FUND approved a plan of reorganization
pursuant to which each Fund, organized as a separate Maryland corporation,
was reorganized as a separate series portfolio of AFG(MA). The information
reported in these statements prior to 1987 for AIM HIGH YIELD FUND pertains
to that Fund as a corporation rather than as a series of the Trust.
* Commencement of operations.
10
<PAGE> 55
The following per share data, ratios and supplemental data for the Class B
shares of AIM BALANCED FUND, AIM GLOBAL UTILITIES FUND (formerly, AIM Utilities
Fund), AIM GROWTH FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE
GOVERNMENT FUND (formerly, AIM Government Securities Fund), AIM MUNICIPAL BOND
FUND and AIM VALUE FUND for the periods indicated have been audited by KPMG Peat
Marwick LLP, independent auditors, whose reports thereon were unqualified. This
information should be read in conjunction with the Funds' financial statements
included in the Statement of Additional Information.
AIM BALANCED FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 18, 1993*
DECEMBER 31, TO
1994 DECEMBER 31, 1993
------------ -----------------
<S> <C> <C>
Net asset value, beginning of period............................. $ 16.11 $ 16.69
Income from investment operations:
Net investment income.......................................... 0.31 0.04
Net gains (losses) on securities (both realized and
unrealized)................................................. (1.31) (0.58)
-------- -------
Total from investment operations............................... (1.00) (0.54)
-------- -------
Less distributions:
Dividends from net investment income........................... (0.27) (0.04)
Distributions from net realized capital gains.................. (0.22) --
-------- -------
Total distributions............................................ (0.49) (0.04)
-------- -------
Net asset value, end of period................................... $ 14.62 $ 16.11
======== =======
Total return(a).................................................. (6.23)% (3.23)%
======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)....................... $ 20,245 $ 2,754
======== =======
Ratio of expenses to average net assets........................ 1.98%(b)(c) 2.83%(d)
======== =======
Ratio of net investment income to average net assets........... 2.34%(b)(c) 1.15%(d)
======== =======
Portfolio turnover rate........................................ 76% 233%
======== =======
</TABLE>
- ---------------
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods of less than one year.
(b) Ratios are based on average net assets of $13,282,960.
(c) After waiver of advisory fees. Ratios of expenses and net investment income
prior to waiver of advisory fees are 2.45% and 1.87%, respectively.
(d) Annualized.
AIM GLOBAL UTILITIES FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 1, 1993*
DECEMBER 31, TO
1994 DECEMBER 31, 1993
------------ -----------------
<S> <C> <C>
Net asset value, beginning of period............................. $ 14.08 $ 15.30
Income from investment operations:
Net investment income.......................................... 0.47 0.17
Net gains (losses) on securities (both realized and
unrealized)................................................. (2.19) (0.98)
------- -------
Total from investment operations............................... (1.72) (0.81)
------- -------
Less distributions:
Dividends from net investment income........................... (0.49) (0.17)
Distributions from net realized capital gains.................. -- (0.24)
Returns of capital............................................. (0.03) --
------- -------
Total distributions............................................ (0.52) (0.41)
------- -------
Net asset value, end of period................................... $ 11.84 $ 14.08
======= =======
Total return(a).................................................. (12.35)% (5.32)%
======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)....................... $42,568 $23,892
======= =======
Ratio of expenses to average net assets........................ 2.07%(b) 1.99%(c)
======= =======
Ratio of net investment income to average net assets........... 3.78%(b) 3.38%(c)
======= =======
Portfolio turnover rate........................................ 101% 76%
======= =======
</TABLE>
- ---------------
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods of less than one year.
(b) Ratios are based on average net assets of $36,139,508.
(c) Annualized.
11
<PAGE> 56
AIM GROWTH FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 1, 1993*
DECEMBER 31, TO
1994 DECEMBER 31, 1993
------------ ------------------
<S> <C> <C>
Net asset value, beginning of period.............................. $ 11.31 $ 12.83
Income from investment operations:
Net investment income (loss).................................... (0.06) (0.01)
Net gains (losses) on securities (both realized and
unrealized).................................................. (0.61) (0.14)
-------- --------
Total from investment operations................................ (0.67) (0.15)
-------- --------
Less distributions:
Distributions from net realized capital gains................... (0.43) (1.37)
-------- --------
Total distributions............................................. (0.43) (1.37)
-------- --------
Net asset value, end of period.................................... $ 10.21 $ 11.31
======== ========
Total return(a)................................................... (5.88)% (0.92)%
======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted)........................ $ 38,448 $ 11,053
======== ========
Ratio of expenses to average net assets......................... 2.18%(b) 1.91%(c)
======== ========
Ratio of net investment income (loss) to average net assets..... (0.94)%(b) (0.72)%(c)
======== ========
Portfolio turnover rate......................................... 201% 192%
======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods of less than one year.
(b) Ratios are based on average net assets of $24,770,061.
(c) Annualized.
AIM HIGH YIELD FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 1, 1993*
DECEMBER 31, TO
1994 DECEMBER 31, 1993
------------ ------------------
<S> <C> <C>
Net asset value, beginning of period.............................. $ 10.04 $ 9.96
Income from investment operations:
Net investment income........................................... 0.87 0.32
Net gains (losses) on securities (both realized and
unrealized).................................................. (1.10) 0.07
-------- --------
Total from investment operations................................ (0.23) 0.39
-------- --------
Less distributions:
Dividends from net investment income............................ (0.89) (0.31)
-------- --------
Net asset value, end of period.................................... $ 8.92 $ 10.04
======== ========
Total return(a)................................................... (2.48)% 4.00%
======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted)........................ $191,338 $ 31,264
======== ========
Ratio of expenses to average net assets......................... 1.80%(b) 1.93%(c)
======== ========
Ratio of net investment income to average net assets............ 9.27%(b) 8.99%(c)
======== ========
Portfolio turnover rate......................................... 53% 53%
======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods of less than one year.
(b) Ratios are based on average net assets of $117,681,823.
(c) Annualized.
12
<PAGE> 57
AIM INCOME FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 1, 1993*
DECEMBER 31, TO
1994 DECEMBER 31, 1993
------------ ------------------
<S> <C> <C>
Net asset value, beginning of period............................. $ 8.43 $ 8.95
Income from investment operations:
Net investment income.......................................... 0.52 0.19
Net gains (losses) on securities (both realized and
unrealized)................................................. (1.23) (0.34)
-------- --------
Total from investment operations............................... (0.71) (0.15)
-------- --------
Less distributions:
Dividends from net investment income........................... (0.42) (0.18)
Distributions from net realized capital gains.................. (0.01) (0.19)
Distributions from capital..................................... (0.11) --
-------- --------
Total distributions............................................ (0.54) (0.37)
-------- --------
Net asset value, end of period................................... $ 7.18 $ 8.43
======== ========
Total return(a).................................................. (8.46)% (0.75)%
======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted)....................... $ 12,321 $ 3,602
======== ========
Ratio of expenses to average net assets(c)..................... 1.83%(b) 1.75%(d)
======== ========
Ratio of net investment income to average net assets(c)........ 6.69%(b) 6.24%(d)
======== ========
Portfolio turnover rate........................................ 185% 99%
======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods of less than one year.
(b) Ratios are based on average net assets of $8,598,712.
(c) After expense reimbursements. Ratios of expenses and net investment income
to average net assets prior to expense reimbursements were 2.04% and 2.50%
and 6.48% and 5.49% for 1994-1993, respectively.
(d) Annualized.
AIM INTERMEDIATE GOVERNMENT FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 7, 1993*
DECEMBER 31, TO
1994 DECEMBER 31, 1993
------------ ------------------
<S> <C> <C>
Net asset value, beginning of period.............................. $ 10.04 $ 10.44
Income from investment operations:
Net investment income........................................... 0.61 0.21
Net gains (losses) on securities (both realized and
unrealized).................................................. (1.02) (0.27)
-------- --------
Total from investment operations................................ (0.41) (0.06)
-------- --------
Less distributions:
Dividends from net investment income............................ (0.50) (0.20)
Distributions from net realized capital gains................... (0.04) (0.14)
Distributions from capital...................................... (0.10) --
-------- --------
Total distributions............................................. (0.64) (0.34)
-------- --------
Net asset value, end of period.................................... $ 8.99 $ 10.04
======== ========
Total return(a)................................................... (4.13)% (0.52)%
======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted)........................ $ 23,415 $ 6,160
======== ========
Ratio of expenses to average net assets(c)...................... 1.82%(b) 1.71%(e)
======== ========
Ratio of net investment income to average net assets(d)......... 6.56%(b) 6.37%(e)
======== ========
Portfolio turnover rate......................................... 109% 110%
======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods of less than one year.
(b) Ratios are based on average net assets of $15,993,012.
(c) Ratio of expenses to average net assets prior to reduction of advisory fee
and expense reimbursement for the year ended December 31, 1994 and the
period ended December 31, 1993 were 1.87% and 2.18% (annualized),
respectively.
(d) Ratio of net investment income to average net assets prior to reduction of
advisory fee and expense reimbursement for the year ended December 31, 1994
and the period ended December 31, 1993 were 6.50% and 5.90% (annualized),
respectively.
(e) Annualized.
13
<PAGE> 58
AIM MUNICIPAL BOND FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 1, 1993*
DECEMBER 31, TO
1994 DECEMBER 31, 1993
------------ ------------------
<S> <C> <C>
Net asset value, beginning of period............................. $ 8.61 $ 8.71
Income from investment operations:
Net investment income.......................................... 0.39 0.14
Net gains (losses) on securities (both realized and
unrealized)................................................. (0.78) 0.01
-------- --------
Total from investment operations............................... (0.39) 0.15
-------- --------
Less distributions:
Dividends from net investment income........................... (0.38) (0.13)
Distributions from net realized capital gains.................. (0.03) (0.11)
Returns of capital............................................. (0.03) (0.01)
-------- --------
Total distributions............................................ (0.44) (0.25)
-------- --------
Net asset value, end of period................................... $ 7.78 $ 8.61
======== ========
Total return(a).................................................. (4.57)% 1.95%
======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted)....................... $ 9,175 $ 2,319
======== ========
Ratio of expenses to average net assets........................ 1.67%(b) 1.65%(c)
======== ========
Ratio of net investment income to average net assets........... 4.83%(b) 4.91%(c)
======== ========
Portfolio turnover rate........................................ 43% 24%
======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods of less than one year.
(b) Ratios are based on average net assets of $5,693,594. Ratios of expenses and
net investment income to average net assets prior to expense reimbursements
are 1.84% and 4.66%, respectively.
(c) Annualized.
AIM VALUE FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 18, 1993*
DECEMBER 31, TO
1994 DECEMBER 31, 1993
------------ ------------------
<S> <C> <C>
Net asset value, beginning of period.............................. $ 20.82 $ 21.80
Income from investment operations:
Net investment income........................................... -- 0.02
Net gains (losses) on securities (both realized and
unrealized).................................................. 0.51 (0.21)
-------- --------
Total from investment operations................................ 0.51 (0.19)
-------- --------
Less distributions:
Dividends from net investment income............................ -- (0.02)
Distributions from net realized capital gains................... (0.20) (0.77)
-------- --------
Total distributions............................................. (0.20) (0.79)
-------- --------
Net asset value, end of period.................................... $ 21.13 $ 20.82
======== ========
Total return(a)................................................... 2.46% (0.74)%
======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted)........................ $ 680,119 $ 63,215
========= ========
Ratio of expenses to average net assets......................... 1.90%(b) 1.85%(c)
========= ========
Ratio of net investment income (loss) to average net assets..... 0.00%(b) (0.46)%(c)
========= ========
Portfolio turnover rate......................................... 127% 177%
========= ========
</TABLE>
- ---------------
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods of less than one year.
(b) Ratios are based on average net assets of $359,607,861.
(c) Annualized.
* Date sales commenced.
14
<PAGE> 59
The following per share data, ratios and supplemental data for the Class A,
Class B and Class C shares of AIM MONEY MARKET FUND for the year ended December
31, 1994 and the period October 16, 1993 (date operations commenced) through
December 31, 1993 have been audited by KPMG Peat Marwick LLP, independent
auditors, whose report thereon was unqualified. This information should be read
in conjunction with the financial statements of AIM MONEY MARKET FUND included
in the Statement of Additional Information.
AIM MONEY MARKET FUND -- CLASS A, CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
------------------------- -------------------------- -------------------------
OCTOBER 16, OCTOBER 16, OCTOBER 16,
YEAR 1993 YEAR 1993 YEAR 1993
ENDED TO ENDED TO ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations:
Net investment
income............... 0.0337 0.0048 0.0259 0.0032 0.0337 0.0048
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income.... (0.0337) (0.0048) (0.0259) (0.0032) (0.0337) (0.0048)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return(b).......... 3.43% 2.27%(a) 2.62% 1.51%(a) 3.42% 2.27%(a)
======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of
period (000s
omitted)............. $148,886 $ 81,460 $ 33,999 $ 1,289 $359,952 $241,778
======== ======== ======== ======== ======== ========
Ratio of expenses to
average net
assets(c)............ 0.97%(d) 1.00%(a) 1.78%(e) 1.75%(a) 0.99%(f) 1.00%(a)
======== ======== ======== ======== ======== ========
Ratio of net investment
income to average net
assets(c)............ 3.53%(d) 2.27%(a) 3.14%(e) 1.54%(a) 3.49%(f) 2.27%(a)
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Annualized.
(b) Total returns do not deduct sales charges or contingent deferred sales
charges, where applicable.
(c) After waiver of advisory fees.
(d) Ratios are based on average net assets of $111,042,610. Ratios of expenses
and net investment income to average net assets prior to reduction of
advisory fees are 1.06% and 3.44%, respectively.
(e) Ratios are based on average net assets of $19,121,318. Ratios of expenses
and net investment income to average net assets prior to reduction of
advisory fees are 1.87% and 3.05%, respectively.
(f) Ratios are based on average net assets of $314,362,619. Ratios of expenses
and net investment income to average net assets prior to reduction of
advisory fees are 1.08% and 3.40%, respectively.
15
<PAGE> 60
- --------------------------------------------------------------------------------
PERFORMANCE
All advertisements of the Funds will disclose the maximum sales charge
(including deferred sales charges) to which investments in a Fund's shares may
be subject. Each Fund will also include performance data on Class A and Class B
shares, and, as applicable, Class C shares in any advertisement or promotional
material which includes Fund performance data. If any advertised performance
data does not reflect the maximum sales charge (if any), such advertisement will
disclose that the sales charge has not been deducted in computing the
performance data, and that, if reflected, the maximum sales charge would reduce
the performance quoted. See the Statement of Additional Information for further
details concerning performance comparisons used in advertisements by the Funds.
Further information regarding each Fund's performance is contained in that
Fund's annual report to shareholders, which is available upon request and
without charge.
Each Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for Class A shares reflects the deduction of a Fund's maximum initial sales
charge at the time of purchase. Standardized total return for Class B shares
reflects the deduction of the maximum applicable contingent deferred sales
charge on a redemption of shares held for the period.
A Fund's total return shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and capital gain distributions
are reinvested. A cumulative total return reflects the Fund's performance over a
stated period of time. An average annual total return reflects the hypothetical
compounded annual rate of return that would have produced the same cumulative
total return if the Fund's performance had been constant over the entire period.
BECAUSE AVERAGE ANNUAL RETURNS TEND TO EVEN OUT VARIATIONS IN THE FUND'S RETURN,
INVESTORS SHOULD RECOGNIZE THAT SUCH RETURNS ARE NOT THE SAME AS ACTUAL YEAR-
BY-YEAR RESULTS. To illustrate the components of overall performance, a Fund may
separate its cumulative and average annual returns into income results and
capital gains or losses.
Yield is computed in accordance with standardized formulas described in the
Statement of Additional Information and can be expected to fluctuate from time
to time and is not necessarily indicative of future results. Accordingly, the
yield information may not provide a basis for comparison with investments which
pay a fixed rate of interest for a stated period of time. Yield reflects
investment income net of expenses over the relevant period attributable to a
Fund share, expressed as an annualized percentage of the maximum offering price
per share for Class A shares, net asset value per share for Class B shares and
net asset value per share for Class C shares of AIM MONEY MARKET FUND.
Yield is a function of the type and quality of a Fund's investments, the
maturity of the securities held in a Fund's portfolio and the operating expense
ratio of the Fund. A shareholder's investment in a Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in a Fund. A tax-equivalent yield is calculated in the same
manner as the standard yield with an adjustment for a stated, assumed tax rate.
AIM MUNICIPAL BOND FUND may also demonstrate the effect of such tax-equivalent
adjustments generally by comparing various yield levels with their corresponding
tax-equivalent yields, given a stated tax rate.
From time to time and in its discretion, AIM may waive all or a portion of
its advisory fees and/or assume certain expenses of any Fund. Such practices
will have the effect of increasing that Fund's yield and total return. The
performance of each Fund will vary from time to time and past results are not
necessarily representative of future results. A Fund's performance is a function
of its portfolio management in selecting the type and quality of portfolio
securities and is affected by operating expenses of the Fund as well as by
general market conditions.
- --------------------------------------------------------------------------------
ABOUT THE FUNDS
The Funds are separate series of shares of the Trust, a Delaware business
trust established on May 5, 1993 and registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end management investment
company (see "Organization of the Trust"). Each Fund has its own investment
objective(s) and policies designed to meet specific investment goals, operates
as a diversified portfolio and intends to be treated as a regulated investment
company for federal income tax purposes.
Each Fund invests in securities of different issuers and industry
classifications (with the exception of AIM GLOBAL UTILITIES FUND which
concentrates its investments in the utilities industry) in an attempt to spread
and reduce the risks inherent in all investing. Each Fund continuously offers
new shares for sale to the public, and stands ready to redeem its outstanding
shares for cash at net asset value (subject, in certain circumstances, to a
contingent deferred sales charge). See "How to Redeem Shares." AIM, the
investment advisor for each Fund, continuously reviews and, from time to time,
changes the portfolio holdings of each of the Funds in pursuit of each Fund's
objective(s).
16
<PAGE> 61
- --------------------------------------------------------------------------------
INVESTMENT PROGRAMS
The investment objective(s) of each Fund, except AIM HIGH YIELD FUND, are
deemed to be fundamental policies which may not be changed without the approval
of a majority of the Fund's outstanding shares (within the meaning of the 1940
Act). The Board of Trustees on behalf of AIM HIGH YIELD FUND is permitted to
change the investment objective of that Fund without shareholder approval.
Further information is available in the Statement of Additional Information.
Individuals considering the purchase of shares of any Fund should recognize that
there are risks in the ownership of any security and that no assurance can be
given that any particular Fund will attain its investment objective(s).
AIM BALANCED FUND. The Fund's objective is to achieve as high a total return
to investors as possible, consistent with preservation of capital, by investing
in a broadly diversified portfolio of high-yielding securities, including common
stocks, preferred stocks, convertible securities and bonds. Although equity
securities will be purchased primarily for capital appreciation and fixed income
securities will be purchased primarily for income purposes, income and capital
appreciation potential will be considered in connection with all investments.
The Fund normally will have a minimum of 30% and a maximum of 70% of its assets
invested in equity securities and a minimum of 30% and a maximum of 70% of its
assets invested in fixed income securities. Most of such fixed income securities
will be rated Baa or better by Moody's Investors Service, Inc. ("Moody's") or
BBB or better by Standard & Poor's Corporation ("S&P") or, if unrated, deemed to
be of comparable quality by AIM, although the Fund may invest to a limited
extent in lower-rated securities. The fixed income securities in which the Fund
invests may include U.S. Government obligations, mortgage-backed securities,
asset-backed securities, bank obligations, corporate debt obligations and
unrated obligations, including those of foreign issuers. The Fund may, in
pursuit of its objective, invest up to 10% of its total assets in debt
securities rated lower than Baa by Moody's or BBB by S&P, which are commonly
known as "junk bonds." During 1994, the Fund invested less than 5% of its net
assets in below investment grade debt securities. See "Certain Investment
Strategies and Policies -- Risk Factors Regarding Non-Investment Grade Debt
Securities" for more information concerning the risk factors associated with
investing in such securities.
Compliance with such percentage requirements may limit the ability of the
Fund to maximize total return. Only that portion of the value of convertible
senior securities that is attributable to their fixed income characteristics
will be used for purposes of determining the percentage of the assets of the
Fund that are invested in fixed income senior securities. The actual percentage
of the assets invested in equity and fixed income securities will vary from
time to time, depending on the judgment of AIM as to general market and economic
conditions and trends, yields and interest rates and changes in fiscal and
monetary policies.
AIM GLOBAL UTILITIES FUND. The Fund's objective is to achieve a high level of
current income, and as a secondary objective the Fund seeks to achieve capital
appreciation, by investing primarily in the common and preferred stocks of
public utility companies. Under normal circumstances, at least 65% of the Fund's
total assets will be invested in securities of public utility companies (either
domestic or foreign). Public utility companies include companies that provide
electricity, natural gas or water and other sanitary services to the public, and
telephone or telegraph companies, and other companies providing public
communications services. The Fund may also invest in developing utility
technology companies and in holding companies which derive a substantial portion
of their revenues from utility-related activities. Generally, a holding company
will be considered to derive a substantial portion of its revenues from
utility-related activities if such activities account for at least 40% of its
revenues. When AIM deems it appropriate, the Fund may also purchase bonds of any
such companies. Investments in bonds, however, will not exceed 25% of the Fund's
total assets. The Fund may invest up to 10% of its total assets in bonds rated
lower than Baa by Moody's or BBB by S&P (or comparable ratings by other
nationally recognized statistical rating organizations "NRSROs") or unrated
bonds which AIM determines to be of comparable quality. During 1994, the Fund
invested less than 5% of its net assets in below investment grade debt
securities. See "Certain Investment Strategies and Policies -- Risk Factors
Regarding Non-Investment Grade Debt Securities" for more information concerning
the risk factors associated with investing in such securities.
The Fund may invest up to 80% of its total assets in securities of foreign
utility companies, including investments in American Depositary Receipts,
European Depositary Receipts and other securities representing underlying
securities of foreign issuers. Under normal market conditions, the Fund will be
invested in securities of issuers located in at least four countries, one of
which will be the United States, although for temporary defensive purposes it
may invest 100% of its total assets in securities of United States issuers. In
some foreign countries, utility companies are partially owned by government
agencies. In some cases, foreign government agencies may have significant
investments in businesses other than utility companies. Also, investments in
securities of foreign issuers may involve other risks which are not ordinarily
associated with investments in domestic issuers (see "Certain Investment
Strategies and Policies -- Investments in Foreign Securities").
In addition, investors should also be aware that the Fund may invest in
companies located within emerging or developing countries. An "emerging or
developing country" is a country in the initial stages of its industrial cycle.
Investments in emerging or developing countries involve exposure to economic
structures that are generally less diverse and mature and to political systems
which can be expected to have less stability than those of more developed
countries. Such countries may have relatively unstable governments, economies
based on only a few industries, and securities markets which trade only a small
number of securities. Historical experience indicates that markets of emerging
or developing countries have been more volatile than the markets of more mature
economies; such
17
<PAGE> 62
markets have also from time to time provided higher rates of return and greater
risks to investors. AIM believes that these characteristics of emerging or
developing countries can be expected to continue in the future.
A portfolio of utility company securities is subject to a different degree of
volatility than a more broadly diversified portfolio. Economic, operational or
regulatory changes that affect utility companies will have a material impact
upon the value of the securities that the Fund owns. Events that have no direct
connection with companies whose securities are owned by the Fund may affect the
prices of those securities, such as emergencies involving nuclear power plants.
Moreover, a portfolio of utilities industry securities is subject to the risks
unique to that industry, such as inflationary or other cost increases in fuel
and operating expenses, possible increases in the interest costs of loans needed
for capital construction programs, compliance with environmental regulations,
possible adverse changes in the regulatory climate and availability of fuel
sources. A description of the utilities industry is contained in the Statement
of Additional Information.
AIM GROWTH FUND. The Fund's objective is to achieve long-term growth of
capital by investing primarily in the common stocks of established medium- to
large-size companies with prospects for above-average, long-term earnings
growth. Realization of current income is an incidental consideration.
It is anticipated that common stocks will be the principal form of investment
by the Fund. The Fund's portfolio is primarily comprised of securities of two
basic categories of companies: (1) "core" companies, which the Fund's management
considers to have experienced above-average and consistent long-term growth in
earnings and to have excellent prospects for outstanding future growth, and (2)
"earnings acceleration" companies, which the Fund's management believes are
currently enjoying a dramatic increase in profits.
AIM HIGH YIELD FUND. The Fund's objective is to achieve a high level of
current income by investing primarily in publicly traded non-investment grade
debt securities. The Fund will also consider the possibility of capital growth
when it purchases and sells securities. Debt securities of less than investment
grade are considered "high risk" securities (commonly referred to as junk
bonds).
The Fund seeks high income principally by purchasing securities that are
rated Baa, Ba or B by Moody's or BBB, BB or B by S&P, or securities of
comparable quality in the opinion of AIM that are either unrated or rated by
other NRSROs. The Fund may also hold, from time to time, securities rated Caa
by Moody's or CCC by S&P, or, if unrated or rated by other NRSROs securities
of comparable quality as determined by AIM. It should be noted, however, that
achieving the Fund's investment objective may be more dependent on the credit
analysis of AIM, and less on that of credit rating agencies, than may be the
case for funds that invest in more highly rated bonds. At least 80% of the
value of the Fund's total assets will be invested in debt securities,
including convertible debt securities, and/or cash and cash equivalents.
The Fund may also invest in preferred stocks.
For a breakdown of the quality ratings of the Fund's investments as of
December 31, 1994, see the chart on page 21.
While the securities held by the Fund are expected to provide greater income
and, possibly, opportunity for greater gain than investments in more highly
rated securities, they may be subject to greater risk of loss of income and
principal and are more speculative in nature. The Fund's yield and the net asset
value of its shares may be expected to fluctuate over time. Therefore, an
investment in the Fund may not be appropriate for some investors and should not
constitute a complete investment program for others. See "Certain Investment
Strategies and Policies -- Risk Factors Regarding Non-Investment Grade Debt
Securities."
The Fund may invest in both illiquid securities and securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933. See "Certain Investment Strategies and
Policies -- Illiquid Securities" for further information regarding such
investments.
AIM INCOME FUND. The Fund's objective is to achieve a high level of current
income consistent with reasonable concern for safety of principal, by investing
primarily in fixed rate corporate debt, U.S. Government obligations and U.S.
Government Agency Mortgage-Backed Securities. The Fund may also invest in
preferred stock issues and convertible corporate debt. In selecting portfolio
securities the Fund will, in accordance with its concern for safety of
principal, consider individual credit risks, but shareholders should recognize
that the market value of even high quality long-term fixed rate securities will
fluctuate with changes in interest rate levels. The percent of the Fund's assets
in various types of securities will vary in light of the Fund's investment
objective and existing market conditions.
The Fund may invest up to 40% of its total assets in securities issued by
foreign entities. Purchases of foreign securities which are payable in foreign
currencies will be affected either favorably or unfavorably by changes in the
value of the foreign currencies against the U.S. dollar. Investing in foreign
securities payable in foreign currencies carries increased risk to the Fund (see
"Certain Investment Strategies and Policies -- Investments in Foreign
Securities" and " -- Foreign Exchange Transactions"). The Fund will maintain
less than 35% of its net assets in debt securities rated below Baa/BBB, which
are commonly known as "junk bonds." See "Certain Investment Strategies and
Policies -- Risk Factors Regarding Non-Investment Grade Debt Securities."
For a breakdown of the quality ratings of the Fund's investments as of
December 31, 1994, see the chart on page 21.
Ordinarily, the Fund does not purchase securities with the intention of
engaging in short-term trading. However, any particular security will be sold,
and the proceeds reinvested, whenever such action is deemed prudent in light of
the Fund's investment objectives, regardless of the holding period of that
security. The Fund will not necessarily dispose of a security because of a
reduction in rating. A higher rate of portfolio turnover may result in higher
transaction costs, including brokerage commissions. Also, to the extent
18
<PAGE> 63
that higher portfolio turnover results in a higher rate of net realized capital
gains to a Fund, the portion of the Fund's distributions constituting taxable
capital gains may increase. See "Dividends, Distributions and Tax Matters."
AIM INTERMEDIATE GOVERNMENT FUND. The Fund's objective is to achieve a high
level of current income consistent with reasonable concern for safety of
principal by investing, under normal circumstances, at least 65% of its total
assets in debt securities issued, guaranteed or otherwise backed by the United
States Government. The Government securities which may be purchased by the Fund
include but are not limited to (1) U.S. Treasury obligations such as Treasury
Bills (maturities of one year or less), Treasury Notes (maturities of one to ten
years) and Treasury Bonds (generally maturities of greater than ten years) and
(2) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities ("Agency Securities") which are supported by any of the
following: (a) the full faith and credit of the U.S. Treasury, such as
obligations of the Government National Mortgage Association ("GNMA"), (b) the
right of the issuer to borrow an amount limited to a specific line of credit
from the U.S. Treasury, such as obligations of the Federal National Mortgage
Association ("FNMA"), the Federal Home Loan Bank and the U.S. Postal Service, or
(c) the credit of the agency or instrumentality, such as obligations of the
Federal Home Loan Mortgage Corporation ("FHLMC") and Federal Farm Credit System.
For a listing of some of the types of Agency Securities in which the Fund may
invest, see Appendix B to this Prospectus.
The Fund may invest in U.S. Government Agency Mortgage-Backed Securities.
These securities are obligations issued or guaranteed by the United States
Government or by one of its agencies or instrumentalities, including but not
limited to GNMA, FNMA or FHLMC. U.S. Government Agency Mortgage-Backed
Certificates provide for the pass-through to investors of their pro rata share
of monthly payments (including any principal prepayments) made by the individual
borrowers on the pooled mortgage loans, net of any fees paid to the guarantor of
such securities and the servicers of the underlying mortgage loans. GNMA, FNMA
and FHLMC each guarantees timely distributions of interest to certificate
holders. GNMA and FNMA guarantee timely distributions of scheduled principal.
FHLMC has in the past guaranteed only the ultimate collection of principal of
the underlying mortgage loan; however, FHLMC Gold Participation Certificates now
guarantee timely payment of monthly principal reductions. Although their close
relationship with the U.S. Government is believed to make them high-quality
securities with minimal credit risks, the U.S. Government is not obligated by
law to support either FNMA or FHLMC. However, historically there have not been
any defaults of FNMA or FHLMC issues. See Appendix B for a more complete
description of GNMA securities. Mortgage-backed securities consist of interests
in underlying mortgages with maturities of up to thirty years. However, due to
early unscheduled payments of principal on the underlying mortgages, the
securities have a shorter average life and, therefore, less volatility than a
comparable 30-year bond. The value of U.S. Government Agency Mortgage-Backed
Securities, like other traditional debt instruments, will tend to move in a
direction opposite to that of interest rates.
The Fund purchases primarily fixed-rate securities, including but not limited
to high coupon U.S. Government Agency Mortgage-Backed Securities, which provide
a higher coupon at the time of purchase than the then prevailing market rate
yield. The prices of high coupon U.S. Government Agency Mortgage-Backed
Securities do not tend to rise as rapidly as those of traditional fixed-rate
securities at times when interest rates are decreasing, and tend to decline more
slowly at times when interest rates are increasing. The Fund may purchase such
securities at a premium, which means that a faster principal prepayment rate
than expected will reduce the market value of and income from such securities,
while a slower prepayment rate will tend to increase the market value of and
income from such securities.
The composition and weighted average maturity of the Fund's portfolio will
vary from time to time, based upon AIM's determination of how best to achieve
the Fund's investment objective. The Fund may invest in Government securities of
all maturities, short-term, intermediate-term and long-term. The Fund will
maintain a dollar-weighted average portfolio maturity of between three and ten
years. This policy regarding portfolio maturity is a non-fundamental policy of
the Fund.
AIM MONEY MARKET FUND. The Fund's objective is to provide as high a level of
current income as is consistent with the preservation of capital and liquidity.
The Fund intends to invest in money market instruments such as bankers'
acceptances, certificates of deposit, repurchase agreements, master notes, time
deposits and commercial paper, all of which will be denominated in U.S. dollars
(referred to collectively as "Money Market Instruments") and U.S. Government
direct obligations and U.S. Government agencies' securities. Bankers'
acceptances, certificates of deposit and time deposits may be purchased from
U.S. or foreign banks. Certain types of Money Market Instruments are briefly
described in Appendix A to this Prospectus and are described more fully in the
Statement of Additional Information.
The Fund may invest in other types of Money Market Instruments not prohibited
by its investment restrictions, if approved by the trustees. However, prior to
making such investments, shareholders will be provided with a revised prospectus
or a supplement thereto describing such instruments. The Fund will not invest in
instruments maturing more than 397 days from the date of investment, and will
maintain a dollar-weighted average portfolio maturity of 90 days or less.
The Fund will limit investments in Money Market Instruments to those which at
the date of purchase are "First Tier" securities as defined in Rule 2a-7 under
the 1940 Act, as such Rule may be amended from time to time. Generally, "First
Tier" securities are securities that are rated in the highest rating category by
two NRSROs, or, if only rated by one NRSRO, are rated in the highest rating
category by that NRSRO, or, if unrated, are determined by AIM (under the
supervision of and pursuant to guidelines established by the Board of Trustees)
to be of comparable quality to a rated security that meets the foregoing quality
standards. For a complete definition of a "First Tier" security, see the
definition set forth in the Statement of Additional Information.
19
<PAGE> 64
The Fund must also comply with the requirements of Rule 2a-7 under the 1940
Act, which governs the operations of money market funds and may be more
restrictive than the Fund's restrictions. If any of the Fund's policies and
restrictions are more restrictive than Rule 2a-7, such policies and restrictions
will be followed.
The Fund will normally hold portfolio securities to maturity but may dispose
of such securities prior to maturity if AIM believes such disposition advisable.
Investing in Money Market Instruments of short maturity and/or actively managing
its portfolio will result in a large number of transactions, but since the costs
of these transactions are small, they are not expected to have a significant
effect on net asset value or yield.
AIM MUNICIPAL BOND FUND. The Fund's objective is to achieve a high level of
current income exempt from federal income taxes consistent with the preservation
of principal by investing in a diversified portfolio of municipal bonds. These
investments may include obligations issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies, authorities and instrumentalities,
the interest from which, in the opinion of bond counsel, is exempt from federal
income tax.
Municipal bonds include debt obligations of varying maturities issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
obtaining of funds for general operating expenses and the lending of such funds
to other public institutions and facilities. In addition, certain types of
industrial development bonds are issued by or on behalf of public authorities to
obtain funds to provide for the construction, equipment, repair or improvement
of privately operated facilities ("private activity bonds"). Such obligations
are considered to be municipal bonds appropriate for investment by the Fund,
provided that the interest paid thereon, in the opinion of bond counsel, is
exempt from federal income taxes. As used in this Prospectus and its related
Statement of Additional Information, interest which is "tax-exempt" or "exempt
from federal income taxes" means interest on municipal bonds which is excluded
from gross income for federal income tax purposes, but which may give rise to
federal alternative minimum tax liability. The principal and interest payments
on private activity bonds (such as industrial development or pollution control
bonds) are the responsibility of the industrial user and, therefore, are not
backed by the taxing power of the issuing municipality. Such obligations are
included within the term municipal bonds if the interest paid thereon qualifies
for exemption from federal income tax, but the interest on private activity
bonds will be considered to be an item of preference for purposes of alternative
minimum tax liability under the Internal Revenue Code of 1986, as amended (the
"Code"). See "Tax Matters" in the Statement of Additional Information. The Fund
will invest at least 80% of its total invested assets in securities that do not
pay interest subject to federal income taxes and that do not constitute an item
of preference for purposes of the alternative minimum tax.
In addition, the Fund will invest at least 80% of its total invested assets
in municipal bonds. At least 80% of the municipal securities purchased by the
Fund will be rated within the four highest ratings, or will be obligations
of issuers having an issue of outstanding municipal bonds rated within the
four highest ratings of Moody's, S&P or any other NRSRO. However, up to 20% of
the Fund's total assets may be invested in unrated municipal bonds if in the
judgment of AIM, after considering available information regarding the
creditworthiness of the issuer, such bonds are similar in quality to those
bonds rated within the four highest ratings mentioned above. The Fund will
maintain less than 20% of its total assets in securities rated below Baa/BBB
(or a comparable rating of any other NRSRO). During 1994, the Fund invested
less than 5% of its net assets in below investment grade debt securities. See
"Certain Investment Strategies and Policies -- Risk Factors Regarding
Non-Investment Grade Debt Securities" for more information concerning the
risk factors associated with investing in such securities.
Since the Fund invests primarily in municipal obligations, the marketability
and market value of these obligations may be affected by certain constitutional
amendments, legislative measures, executive orders, administrative regulations
and voter initiatives as well as regional economies. The ability of the Fund to
achieve its objective is affected by the ability of municipal issuers to meet
their payment obligations. Problems which may arise in the foregoing areas and
which are not resolved could adversely affect the various municipal issuers'
abilities to meet their financial obligations.
The Fund may invest in short-term obligations, including taxable investments,
to establish a defensive position in anticipation of a market decline with a
corresponding rise in interest rates. Such short-term obligations include notes
issued by or on behalf of municipal issuers, obligations of the U.S. Government,
its agencies or instrumentalities, instruments of domestic banks, domestic
commercial paper and other cash equivalent investments. Interest income from
certain short-term holdings may be taxable to shareholders as ordinary income.
AIM VALUE FUND. The Fund's objective is to achieve long-term growth of
capital by investing primarily in equity securities judged by the Fund's
investment advisor to be undervalued relative to the investment advisor's
appraisal of the current or projected earnings of the companies issuing the
securities, or relative to current market values of assets owned by the
companies issuing the securities or relative to the equity market generally.
Income is a secondary objective and would be satisfied principally from the
income (interest and dividends) generated by the common stocks, convertible
bonds and convertible preferred stocks that make up the Fund's portfolio. The
Fund should not be purchased by those who seek income as their primary
investment objective.
In addition to the securities described above, the Fund may also acquire
preferred stocks and debt instruments having prospects for growth of capital.
Although these different types of securities can be expected to generate amounts
of income to satisfy the Fund's secondary objective, they will be purchased for
their potential for growth of capital.
The primary emphasis of AIM's search for undervalued equity securities is in
four categories: (1) out-of-favor cyclical growth companies; (2) established
growth companies that are undervalued compared to historical relative valuation
parameters; (3) companies
20
<PAGE> 65
where there is early but tangible evidence of improving prospects which are not
yet reflected in the price of the company's equity securities; and (4) companies
whose equity securities are selling at prices that do not reflect the current
market value of their assets and where there is reason to expect realization of
this potential in the form of increased equity values.
Because AIM VALUE FUND invests in equity securities judged by the Fund's
investment advisor to be undervalued relative to the investment advisor's
appraisal of the current or projected earnings of the companies issuing such
securities, investors should carefully assess the risks associated with an
investment in the Fund.
PORTFOLIO RATINGS. During 1994, the percentage of average annual assets of
AIM HIGH YIELD FUND and AIM INCOME FUND, calculated on a dollar weighted basis,
which was invested in securities within each Moody's rating category (as
described in Appendix C), and in unrated securities determined by AIM and/or
CIGNA Investments, Inc. ("CII") (formerly the subadvisor to AIM High Yield Fund)
to be of comparable quality, was as follows:
<TABLE>
<CAPTION>
AIM HIGH AIM INCOME
YIELD FUND FUND
---------- ----------
<S> <C> <C>
Aaa...................................................................... 4.9% 30.6%
Aa....................................................................... 0% 5.7%
A........................................................................ 0% 9.8%
Baa...................................................................... 0% 21.3%
Ba....................................................................... 9.0% 14.2%
B........................................................................ 69.0% 14.3%
Caa...................................................................... 11.8% 0.4%
Ca....................................................................... 0% 0%
C........................................................................ 0% 0%
Unrated.................................................................. 5.3% 3.7%
----- -----
Total Average Annual Assets......................................... 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
CERTAIN INVESTMENT STRATEGIES AND POLICIES
In pursuit of its objectives and policies, one or more of the Funds may
employ one or more of the following strategies in order to enhance investment
results:
MONEY MARKET INSTRUMENTS. (All Funds). When deemed appropriate for temporary
or defensive purposes, each of the Funds may hold substantially all of its
assets in the form of cash or cash equivalent Money Market Instruments. Of
course, AIM MONEY MARKET FUND invests exclusively in Money Market Instruments.
None of the Funds, other than AIM MONEY MARKET FUND, is required to limit such
investments to those which, at the date of purchase, are "First Tier" securities
as that term is defined in Rule 2a-7 under the 1940 Act.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS. (All Funds).
Each Fund may purchase securities on a "when-issued" basis, that is, delivery of
and payment for the securities is not fixed at the date of purchase, but is set
after the securities are issued (normally within forty-five days after the date
of the transaction). Each Fund also may purchase or sell securities on a delayed
delivery basis. The payment obligation and the interest rate that will be
received on the delayed delivery securities are fixed at the time the buyer
enters into the commitment. A Fund will only make commitments to purchase
when-issued or delayed delivery securities with the intention of actually
acquiring such securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable.
Investment in securities on a when-issued or delayed delivery basis may
increase a Fund's exposure to market fluctuation and may increase the
possibility that the Fund will incur short-term gains subject to federal
taxation or short-term losses if the Fund must engage in portfolio transactions
in order to honor a when-issued or delayed delivery commitment. In a delayed
delivery transaction, the Fund relies on the other party to complete the
transaction. If the transaction is not completed, the Fund may miss a price or
yield considered to be advantageous. A Fund will employ techniques designed to
reduce such risks. If a Fund purchases a when-issued security, the Fund's
custodian bank will segregate cash or other high grade securities (including
temporary investments and Municipal Securities) in an amount equal to the
when-issued commitment. If the market value of such securities declines,
additional cash or securities will be segregated on a daily basis so that the
market value of the segregated assets will equal the amount of the Fund's
when-issued commitments. To the extent cash and securities are segregated, they
will not be available for new investments or to meet redemptions. Securities
purchased on a delayed delivery basis may require a similar segregation of cash
or other high grade securities. For a more complete description of when-issued
securities and delayed delivery transactions see the Statement of Additional
Information.
DOLLAR ROLL TRANSACTIONS. AIM INCOME FUND and AIM INTERMEDIATE GOVERNMENT
FUND only. In order to enhance portfolio returns and manage prepayment risks,
AIM INCOME FUND and AIM INTERMEDIATE GOVERNMENT FUND may engage in dollar roll
transactions with respect to mortgage securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, a Fund sells a mortgage security held in the
portfolio to a financial institution such as a bank or broker-dealer, and
simultaneously agrees to repur-
21
<PAGE> 66
chase a substantially similar security (same type, coupon and maturity) from the
institution at a later date at an agreed upon price. The mortgage securities
that are repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, a Fund
will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, could generate income for a Fund exceeding the
yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities retained by a Fund may decline below the price of the securities that
the Fund has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities in a dollar roll transaction files for bankruptcy
or becomes insolvent, the Fund's use of the proceeds from the sale of the
securities may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Fund's obligation to repurchase the
securities. AIM INCOME FUND and AIM INTERMEDIATE GOVERNMENT FUND will limit
their respective borrowings from banks, reverse repurchase agreements and dollar
roll transactions to an aggregate of 33-1/3% of their respective total assets at
the time of investment. A Fund will not purchase additional securities when any
borrowings from banks exceed 5% of the Fund's total assets. For further
information regarding reverse repurchase agreements see the Statement of
Additional Information.
STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS. (AIM BALANCED FUND, AIM
GLOBAL UTILITIES FUND, AIM GROWTH FUND and AIM VALUE FUND ("Equity Funds")).
INTEREST RATE FUTURES CONTRACTS AND RELATED OPTIONS. (AIM BALANCED FUND, AIM
HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND and AIM
MUNICIPAL BOND FUND ("Debt Funds")). Each of the Equity Funds may purchase and
sell stock index futures contracts or purchase and sell options thereon as a
hedge against changes in market conditions. Similarly, each of the Debt Funds
may purchase and sell interest rate futures contracts or purchase and sell
options thereon to hedge its portfolio of debt securities against changes in
interest rates. 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. An interest rate futures contract is an
agreement between two parties to buy and sell a debt security for a set price on
a future date. A Fund will only enter into futures contracts or purchase or sell
options thereon as a hedge against changes resulting from market conditions in
the values of the securities held or which the Fund intends to purchase.
Generally, a Fund may elect to close a position in a futures contract by taking
an opposite position which will operate to terminate the Fund's position in the
futures contract. See the Statement of Additional Information for a description
of a Fund's investments in futures contracts and options on futures contracts,
including certain related risks.
No Fund may purchase or sell futures contracts or purchase or sell 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 exceed 5% of the market value of a Fund's total assets.
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets (10% of
the net assets of AIM MONEY MARKET FUND) in securities that are illiquid.
Illiquid securities include securities that have no readily available market
quotations and cannot be disposed of promptly (within seven days) in the normal
course of business at a price at which they are valued. Illiquid securities may
include securities that are subject to restrictions on resale because they have
not been registered under the Securities Act of 1933. Restricted securities may,
in certain circumstances, be resold pursuant to Rule 144A, and thus may or may
not constitute illiquid securities. Limitations on the resale of restricted
securities may have an adverse effect on their marketability, which may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering such securities for resale, and the risk of
substantial delays in effecting such registrations. The Trust's Board of
Trustees is responsible for developing and establishing guidelines and
procedures for determining the liquidity of Rule 144A restricted securities on
behalf of the Funds and monitoring AIM's implementation of the guidelines and
procedures.
RISK FACTORS REGARDING NON-INVESTMENT GRADE DEBT SECURITIES. AIM HIGH YIELD
FUND, and to a lesser extent AIM BALANCED FUND, AIM GLOBAL UTILITIES FUND, AIM
INCOME FUND and AIM MUNICIPAL BOND FUND, seek to meet their respective
investment objectives by investing in non-investment grade debt securities,
commonly known as "junk bonds." While generally providing greater income and
opportunity for gain, non-investment grade debt securities may be subject to
greater risks than higher-rated securities. Economic downturns tend to disrupt
the market for junk bonds and adversely affect their values. Such economic
downturns may be expected to result in increased price volatility for junk bonds
and of the value of shares of the above-named Funds, and increased issuer
defaults on junk bonds.
In addition, many issuers of junk bonds are substantially leveraged, which
may impair their ability to meet their obligations. In some cases, junk bonds
are subordinated to the prior payment of senior indebtedness, which potentially
limits a Fund's ability to fully recover principal or to receive payments when
senior securities are subject to a default.
The credit rating of a junk bond does not necessarily address its market
value risk, and ratings may from time to time change to reflect developments
regarding the issuer's financial condition. Junk bonds have speculative
characteristics which are likely to increase in number and significance with
each successive lower rating category.
22
<PAGE> 67
When the secondary market for junk bonds becomes more illiquid, or in the
absence of readily available market quotations for such securities, the relative
lack of reliable objective data makes it more difficult for the trustees to
value a Fund's securities, and judgment plays a more important role in
determining such valuations. Increased illiquidity in the junk bond market also
may affect a Fund's ability to dispose of such securities at desirable prices.
In the event a Fund experiences an unexpected level of net redemptions, the
Fund could be forced to sell its junk bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return. Prices of junk bonds
have been found to be less sensitive to fluctuations in interest rates, and more
sensitive to adverse economic changes and individual corporate developments than
those of higher-rated debt securities.
INVESTMENTS IN FOREIGN SECURITIES. (All Funds except AIM INTERMEDIATE
GOVERNMENT FUND and AIM MUNICIPAL BOND FUND). Each Fund may invest up to 25% of
its total assets (up to 20% for AIM BALANCED FUND, 40% for AIM INCOME FUND, 50%
for AIM MONEY MARKET FUND and 80% for AIM GLOBAL UTILITIES FUND) in Canadian and
other foreign securities, although AIM MONEY MARKET FUND may only invest in
foreign securities denominated in U.S. dollars. To the extent it invests in
securities denominated in foreign currencies, each Fund bears the risks of
changes in the exchange rates between U.S. currency and the foreign currency, as
well as the availability and status of foreign securities markets. Each Fund
(other than AIM MONEY MARKET FUND) may invest in securities of foreign issuers
which are in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), or other securities representing underlying
securities of foreign issuers, and such investments are treated as foreign
securities for purposes of percentage limitations on investments in foreign
securities. For a discussion of the risks pertaining to investments in foreign
securities. See "Risk Factors Regarding Foreign Securities" below.
FOREIGN EXCHANGE TRANSACTIONS. (All Funds except AIM INTERMEDIATE GOVERNMENT
FUND, AIM MONEY MARKET FUND and AIM MUNICIPAL BOND FUND). Each Fund 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 rates between those countries. 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.
The Funds may purchase and sell options on futures contracts, forward
contracts or futures contracts which are denominated in a particular foreign
currency to hedge the risk of fluctuations in the value of another currency.
Each Fund'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 the Fund accruing in connection with the purchase or sale of its
portfolio securities, the sale and redemption of shares of the Fund, or the
payment of dividends and distributions by the Fund. Position hedging is the
purchase or sale of foreign currency with respect to portfolio security
positions denominated or quoted in a foreign currency. The Funds will not
speculate in foreign exchange. No Fund will commit a larger percentage of its
total assets to foreign exchange hedges than the percentage of its total assets
which it could invest in foreign securities. Further information concerning
futures contracts and related options is set forth above.
RISK FACTORS REGARDING FOREIGN SECURITIES. Investments by a Fund in foreign
securities, whether denominated in U.S. dollars or foreign currencies, may
entail all of the risks set forth below. Investments by a Fund in ADRs, EDRs or
similar securities also may entail some or all of the risks described below.
Currency Risk. The value of the Funds' 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
the Funds may invest may not be 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 the
Funds' investments.
Regulatory Risk. Foreign companies are not registered with the Securities and
Exchange Commission and are generally not subject to the regulatory controls
imposed on United States issuers and, as a consequence, there is generally less
publicly available information about foreign securities than is available about
domestic securities. Foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to domestic companies. Income from foreign
securities owned by the Funds may be reduced by a withholding tax at the source,
which tax would reduce dividend income payable to the Fund's shareholders.
Market Risk. The securities markets in many of the countries in which the
Funds invest will have substantially less trading volume than the major United
States markets. As a result, the securities of some foreign companies may be
less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
23
<PAGE> 68
PORTFOLIO TURNOVER. (All Funds except AIM MONEY MARKET FUND). Any particular
security will be sold, and the proceeds reinvested, whenever such action is
deemed prudent from the viewpoint of a Fund's investment objectives, regardless
of the holding period of that security. Each Fund's historical portfolio
turnover rates are included in the Financial Highlights tables above. 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 a Fund, the portion of
the Fund's distributions constituting taxable capital gains may increase. See
"Dividends, Distributions and Tax Matters."
- --------------------------------------------------------------------------------
MANAGEMENT
The overall management of the business and affairs of the Funds is vested in
the Trust's Board of Trustees. The Board of Trustees approves all significant
agreements between the Trust, on behalf of one or more of the Funds, and persons
or companies furnishing services to the Funds, including the investment advisory
agreement and administrative services agreement with AIM, the agreements with
AIM Distributors regarding distribution of each Fund's shares, the agreements
with State Street Bank and Trust Company and The Bank of New York as the
custodians and the transfer agency agreement with A I M Fund Services, Inc., a
wholly-owned subsidiary of AIM. The day-to-day operations of each Fund are
delegated to the officers of the Trust and to AIM, subject always to the
objective and policies of the applicable Fund and to the general supervision of
the Board of Trustees. Certain trustees and officers of the Trust are affiliated
with AIM and A I M Management Group Inc. ("AIM Management"), the parent
corporation of AIM. AIM Management is a holding company engaged in the financial
services business. Information concerning the Board of Trustees may be found in
the Statement of Additional Information.
INVESTMENT ADVISOR. A I M Advisors, Inc. ("AIM"), 11 Greenway Plaza, Suite
1919, Houston, Texas 77046, serves as the investment advisor to each Fund
pursuant to a Master Investment Advisory Agreement, dated as of October 18, 1993
(the "Advisory Agreement"). AIM was organized in 1976 and, together with its
affiliates, manages or advises 38 investment company portfolios. As of October
31, 1995, the total assets of such investment company portfolios were
approximately $39.3 billion.
Under the terms of the Advisory Agreement, AIM supervises all aspects of each
Fund's operations and provides investment advisory services to the Funds. AIM
obtains and evaluates economic, statistical and financial information to
formulate and implement investment programs for the Funds. The Advisory
Agreement also provides that, upon the request of the Board of Trustees, AIM may
perform or arrange for certain accounting, shareholder servicing and other
administrative services for the Funds which are not required to be performed by
AIM under the Advisory Agreement. The Board of Trustees has made such a request.
As a result, AIM and the Trust have entered into a Master Administrative
Services Agreement, dated as of October 18, 1993, pursuant to which AIM is
entitled to receive from each Fund reimbursement of its costs or such reasonable
compensation as may be approved by the Board of Trustees. Currently, AIM is
reimbursed for the services of the Funds' principal financial officer and his
staff, and any expenses related to such services, as well as the services of
staff responding to various shareholder inquiries.
For a discussion of AIM's brokerage allocation policies and practices, see
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information. In accordance with policies established by the Board of Trustees,
AIM may take into account sales of shares of the Funds and other funds advised
by AIM in selecting broker-dealers to effect portfolio transactions on behalf of
the Funds.
PORTFOLIO MANAGEMENT. AIM uses a team approach and disciplined investment
strategy in providing investment advisory services to all its accounts,
including the Funds. AIM's investment staff consists of 87 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 accounts' and AIM's investment
policies. The individuals on the investment team who are primarily responsible
for the day-to-day management of each of the Funds (other than AIM MONEY MARKET
FUND) and their titles, if any, with AIM or its affiliates and the Trust, the
length of time they have been responsible for the management of the Funds, their
years of investment experience and prior experience (if they have been with AIM
for less than five years) are described below:
AIM Balanced Fund. Robert G. Alley is Senior Vice President of A I M Capital
Management, Inc. ("AIM Capital"), a wholly-owned subsidiary of AIM; Vice
President of AIM and of the Trust; and has been responsible for the Fund since
its investment objective and policies were changed to that of a balanced fund in
1993. Mr. Alley has been associated with AIM since 1992 and has a total of 23
years of experience as an investment professional. Prior to joining AIM, he was
Senior Fixed Income Manager for Waddell and Reed, Inc. Claude C. Cody IV is Vice
President of AIM Capital and also has been responsible for the Fund since 1993.
Mr. Cody has been associated with AIM since 1992 and has a total of 19 years of
experience as an investment professional. Prior to joining AIM in 1992, he was
an Independent Consultant (from 1990-1992), and Senior Vice President of America
Savings and Loan (from 1988-1990) and Senior Vice President of Western Reserve
Life (1988-1990) (both subsidiaries of Kinder-Care Inc.), where he established
an investment management operation and managed three portfolios.
AIM Global Utilities Fund. Robert G. Alley and Claude C. Cody IV have been
responsible for the management of the Fund since 1992. Background information
for Mr. Alley and Mr. Cody is discussed above with respect to the management of
AIM BALANCED FUND.
24
<PAGE> 69
AIM Growth Fund. Jonathan C. Schoolar is Senior Vice President and Director
of AIM Capital, Vice President of AIM and the Trust, and has been responsible
for the Fund since 1994. He has been associated with AIM and/or its affiliates
since 1986 and has 10 years of experience as an investment professional.
Robert M. Kippes is Vice President of AIM Capital and has been responsible for
the Fund since 1994. Mr. Kippes has been associated with AIM and/or its
affiliates since 1989 and has over five years of experience as an investment
professional. David P. Barnard is Vice President of AIM Capital and has been
responsible for the Fund since 1992. Mr. Barnard has been associated with AIM
since 1982 and has 20 years of experience as an investment professional.
AIM High Yield Fund. John L. Pessarra is Vice President of AIM Capital and
has been responsible for the Fund since 1992. Mr. Pessarra has been associated
with AIM since 1990 and has a total of 11 years of experience as an investment
professional. Kevin E. Rogers is Vice President of AIM Capital and has been
responsible for the Fund since 1995. Mr. Rogers has been associated with AIM
since 1991 and has over nine years of experience as an investment professional.
Prior to 1991, Mr. Rogers was a senior research analyst with Waddell & Reed,
Inc.
AIM Income Fund. Robert G. Alley and John L. Pessarra have been responsible
for the management of the Fund since 1992. Mr. Alley's background is discussed
above with respect to the management of AIM BALANCED FUND, and Mr. Pessarra's
background is discussed above with respect to the management of AIM HIGH YIELD
FUND. Carolyn L. Gibbs is Assistant Vice President of AIM Capital and has been
responsible for the Fund since 1995. Ms. Gibbs has been associated with AIM
since 1992 and has over 10 years of experience as an investment professional.
Prior to 1992, Ms. Gibbs was a financial analyst with Northwest Airlines.
AIM Intermediate Government Fund. Karen Dunn Kelley is Senior Vice President
of AIM Capital, Vice President of AIM and of the Trust and has been responsible
for the Fund since 1992. Ms. Kelley has been associated with AIM since 1989 and
has a total of 11 years of experience as an investment professional. Meggan
Walsh is Vice President of AIM Capital and has been responsible for the Fund
since 1992. Ms. Walsh has been associated with AIM since 1991 and has over seven
years of experience as an investment professional. Prior to 1991, Ms. Walsh was
Manager of Short-Term U.S. and Commercial Paper Programs at
Nationale-Nederlanden North America Corporation.
AIM Municipal Bond Fund. Richard A. Berry is Vice President of AIM Capital
and has been responsible for the Fund since 1992. Mr. Berry has been associated
with AIM since 1987 and has a total of 27 years of experience as an investment
professional. Stephen D. Turman is Vice President of AIM Capital and has been
responsible for the Fund since 1992. Mr. Turman has been associated with AIM
since 1985 and has a total of 14 years of experience as an investment
professional.
AIM Value Fund. Joel E. Dobberpuhl is Vice President of AIM Capital and has
been responsible for the Fund since 1992. Mr. Dobberpuhl has been associated
with AIM since 1990 and has a total of six years of experience as an investment
professional. Prior to 1990, he served as an equity trader and portfolio analyst
for NationsBank of Texas, N.A. Claude C. Cody IV has been responsible for the
management of the Fund since 1992. Mr. Cody's background is discussed above with
respect to the management of AIM BALANCED FUND.
FEES AND EXPENSES. For the year ended December 31, 1994, each Fund (other
than AIM MONEY MARKET FUND) paid the following compensation to AIM for its
advisory services, and the total expenses of each such Fund were, stated as a
percentage of the Funds' average daily net assets, as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
COMPENSATION EXPENSE EXPENSE
TO AIM RATIO RATIO
------------ ------- -------
<S> <C> <C> <C>
AIM Balanced Fund............................ 0.30% 1.25% 1.98%
AIM Global Utilities Fund.................... 0.60% 1.18% 2.07%
AIM Growth Fund.............................. 0.65% 1.22% 2.18%
AIM High Yield Fund.......................... 0.56% 1.00% 1.80%
AIM Income Fund.............................. 0.49% 0.98% 1.83%
AIM Intermediate Government Fund............. 0.50% 1.04% 1.82%
AIM Municipal Bond Fund...................... 0.47% 0.89% 1.67%
AIM Value Fund............................... 0.46% 0.98% 1.90%
</TABLE>
For the year ended December 31, 1994, AIM MONEY MARKET FUND paid 0.46% of its
average daily net assets to AIM as compensation for its advisory services, and
the Class A shares', Class B shares' and Class C shares' total expenses for such
period were 0.97%, 1.78% and 0.99% of the Fund's average daily net assets,
respectively.
For the year ended December 31, 1994, compensation paid to CII by AIM for its
sub-advisory services was 0.12% of AIM HIGH YIELD FUND's average daily net
assets. The Sub-advisory Agreement among CII, AIM and AIM Funds Group terminated
effective September 20, 1995.
25
<PAGE> 70
For the year ended December 31, 1994, each Fund reimbursed AIM for
administrative services in the following amounts, stated as a percentage of the
Funds' average daily net assets:
<TABLE>
<CAPTION>
REIMBURSEMENT
PAYMENTS
-------------
<S> <C>
AIM Balanced Fund................................................ 0.18%
AIM Global Utilities Fund........................................ 0.08%
AIM Growth Fund.................................................. 0.09%
AIM High Yield Fund.............................................. 0.04%
AIM Income Fund.................................................. 0.07%
AIM Intermediate Government Fund................................. 0.06%
AIM Money Market Fund............................................ 0.05%
AIM Municipal Bond Fund.......................................... 0.04%
AIM Value Fund................................................... 0.06%
</TABLE>
FEE WAIVERS. In order to increase the yield to investors, AIM may from time
to time voluntarily waive or reduce its fee, while retaining its ability to be
reimbursed for such fee prior to the end of each fiscal year. Fee waivers or
reductions, other than those set forth in the Advisory Agreement, may be
rescinded at any time and without notice to investors.
DISTRIBUTOR. The Trust has entered into Master Distribution Agreements
relating to the Funds (the "Distribution Agreements") with A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and a wholly-owned
subsidiary of AIM, pursuant to which AIM Distributors acts as the distributor of
Class A and Class B shares of the Funds and Class C shares of AIM MONEY MARKET
FUND. The address of AIM Distributors is P.O. Box 4739, Houston, Texas
77210-4739. Certain trustees and officers of the Trust are affiliated with AIM
Distributors and AIM Management.
The Distribution Agreements provide AIM Distributors with the exclusive right
to distribute shares of the Funds directly and through institutions with whom
AIM Distributors has entered into selected dealer agreements. Under the
Distribution Agreement for the Class B shares, AIM Distributors sells Class B
shares at net asset value subject to a contingent deferred sales charge
established by AIM Distributors. AIM Distributors is authorized to advance to
institutions through whom Class B shares are sold a sales commission under
schedules established by AIM Distributors. The Distribution Agreement for the
Class B shares provides that AIM Distributors (or its assignee or transferee)
will receive 0.75% (of the total 1.00% payable under the distribution plan
applicable to Class B shares) of each Fund's average daily net assets
attributable to Class B shares attributable to the sales efforts of AIM
Distributors. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset based
sales charges in respect of the outstanding Class B shares attributable to the
distribution efforts of AIM Distributors; provided, however, that a complete
termination of the Class B shares master distribution plan (as defined in the
plan) would terminate all payments to AIM Distributors. Termination of the Class
B shares distribution plan or Distribution Agreement does not affect the
obligation of Class B shareholders to pay contingent deferred sales charges.
DISTRIBUTION PLANS. The Trust has adopted a master distribution plan
applicable to Class A shares of the Funds and Class C shares of AIM MONEY MARKET
FUND (the "Class A and C Plan") pursuant to Rule 12b-1 under the 1940 Act. Under
the Class A and C Plan, each Fund pays compensation of 0.25% per annum of the
average daily net assets attributable to such Fund's Class A shares or Class C
shares, respectively, to AIM Distributors for the purpose of financing any
activity which is primarily intended to result in the sale of Class A shares or
Class C shares of the Fund. The Class A and C Plan is designed to compensate AIM
Distributors for certain promotional and other sales related costs, and to
implement a program which provides periodic payments to selected dealers and
financial institutions who furnish continuing personal shareholder services to
their customers who purchase and own shares of the Funds.
The Trust has also adopted a master distribution plan applicable to Class B
shares of the Funds (the "Class B Plan"). Under the Class B Plan, each Fund pays
distribution expenses at an annual rate of 1.00% of the average daily net assets
attributable to such Fund's Class B shares. Of such amount, the Fund pays a
service fee of 0.25% of the average daily net assets attributable to such Fund's
Class B shares to selected dealers and financial institutions who furnish
continuing personal shareholder services to their customers who purchase and own
Class B shares of the Fund. Any amounts not paid as a service fee would
constitute an asset-based sales charge. Amounts paid in accordance with the
Class B Plan with respect to any Fund may be used to finance any activity
primarily intended to result in the sale of Class B shares of such Fund.
Activities that may be financed under the Class A and C Plan and the Class B
Plan (collectively, the "Plans") include, but are not limited to: printing of
prospectuses and statements of additional information and reports for other than
existing shareholders, overhead, preparation and distribution of advertising
material and sales literature, supplemental payments to dealers and other
institutions such as asset-based sales charges or as payments of service fees
under shareholder service arrangements, and the cost of administering the Plans.
These amounts payable by a Fund under the Plans need not be directly related to
the expenses actually incurred by AIM Distributors on behalf of each Fund. Thus,
even if AIM Distributors' actual expenses exceed the fee payable to AIM
Distributors thereunder at any given time, the Trust will not be obligated to
pay more than that fee, and if AIM Distributors' expenses are
26
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(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 72
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 the rules of the National Association of Securities
Dealers, Inc.
Each of the Plans may be terminated at any time by a vote of the majority of
those trustees who are not "interested persons" of the Trust or by a vote of the
holders of the majority of the outstanding shares of the applicable class.
Under the Plans, AIM Distributors may in its discretion from time to time
agree to waive voluntarily all or any portion of its fee that has not been
assigned or transferred, while retaining its ability to be reimbursed for such
fee prior to the end of each fiscal year.
Under the Plans, certain financial institutions which have entered into
service agreements and which sell shares of the Funds on an agency basis, may
receive payments from the Funds pursuant to the respective Plans. AIM
Distributors does not act as principal, but rather as agent, for the Funds in
making such payments. The Funds will obtain a representation from such financial
institutions that they will either be licensed as dealers as required under
applicable state law, or that they will not engage in activities which would
constitute acting as a "dealer" as defined under applicable state law. Financial
intermediaries and any other person entitled to receive compensation for selling
Fund shares may receive different compensation for selling shares of one class
over another.
For additional information concerning the operation of the Plans see the
Statement of Additional Information.
- --------------------------------------------------------------------------------
ORGANIZATION OF THE TRUST
The Trust is organized as a Delaware business trust pursuant to an Agreement
and Declaration of Trust dated May 5, 1993, as amended (the "Trust Agreement").
The Trust is an open-end series management investment company, and may consist
of one or more series portfolios as authorized from time to time by the Board of
Trustees. The Trust currently consists of nine separate series, and each of the
Funds represents one series.
Class A shares, Class B shares and, in the case of AIM MONEY MARKET FUND,
Class C shares, of the same Fund represent interests in that Fund'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 that class'
distribution plan (although both Class A and C shareholders and Class B
shareholders of a given portfolio must approve any material increase in fees
payable with respect to such portfolio under the Class A and C Plan).
The Trust is not required to hold annual or regular meetings of shareholders.
Meetings of shareholders of a Fund will be held from time to time to consider
matters requiring a vote of such shareholders in accordance with the
requirements of the 1940 Act, state law or the provisions of the Trust
Agreement. It is not expected that shareholder meetings will be held annually.
Except as specifically noted above, shareholders of each Fund are entitled to
one vote per share (with proportionate voting for fractional shares),
irrespective of the relative net asset value of the shares of a Fund. However,
on matters affecting an individual Fund or class of shares, a separate vote of
shareholders of that Fund or class is required. Shareholders of a Fund or class
are not entitled to vote on any matter which does not affect that Fund or class
but which requires a separate vote of another Fund or class. An example of a
matter which would be voted on separately by shareholders of each Fund is the
approval of the Advisory Agreement, and an example of a matter which would be
voted on separately by shareholders of each class of shares is approval of the
distribution plans. When issued, shares of each Fund 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 trustees,
holders of more than 50% of the shares voting for the election of trustees can
elect all of the trustees of the Trust, and the holders of less than 50% of the
shares voting for the election of trustees will not be able to elect any
trustees.
The Trust Agreement provides that the trustees of the Trust shall hold office
during the existence of the Trust, except as follows: (a) any trustee may resign
or retire; (b) any trustee may be removed by a vote of the majority of the
outstanding shares of the Trust, or at any time by written instrument signed by
at least two-thirds of the trustees and specifying when such removal becomes
effective; or (c) any trustee who has died or become incapacitated and is unable
to serve may be removed by a written instrument signed by a majority of the
trustees.
Under Delaware law, the shareholders of the Trust enjoy the same limitations
of liability extended to shareholders of private, for-profit corporations. There
is a remote possibility, however, that under certain circumstances shareholders
of the Trust may be held personally liable for the Trust's obligations. However,
the Trust Agreement disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
trustee. The Trust Agreement provides for indemnification from the Trust
property for all losses and expenses of any shareholder held personally liable
for the Trust's obligations. Thus, the risk of a shareholder incurring financial
loss on account of such liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations and where the other party was
held not to be bound by the disclaimer.
27
<PAGE> 73
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(R)
THE AIM FAMILY OF FUNDS consists of the following mutual funds:
<TABLE>
<S> <C>
AIM AGGRESSIVE GROWTH FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM BALANCED FUND AIM INTERNATIONAL EQUITY FUND
AIM CHARTER FUND AIM LIMITED MATURITY TREASURY SHARES
AIM CONSTELLATION FUND AIM MONEY MARKET FUND*
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM MUNICIPAL BOND FUND
AIM GLOBAL GROWTH FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM GLOBAL INCOME FUND AIM TAX-EXEMPT CASH FUND*
AIM GLOBAL UTILITIES FUND AIM TAX-FREE INTERMEDIATE SHARES
AIM GROWTH FUND AIM VALUE FUND
AIM HIGH YIELD FUND AIM WEINGARTEN FUND
AIM INCOME 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 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 IRA account is $250. There are no minimum initial investment
requirements applicable to money-purchase/profit-sharing plans, 401(k) plans,
IRA/SEP, 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)
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).
MCF 11/95
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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:
Texas Commerce Bank
ABA 113000609
Attn: AIM Wire Purchase
DDA 00100366807
Fund Name/Reference Number
Shareholder Name
Shareholder Account Number
If wires are received after 4:15 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 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 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.
MCF 11/95
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<PAGE> 75
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
CHARTER FUND, AIM CONSTELLATION FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH
FUND, AIM INTERNATIONAL EQUITY FUND, AIM MONEY MARKET FUND, AIM VALUE FUND and
AIM WEINGARTEN FUND.
<TABLE>
<CAPTION>
INVESTOR'S DEALER
SALES CHARGE CONCESSION
-------------------------- -----------
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF
THE THE THE
PUBLIC NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
- ----------------------------- --------- ---------- -----------
<S> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 butless than $ 50,000 5.25 5.54 4.50
$ 50,000 butless than $ 100,000 4.75 4.99 4.00
$100,000 butless than $ 250,000 3.75 3.90 3.00
$250,000 butless than $ 500,000 3.00 3.09 2.50
$500,000 butless 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. 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
CONCESSION
INVESTOR'S SALES CHARGE ----------
---------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF
OF THE OF THE THE
PUBLIC NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
- ---------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/ or advance a service fee on such
transactions. 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 CONCESSION
SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF
OF THE OF THE THE
PUBLIC NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
- ----------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/ or advance a service fee on such
transactions.
A-3
<PAGE> 76
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. 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 4:15 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 4:15 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 is open for
business, except for AIM LIMITED MATURITY TREASURY SHARES, for which a "business
day" is any day on which either the New York Stock Exchange or such fund's
custodian bank is open for business. It is expected that the New York Stock
Exchange 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 New York Stock Exchange.
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-
MCF 11/95
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<PAGE> 77
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 4:15 p.m. Eastern Time on each business day of AIM
MONEY MARKET FUND and at 4:15 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.
MCF 11/95
A-5
<PAGE> 78
The term "purchaser" means:
- 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 Individual Retirement Account (IRA),
a single-participant money-purchase/profit-sharing plan or an individual
participant in a 403(b) Plan (unless such 403(b) plan qualifies as the
purchaser as defined below);
- a 403(b) plan, the employer/sponsor of which is an organization described
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
(the "Code"), 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;
- 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, a Simplified Employee Pension (SEP), Salary Reduction and other
Elective Simplified Employee Pension Accounts ("SARSEP")) and 457 plans,
although more than one beneficiary or participant is involved;
- 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
- the discretionary advised accounts of A I M Advisors, Inc. or A I M Capital
Management, Inc.
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 attor-
MCF 11/95
A-6
<PAGE> 79
ney to surrender for redemption any or all escrowed shares, to make up such
difference within 60 days of the expiration date. Full shares and any cash
proceeds for a fractional share remaining after such redemption will be released
from escrow.
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 AIM Distributors 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) 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 The Shareholders Services Group, Inc., a
wholly-owned subsidiary of First Data Corporation; (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
MCF 11/95
A-7
<PAGE> 80
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 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, 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 AIM Distributors at the address
provided under "How to Purchase Shares," or by calling the Client Services
Department of AIM Distributors 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.
MCF 11/95
A-8
<PAGE> 81
Payments under a Systematic Withdrawal Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B 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 investments
may establish an Automatic Investment Plan. Under this plan, on or about the
tenth and/or twenty-fifth day of each 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; Individual Retirement Account
("IRA") plans; and Simplified Employee Pension ("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).
MCF 11/95
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<PAGE> 82
- --------------------------------------------------------------------------------
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>
<CAPTION>
LOAD FUNDS: LOWER LOAD FUNDS:
----------- -----------------
<S> <C> <C>
AIM AGGRESSIVE GROWTH AIM HIGH YIELD FUND -- CLASS A AIM LIMITED MATURITY TREASURY SHARES
FUND -- CLASS A AIM INCOME FUND -- CLASS A AIM TAX-FREE INTERMEDIATE SHARES
AIM BALANCED FUND -- CLASS A AIM INTERMEDIATE GOVERNMENT
AIM CHARTER FUND -- CLASS A FUND -- CLASS A NO LOAD FUNDS:
AIM CONSTELLATION AIM INTERNATIONAL EQUITY --------------
FUND -- CLASS A FUND -- CLASS A AIM MONEY MARKET FUND
AIM GLOBAL AGGRESSIVE GROWTH AIM MONEY MARKET -- CLASS C
FUND -- CLASS A FUND -- CLASS A AIM TAX-EXEMPT CASH FUND
AIM GLOBAL GROWTH AIM MUNICIPAL BOND
FUND -- CLASS A FUND -- CLASS A
AIM GLOBAL INCOME AIM TAX-EXEMPT BOND FUND
FUND -- CLASS A OF CONNECTICUT
AIM GLOBAL UTILITIES AIM VALUE FUND -- CLASS A
FUND -- CLASS A AIM WEINGARTEN FUND -- CLASS A
AIM GROWTH 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, these exchange conditions 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)
MCF 11/95
A-10
<PAGE> 83
<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 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 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.
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 4:15 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
exchanging into a fund paying daily dividends (See "Dividends, Distributions and
Tax Matters -- Dividends and Distributions," below), and
MCF 11/95
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<PAGE> 84
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 AIM Distributors. 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 AIM Distributors at the appropriate telephone number
indicated under the caption "How to Purchase Shares." If a shareholder is unable
to reach AIM Distributors 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 4:15 p.m. Eastern Time. The Transfer Agent
and AIM Distributors will not be liable for any loss, expense or cost arising
out of any telephone exchange request that they reasonably believe to be
genuine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions. Procedures for verification of telephone transactions
may include recordings of telephone transactions (maintained for six months),
requests for confirmation of the shareholder's Social Security number and
current address, and mailings of confirmations promptly after the transaction.
EXCHANGES OF CLASS B SHARES. A contingent deferred sales charge will not be
imposed in connection with exchanges among Class B shares of Multiple Class
Funds. For purposes of determining a shareholder's holding period of Class B
shares in the calculation of the applicable contingent deferred sales charge,
the period of time during which Class B shares were held prior to an exchange
will be added to the holding period of Class B shares acquired in an exchange.
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Shares of the AIM Funds may be redeemed directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors. In
addition to the obligation of the fund(s) named on the cover page to redeem
shares, AIM Distributors also repurchases shares. Although a contingent deferred
sales charge may be applicable to certain redemptions, as described below, there
is no redemption fee imposed when shares are redeemed or repurchased; however,
dealers may charge service fees for handling repurchase transactions.
MULTIPLE DISTRIBUTION SYSTEM. Class B shares purchased under the Multiple
Distribution System may be redeemed on any business day of a Multiple Class Fund
at the net asset value per share next determined following receipt of the
redemption order, as described under the caption "Timing and Pricing of
Redemption Orders," less the applicable contingent deferred sales charge shown
in the table below. No deferred sales charge will be imposed (i) on redemptions
of Class B shares following six years from the date such shares were purchased,
(ii) on Class B shares acquired through reinvestments of dividends and
distributions attributable to Class B shares or (iii) on amounts that represent
capital appreciation in the shareholder's account above the purchase price of
the Class B shares.
<TABLE>
<CAPTION>
YEAR CONTINGENT DEFERRED
SINCE SALES CHARGE AS
PURCHASE % OF DOLLAR AMOUNT
MADE SUBJECT TO CHARGE
-------- --------------------
<S> <C>
First...................................................... 5%
Second..................................................... 4%
Third...................................................... 3%
Fourth..................................................... 3%
Fifth...................................................... 2%
Sixth...................................................... 1%
Seventh and Following...................................... None
</TABLE>
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
MCF 11/95
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<PAGE> 85
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; and
(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.
REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to either
the Transfer Agent or AIM Distributors. 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 "Timing of
Purchase Orders."
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the Fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a
MCF 11/95
A-13
<PAGE> 86
duly executed stock power, for the shares to be redeemed if such certificates
have been issued and the shares are not in the custody of the Transfer Agent;
(d) signature guarantees, as described below; and (e) any additional documents
that may be required for redemption by corporations, partnerships, trusts or
other entities. The burden is on the shareholder to inquire as to whether any
additional documentation is required. Any request not in proper form may be
rejected and in such case must be renewed in writing.
In addition to these requirements, shareholders who have invested in a fund to
establish an IRA, should include the following information along with a written
request for either partial or full liquidation of fund shares: (a) a statement
as to whether or not the shareholder has attained age 59 1/2; and (b) a
statement as to whether or not the shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.
REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by telephone.
If a shareholder does not wish to allow telephone redemptions by any person in
his account, he should decline that option on the account application. The
telephone redemption feature can be used only if: (a) the redemption proceeds
are to be mailed to the address of record or wired to the pre-authorized bank
account as indicated on the account application; (b) there has been no change of
address of record on the account within the preceding 30 days; (c) the shares to
be redeemed are not in certificate form; (d) the person requesting the
redemption can provide proper identification information; and (e) the proceeds
of the redemption do not exceed $50,000. Accounts in AIM Distributors' prototype
retirement plans (such as IRA and IRA-SEP) or 403(b) plans are not eligible for
the telephone redemption option. AIM Distributors has made arrangements with
certain dealers and investment advisors to accept telephone instructions for the
redemption of shares. AIM Distributors reserves the right to impose conditions
on these dealers and investment advisors, including the condition that they
enter into agreements (which contain additional conditions with respect to the
redemption of shares) with AIM Distributors. The Transfer Agent and AIM
Distributors will not be liable for any loss, expense or cost arising out of any
telephone redemption request effected in accordance with the authorization set
forth at that item of the account application if they reasonably believe such
request to be genuine, but may in certain cases be liable for losses due to
unauthorized or fraudulent transactions. Procedures for verification of
telephone transactions may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security number and current address, and mailings of confirmations
promptly after the transaction.
EXPEDITED REDEMPTIONS (AIM MONEY MARKET FUND ONLY). If a redemption order is
received prior to 11:30 a.m. Eastern Time, the redemption will be effective on
that day and AIM MONEY MARKET FUND will endeavor to transmit payment on that
same business day. If the redemption order is received after 11:30 a.m. and
prior to 4:15 p.m. Eastern Time, the redemption will be made at the net asset
value determined at 4:15 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 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 or AIM Distributors,
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 4:15 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 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 4:15
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 AIM Distributors or 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 4:15 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 "Timing of Purchase
Orders." A charge for special handling (such as wiring of funds or expedited
delivery services) may be made by the Transfer Agent. The right of redemption
may not be suspended or the date of payment upon redemption postponed except
under unusual circumstances such as when trading on the New York Stock Exchange
is restricted or suspended. Pay-
MCF 11/95
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<PAGE> 87
ment 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, and further provided that such guarantor institution is
listed in one of the reference guides contained in the Transfer Agent's current
Signature Guarantee Standards and Procedures, such as certain domestic banks,
credit unions, securities dealers, or securities exchanges. The Transfer Agent
will also accept signatures with either: (1) a signature guaranteed with a
medallion stamp of the STAMP Program, or (2) a signature guaranteed with a
medallion stamp of the New York Stock Exchange Medallion Signature Program,
provided that in either event, the amount of the transaction involved does not
exceed the surety coverage amount indicated on the medallion. For information
regarding whether a particular institution or organization qualifies as an
"eligible guarantor institution," an investor should contact the Client Services
Department of AIM Distributors.
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 AIM Distributors of the funds to be reinvested. The shareholder
must ask AIM Distributors 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 AIM Distributors 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 4:15 p.m. Eastern Time (12:00 noon and 4:15 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 New York Stock Exchange (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 15 minutes following the close of the New
York Stock Exchange on such day. 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 securities that have an unconditional demand or put feature
exercisable within seven days or less at par, which reflects the market value of
such securities.
MCF 11/95
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<PAGE> 88
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 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
AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT........................... declared daily; paid monthly annually annually
AIM TAX-EXEMPT CASH FUND................ declared daily; paid monthly at least annually annually
AIM TAX-FREE INTERMEDIATE SHARES........ declared daily; paid monthly annually annually
AIM VALUE FUND.......................... declared and paid annually annually annually
AIM WEINGARTEN FUND..................... declared and paid annually annually annually
</TABLE>
In determining the amount of capital gains, if any, available for
distribution, net capital gains are offset against available net capital losses,
if any, carried forward from previous fiscal periods.
All dividends and distributions of an AIM Fund are automatically reinvested on
the payment date in full and fractional shares of such fund, unless the
shareholder has made an alternate election as to the method of payment.
Dividends and distributions attributable to Class A, Class B or Class C shares
are reinvested in additional shares of such Class, absent an election by a
shareholder to receive cash or to have such dividends and distributions
reinvested in Class A or Class B shares of another Multiple Class Fund, to the
extent permitted. For funds that do not declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the ex-dividend date. For funds that declare a dividend daily, such dividends
and distributions will be reinvested at the net asset value per share determined
on the payable date. Shareholders may elect, by written notice to AIM
Distributors, 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, (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 AIM Distributors
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.
MCF 11/95
A-16
<PAGE> 89
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 AIM Distributors and are effective as to
any subsequent payment if such notice is received by AIM Distributors prior to
the record date of such payment. Any dividend and distribution election remains
in effect until AIM Distributors 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 gain net income 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 required 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
MCF 11/95
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<PAGE> 90
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 and will be applied uniformly to all dividends declared
during the year. 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 Securities
and Exchange Commission 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 Securities and Exchange
Commission. Copies of the registration statement, including items omitted from
this Prospectus, may be obtained from the Securities and Exchange Commission by
paying the charges prescribed under its rules and regulations.
MCF 11/95
A-18
<PAGE> 91
APPLICATION INSTRUCTIONS
SOCIAL SECURITY OR TAXPAYER ID NUMBER. Investors should make sure that the
social security number or taxpayer identification number (TIN) which appears in
Section 1 of the Application complies with the following guidelines:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GIVE SOCIAL SECURITY GIVE TAXPAYER I.D.
ACCOUNT TYPE NUMBER OF: ACCOUNT TYPE NUMBER OF:
------------ -------------------- ------------ ------------------
<S> <C> <C> <C>
Individual Individual Trust, Estate, Pension Trust, Estate, Pension
Plan Trust Plan Trust and not
personal TIN of fiduciary
Joint Individual First individual listed in the
"Account Registration" portion
of the Application
Unif. Gifts to Minors Minor Corporation, Partnership, Corporation, Partnership,
Other Organization Other Organization
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 Internal Revenue Service ("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:
- - a corporation
- - an organization exempt from tax under Section 501(a), an individual retirement
plan (IRA), or a custodial account under Section 403(b)(7)
- - the United States or any of its agencies or instrumentalities
- - a state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities
- - a foreign government or any of its political subdivisions, agencies or
instrumentalities
- - an international organization or any of its agencies or instrumentalities
- - a foreign central bank of issue
- - a dealer in securities or commodities required to register in the U.S. or a
possession of the U.S.
- - a futures commission merchant registered with the Commodity Futures Trading
Commission
- - a real estate investment trust
- - an entity registered at all times during the tax year under the Investment
Company Act of 1940
- - a common trust fund operated by a bank under Section 584(a)
- - a financial institution
- - a middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List
- - a trust exempt from tax under Section 664 or described in Section 4947
Investors should contact the IRS if they have any questions concerning
entitlement to an exemption from backup withholding.
NOTE: Section references are to sections of the Internal Revenue Code of 1986,
as amended.
MCF 11/95
B-1
<PAGE> 92
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS -- Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
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 Family of Funds(R), 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 Family of
Funds(R), 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").
MCF 11/95
B-2
<PAGE> 93
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS(R)
<TABLE>
<S> <C>
Investment Advisor TABLE OF CONTENTS
A I M Advisors, Inc.
11 Greenway Plaza, Suite 1919 INVESTMENT OBJECTIVES.................... 2
Houston, TX 77046-1173 SUMMARY.................................. 2
THE FUNDS................................ 4
Table of Fees and Expenses............. 4
Financial Highlights................... 6
Transfer Agent Performance............................ 16
A I M Fund Services, Inc. About the Funds........................ 16
P.O. Box 4739 Investment Programs.................... 17
Houston, TX 77210-4739 Certain Investment Strategies and
Policies............................... 21
Management............................. 24
Organization of the Trust.............. 27
Custodian INVESTOR'S GUIDE......................... A-1
State Street Bank and Trust Company Introduction to The AIM Family of
225 Franklin Street Funds(R)............................... A-1
Boston, MA 02110 How to Purchase Shares................. A-1
Terms and Conditions of Purchase of the
The Bank of New York AIM Funds........................... A-2
110 Washington Street Special Plans.......................... A-8
New York, New York 10286 Exchange Privilege..................... A-10
[AIM Municipal Bond Fund only] How to Redeem Shares................... A-12
Determination of Net Asset Value....... A-15
Dividends, Distributions and Tax
Matters................................ A-16
Principal Underwriter General Information.................... A-18
A I M Distributors, Inc. Appendix A............................. A-19
P.O. Box 4739 Appendix B............................. A-20
Houston, TX 77210-4739 Appendix C............................. A-22
Application Instructions................. B-1
</TABLE>
Independent Accountants
KPMG Peat Marwick LLP
700 Louisiana
NationsBank Bldg.
Houston, Texas 77002
For more complete information about any other fund in The AIM Family of Funds,
including charges and expenses, please call (800) 347-4246, (713) 626-1919 or
write to the address shown above and request a free prospectus. Please read the
prospectus carefully before you invest or send money.
<PAGE> 94
APPENDIX II
AGREEMENT
and
PLAN OF REORGANIZATION
for
BAIRD QUALITY BOND FUND
a Portfolio of
THE BAIRD FUNDS, INC.
<PAGE> 95
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.1. Reorganization of Baird Quality Bond . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2. Computation of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.3. Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4. Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.6. Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7. Issuance of AFG Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8. Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.9 Liabilities and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TBFI . . . . . . . . . . . . . . . . . . 8
Section 3.1. Incorporation: Qualification and Corporate Authority . . . . . . . . . . . . . . . . . . 9
Section 3.2. Registration and Regulation of TBFI . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.3. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.4. No Material Adverse Changes; Contingent Liabilities . . . . . . . . . . . . . . . . . . . 9
Section 3.5. BQB Shares; Liabilities; Business Operations . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.6. Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.7. Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.8. No Breaches or Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.9. Authorizations or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.10. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.11. No Actions, Suits or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.12. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.13. Properties and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.14. Ineligible Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.15. Rule 17e-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.16. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.17. Benefit and Employment Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.18. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.19. Voting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.20. State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 96
<TABLE>
<S> <C> <C>
Section 3.21. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.22. Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AFG . . . . . . . . . . . . . . . . . . 16
Section 4.1. Organization; Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.2. Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.3. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.4. No Material Adverse Changes; Contingent Liabilities . . . . . . . . . . . . . . . . . . . 16
Section 4.5. No Breaches or Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.6. Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.7. Authorizations or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.8. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.9. No Actions, Suits or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.10. Ineligible Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.12. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.13. Registration and Regulation of Company . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.14. Registration of Portfolio Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.15. Representations Concerning the Reorganization . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.16. Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.1. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.2. Confidentiality and Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.4. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.5. Notice of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.6. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.7. Consents, Approvals and Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.8. Submission of Agreement to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.9. Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.10. Fiduciary Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.11. Section 15(f) of the 1940 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.12. Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION . . . . . . . . . . . . . . . . . 28
Section 6.1. Conditions Precedent of AFG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6.2. Mutual Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.3. Conditions Precedent of TBFI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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<PAGE> 97
<TABLE>
<S> <C> <C>
ARTICLE VII
TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.2. Survival After Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.1. Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.2. Law Governing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.3. Binding Effect, Persons Benefiting, No Assignment . . . . . . . . . . . . . . . . . . . . 34
Section 8.4. Obligations of AFG and TBFI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.5. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.6. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.7. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.9. Entire Agreement; Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Schedule 3.12(a) - Contracts
Schedule 6.1(d) - Opinion of Counsel to Baird Quality Bond
Schedule 6.2(f) - Tax Opinions
Schedule 6.3(d) - Opinion of Counsel to AFG
</TABLE>
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<PAGE> 98
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of December 20,
1995 (this "Agreement"), by and between The Baird Funds, Inc., a Wisconsin
corporation ("TBFI"), acting on behalf of Baird Quality Bond Fund ("Baird
Quality Bond"), and AIM Funds Group, a Delaware business trust ("AFG"), acting
on behalf of AIM Income Fund (the "Portfolio").
WITNESSETH
WHEREAS, TBFI is an investment company registered with the
Securities and Exchange Commission (the "SEC") under the Investment Company Act
(as defined below) that offers separate classes of its shares representing
interests in two investment portfolios, including Baird Quality Bond, for sale
to the public; and
WHEREAS, AFG 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, including the
Portfolio, for sale to the public; and
WHEREAS, Baird Quality Bond owns securities in which the
Portfolio is permitted to invest; and
WHEREAS, Baird Quality Bond 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 contained in this Agreement, AFG and TBFI 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 Quality
Bond, or any purchase of all or any significant portion of the assets of Baird
Quality Bond, or any equity interest in Baird Quality Bond.
"Advisers Act" means the Investment Advisers Act of 1940, as
amended, and all rules and regulations of the SEC adopted pursuant thereto.
"AFG Registration Statement" means the registration statement
on Form N-1A of AFG, as amended, Registration No. 2-27334, that is applicable
to the Portfolio.
"Affiliated Person" means an affiliated person as defined in
Section 2(a)(3) of the Investment Company Act.
"AFG" means AIM Funds Group, a Delaware business trust.
"Agreement" means this Agreement and Plan of Reorganization,
together with all schedules and exhibits attached hereto and all amendments
hereto and thereof.
"Baird Quality Bond" means Baird Quality Bond Fund, a
portfolio of TBFI.
"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 TBFI
on behalf of Baird Quality Bond, or otherwise providing benefits to any current
or former employee, officer or director of TBFI.
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"BQB Financial Statements" shall have the meaning set forth in
Section 3.3 of this Agreement.
"BQB Shareholders" means the holders of record as of the
Closing Date of the issued and outstanding shares of the capital stock of Baird
Quality Bond.
"BQB Shareholders Meeting" means a meeting of the shareholders
of Baird Quality Bond convened in accordance with applicable law and the
articles of incorporation of TBFI to consider and vote upon the approval of
this Agreement and the transactions contemplated by this Agreement.
"BQB Shares" means the issued and outstanding shares of the
capital stock of Baird Quality Bond.
"Closing" means the transfer of the assets of Baird Quality
Bond against the delivery of Portfolio Shares directly to the shareholders of
Baird Quality Bond as described in Section 2.1 of this Agreement.
"Closing Date" means March 29, 1996, or such other date as the
parties may mutually determine.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" shall have the meaning set forth in
Section 5.2(a) of this Agreement.
"Custodian" means State Street Bank and Trust Company acting
in its capacity as custodian for the assets of the Portfolio.
"Effective Time" shall mean 2:00 p.m. Central Time on the
Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and all rules and regulations adopted by the SEC pursuant thereto.
"Excluded Assets" shall have the meaning set forth in Section
2.3 of this Agreement.
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"Governmental Authority" means any foreign, United States or
state government, government agency, department, board, commission (including
the SEC) or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the National Association of
Securities Dealers, Inc., the Commodities and Futures Trading Commission, the
National Futures Association, the Investment Management Regulatory Organization
Limited and the Office of Fair Trading).
"Investment Company Act" means the Investment Company Act of
1940, as amended, and all rules and regulations adopted by the SEC pursuant
thereto.
"Lien" means any pledge, lien, security interest, charge,
claim or encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a
change in the condition (financial or otherwise), properties, assets or
prospects of an entity having an adverse monetary effect in an amount equal to
or greater than $50,000.
"Person" means an individual or a corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
"Portfolio" means AIM Income Fund, an investment portfolio of
AFG.
"Portfolio Financial Statements" shall have the meaning set
forth in Section 4.3 of this Agreement.
"Portfolio Shares" means Class A Shares of the Portfolio
issued by AFG, each representing an interest in the Portfolio.
"Reorganization" means the acquisition of certain of the
assets of Baird Quality Bond by the Portfolio in consideration of the issuance
of Portfolio Shares directly to BQB Shareholders as described in this
Agreement.
"Required BQB Shareholder Vote" shall have the meaning set
forth in Section 3.19 of this Agreement.
"Return" means any return, report or form or any attachment
thereto required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange
Commission.
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"Securities Act" means the Securities Act of 1933, as amended,
and all rules and regulations adopted by the SEC pursuant thereto.
"Tax" means any tax or similar governmental charge, impost or
levy (including, without limitation, income taxes (including, without
limitation, alternative minimum tax and estimated tax), franchise taxes,
transfer taxes or fees, sales taxes, use taxes, gross receipts taxes, value
added taxes, employment taxes, excise taxes, ad valorem taxes, property taxes,
withholding taxes, payroll taxes, minimum taxes, or windfall profit taxes),
together with any related penalties, fines, additions to tax or interest,
imposed by the United States or any state, county, local or foreign government
or subdivision or agency thereof.
"TBFI" means The Baird Funds, Inc., a Wisconsin corporation.
"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 Quality Bond. At the
Effective Time, all of the assets of Baird Quality Bond, except the Excluded
Assets, shall be delivered to the Custodian for the account of the Portfolio,
in exchange for, and against delivery by AFG directly to the BQB Shareholders
at the opening of business on the Closing Date of a number of Portfolio Shares
(including, if applicable, fractional shares rounded to the nearest thousandth)
having an aggregate net asset value equal to the net value of the assets of
Baird Quality Bond 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 Quality Bond 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 AFG Registration Statement.
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(c) The net value of the assets of Baird Quality Bond
subject to this Agreement shall be computed by AFG and shall be subject to
adjustment by the amount, if any, agreed to by TBFI and AFG. In determining
the value of the securities transferred by Baird Quality Bond to the Portfolio,
each security shall be priced in accordance with the policies and procedures of
the Portfolio as described in the AFG Registration Statement. For such
purposes, market quotes and the security characteristics relating to
establishing such quotes shall be determined by AFG, with the approval of TBFI.
Securities for which market quotes are not available shall be valued as
mutually agreed by AFG and TBFI, provided that such value is consistent with
the pricing procedures adopted by AFG. All computations shall be made by AFG
in cooperation with the auditors of AFG and the auditors of TBFI, who will
apply certain procedures agreed to by AFG and TBFI to test such computations.
Section 2.3. Excluded Assets. There shall be deducted
from the assets of Baird Quality Bond 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 TBFI to be sufficient to pay all
the liabilities of Baird Quality Bond, including, without limitation, (i)
amounts owed or to be owed to any BQB 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
Quality Bond in making and carrying out the transactions contemplated by this
Agreement.
Section 2.4. Valuation Date. The assets of Baird Quality
Bond 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 Quality
Bond will be permanently closed as of the close of business on the Valuation
Date and only requests for the redemption of shares of Baird Quality Bond
received in proper form prior to the close of trading on the NYSE on the
Valuation Date shall be accepted by Baird Quality Bond. Redemption requests
thereafter received by Baird Quality Bond 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 BQB Shareholders
under this Agreement.
Section 2.5. Delivery.
(a) Assets held by Baird Quality Bond shall be delivered
by TBFI to the Custodian on the Closing Date. No later than three (3) business
days preceding the Closing Date, TBFI shall instruct Baird Quality Bond's
custodian to
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make such delivery to the Custodian. TBFI shall further instruct Baird Quality
Bond's custodian that any trade made by Baird Quality Bond 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 Quality Bond (other than cash held as part of the Excluded Assets) shall
be delivered at the Effective Time and shall be in the form of currency or wire
transfer in Federal funds, payable to the order of the account of the Portfolio
at the Custodian.
(b) If, on the Closing Date, TBFI is unable to make
delivery in the manner contemplated by Section 2.5(a) of securities held by
Baird Quality Bond for the reason that any of such securities purchased prior
to the Closing Date have not yet been delivered to Baird Quality Bond, its
broker or brokers, then, AFG shall waive the delivery requirements of Section
2.5(a) with respect to said undelivered securities, if Baird Quality Bond 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 AFG or the Custodian,
including brokers' confirmation slips.
Section 2.6. Dissolution. As soon as reasonably
practicable after the Closing Date, Baird Quality Bond shall pay or make
provisions for all of its debts, liabilities and taxes and distribute all
remaining assets to the BQB Shareholders, and Baird Quality Bond's status as a
designated series of shares of TBFI shall be terminated, provided that, in the
event that the transactions contemplated herein are not approved by the BQB
Shareholders, TBFI shall not be obligated to so terminate Baird Quality Bond's
designation as a series of shares.
Section 2.7. Issuance of AFG Shares. At the Closing Date,
TBFI shall instruct AFG that the pro rata interest of each of BQB Shareholders
of record as of the close of business on the Valuation Date, as certified by
Baird Quality Bond's transfer agent, in the Portfolio Shares be registered on
the books of AFG in full and fractional shares in the name of each BQB
Shareholder, and AFG agrees promptly to comply with said instruction. All
issued and outstanding shares of Baird Quality Bond's capital stock shall
thereupon be canceled on the books of TBFI. AFG 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. AFG shall record on its books the ownership of the Portfolio Shares
by BQB Shareholders and shall forward a confirmation of such ownership to the
BQB Shareholders. No redemption or
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repurchase of such shares credited to former BQB Shareholders in respect of
Baird Quality Bond shares represented by unsurrendered stock certificates shall
be permitted until such certificates have been surrendered to AFG for
cancellation, or if such certificates are lost or misplaced, until lost
certificate affidavits have been executed and delivered to AFG.
Section 2.8. Investment Securities.
(a) It is expressly understood that TBFI may hereafter
sell any securities owned by Baird Quality Bond in the ordinary course of its
business as a diversified, open-end, management investment company. Upon
written request by AFG, TBFI shall (i) prior to the Closing Date, dispose of
equity securities held by Baird Quality Bond to assure that AFG 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 AFG 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, TBFI shall deliver
a list setting forth the securities Baird Quality Bond then owns together with
the respective Federal income tax bases thereof. TBFI shall provide to AFG 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 TBFI prior to the Valuation Date for inspection by the Treasurer (or his
designee) or the auditors of AFG upon reasonable request.
Section 2.9 Liabilities and Expenses. The Portfolio
shall not assume any liability of Baird Quality Bond and Baird Quality Bond
shall use its reasonable best efforts to discharge all known liabilities, so
far as may be possible, prior to the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TBFI
TBFI, on behalf of Baird Quality Bond, represents and warrants
to AFG that:
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Section 3.1. Incorporation: Qualification and Corporate
Authority. TBFI 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 TBFI. TBFI is
duly registered with the SEC as an investment company under the Investment
Company Act and all BQB 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 TBFI
to revoke or rescind any such registration or qualification. Baird Quality
Bond 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 Quality Bond 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 Quality
Bond 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 Quality Bond and all purchases and redemptions of BQB 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 Quality Bond 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 Quality Bond previously delivered
to AFG (the "BQB Financial Statements") present fairly in all material respects
the financial position of Baird Quality Bond 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 Quality Bond or the status of Baird Quality Bond 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 Quality Bond or occurring in the
ordinary course of business of Baird Quality Bond or TBFI. There are no
contingent liabilities of Baird
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<PAGE> 107
Quality Bond not disclosed in the BQB Financial Statements which are required
to be disclosed in accordance with generally accepted accounting principles.
Section 3.5. BQB Shares; Liabilities; Business Operations.
(a) The BQB 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 Quality Bond who own five percent (5%) or more of the BQB Shares, and to
the knowledge of TBFI's management, the remaining BQB 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 BQB 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 BQB Shares as of the same date. For purposes of this
representation, BQB Shares exchanged for cash or other property or exchanged
for cash in lieu of fractional shares of the Portfolio will be treated as
outstanding BQB Shares on the date of the Reorganization. Moreover, BQB Shares
and Portfolio Shares held by BQB Shareholders and otherwise sold, redeemed or
disposed of prior or subsequent to the Reorganization will be considered in
making this representation, except for BQB Shares or Portfolio Shares which
have been, or will be, redeemed by Baird Quality Bond 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 Quality Bond
shall not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any Person could acquire BQB Shares,
except for the right of investors to acquire BQB 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) From the date it commenced operations on October 1,
1992 and ending on the Closing Date, Baird Quality Bond 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 Quality Bond 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.
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(e) TBFI 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 BQB 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 TBFI on behalf of Baird Quality Bond
and, assuming this Agreement has been duly executed and delivered by AFG and
approved by the BQB Shareholders, constitutes the legal, valid and binding
obligation of TBFI, enforceable against TBFI in accordance with its terms from
and with respect to the revenues and assets of Baird Quality Bond, 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 TBFI on behalf of Baird Quality Bond and
performance of its obligations hereunder has been duly authorized by all
necessary corporate action on the part of TBFI, other than BQB 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 TBFI 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 Quality Bond (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 TBFI
is a party or by which it may be bound and which relates to the assets of Baird
Quality Bond or to which any of Baird Quality Bond's 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 TBFI or
any of Baird Quality Bond's properties. TBFI 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.
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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 TBFI in connection with the due execution and delivery by TBFI of
this Agreement and the consummation by TBFI of the transactions contemplated
hereby.
Section 3.10. Permits. TBFI 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 as it relates to Baird Quality Bond, 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 TBFI 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 TBFI, has any litigation been overtly threatened in
writing or orally, against TBFI 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
TBFI, threatened in writing or, if probable of assertion, orally against TBFI
affecting any property, asset, interest, or right of Baird Quality Bond, that
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect with respect to Baird Quality Bond. 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 TBFI's conduct of the business of
Baird Quality Bond affecting in any significant respect the conduct of such
business. TBFI is not, and has not been, to the knowledge of TBFI, the target
of any investigation by the SEC or any state securities administrator with
respect to its conduct of the business of Baird Quality Bond.
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Section 3.12. Contracts.
(a) Except for the contracts and agreements listed on Schedule
3.12(a), TBFI is not a party to any material contract, debt arrangement,
futures contract, plan, lease, franchise or permit of any kind or nature
whatsoever which involves or affects the business of Baird Quality Bond.
(b) TBFI is not in default under any contract, agreement,
commitment, arrangement, lease, insurance policy or other instrument to which
it is a party and which involves or affects the assets of Baird Quality Bond,
by which the assets, business, or operations of Baird Quality Bond may be bound
or affected, or under which it or the assets, business or operations of Baird
Quality Bond 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 TBFI, 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 Quality Bond
has good and marketable title to all properties and assets reflected in the BQB
Financial Statements as owned by it, free and clear of all Liens, except as
described in the BQB Financial Statements.
Section 3.14. Ineligible Persons. Except as previously
disclosed to AFG, neither TBFI nor any "Affiliated Person" of TBFI 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 TBFI 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 Advisors 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 TBFI'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. TBFI has duly adopted procedures
pursuant to Rule 17e-1 under the Investment Company Act, to the extent
applicable, and TBFI 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 to Baird Quality Bond.
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Section 3.16. Taxes.
(a) Baird Quality Bond has elected to be treated as a
regulated investment company under Subchapter M of the Code. Baird Quality
Bond 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 Quality Bond as a "regulated investment
company" for tax purposes and (ii) eliminate any tax liability of Baird Quality
Bond arising by reason of undistributed investment company taxable income or
net taxable gain, TBFI will declare to the BQB Shareholders of record on or
prior to the Valuation Date, a dividend or dividends that, together with all
previous such dividends shall have the effect of distributing (A) all of Baird
Quality Bond's 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 Baird Quality Bond's 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 Quality Bond 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 Quality
Bond 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 Quality
Bond, 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 Quality Bond 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 Quality Bond's fiscal year has not been changed
for tax purposes since October 1, 1992, the date on which it commenced
operations.
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Section 3.17. Benefit and Employment Obligations. Baird
Quality Bond 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 TBFI or Baird Quality Bond 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 TBFI 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 BQB Shares
(the "Required BQB Shareholder Vote") are the only votes of the holders of any
class or series of Baird Quality Bond's capital stock necessary to approve this
Agreement and the transactions contemplated by this Agreement. The BQB
Shareholders may not exercise dissenter's rights granted under the Wisconsin
Business Corporation Law with respect to the Reorganization.
Section 3.20. State Takeover Statutes. No state takeover
statute or similar statute or regulation applies or purports to apply to the
Reorganization, this Agreement or any of the transactions contemplated by this
Agreement.
Section 3.21. Books and Records. The books and records of
TBFI relating to Baird Quality Bond, reflecting, among other things, the
purchase and sale of BQB Shares by BQB Shareholders, the number of issued and
outstanding shares owned by each BQB 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 Quality Bond 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 AFG for inclusion in the prospectus or
statement of additional information of Baird Quality Bond, or any supplement
thereto.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AFG
AFG, on behalf of the Portfolio, represents and warrants to
TBFI as follows:
Section 4.1. Organization; Authority. AFG is duly
organized, validly existing and in good standing under the Business Trust Act
of the State of Delaware, with all requisite trust 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 AFG and, assuming this Agreement has
been duly executed and delivered by TBFI, constitutes the legal, valid and
binding obligation of AFG, enforceable against AFG in accordance with its terms
from and with respect to the revenues and assets of the Portfolio, 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 or law
or a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
Section 4.3. Financial Statements. The books of account
and related records of the Portfolio 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 December 31, 1994 of the Portfolio previously delivered to
TBFI (the "Portfolio Financial Statements") present fairly in all material
respects the financial position of the Portfolio 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 4.4. No Material Adverse Changes; Contingent
Liabilities. Since December 31, 1994, no material adverse change has occurred
in the financial condition, results of operations, business, assets or
liabilities of the Portfolio or the status of the Portfolio 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 the Portfolio or occurring in the ordinary course of
business of the Portfolio or AFG. There are no contingent liabilities of the
Portfolio not disclosed in the Portfolio Financial Statements which are
required to be disclosed in accordance with generally accepted accounting
principles.
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Section 4.5. No Breaches or Defaults . The execution and
delivery of this Agreement by AFG and performance by AFG of its obligations
hereunder have been duly authorized by all necessary trust action on the part
of AFG and (i) do not, and on the Closing Date will not, result in any
violation of the Agreement and Declaration of Trust, as amended, or by-laws, as
amended, of AFG 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 AFG 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 AFG or any of the Portfolio's properties.
Section 4.6. Accountants. KPMG Peat Marwick LLP, which
has reported upon the Portfolio Financial Statements for the period ended
December 31, 1994, are independent public accountants as required by the
Securities Act and the Exchange Act.
Section 4.7. 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 AFG in
connection with the due execution and delivery by AFG of this Agreement and the
consummation by AFG of the transactions contemplated hereby.
Section 4.8. Permits. AFG has in full force and effect
all Permits necessary for it to conduct its business as presently conducted as
it relates to the Portfolio, and there has occurred no default under any
Permit, except for the absence of Permits and for defaults under Permits the
absence or default of which would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. To the knowledge
of AFG 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.
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Section 4.9. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor,
to the knowledge of AFG, has any litigation been overtly threatened in writing
or, if probable of assertion, orally, against AFG 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
AFG, threatened in writing or, if probable of assertion, orally against AFG
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 with respect to the Portfolio. 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 AFG's conduct of the business of the Portfolio affecting
in any significant respect the conduct of such business. AFG is not, and has
not been, to the knowledge of AFG, the target of any investigation by the SEC
or any state securities administrator with respect to its conduct of the
business of the Portfolio.
Section 4.10. Ineligible Persons. Neither AFG nor any
"Affiliated Person" of AFG 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 AFG 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 Advisors 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 AFG'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 4.11. Taxes.
(a) The Portfolio has elected to be treated as a
regulated investment company under Subchapter M of the Code. The Portfolio has
qualified as such for each taxable year since inception that has ended prior to
the Closing Date.
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(b) The Portfolio 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 the Portfolio 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 the Portfolio, 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 the Portfolio is currently being or has been audited since
December 31, 1989 with respect to income taxes (and since December 31, 1991
with respect to all other Taxes) by any Federal, state, local, or foreign Tax
authority.
(c) The Portfolio's fiscal year has not been changed for
tax purposes since December 31, 1989.
Section 4.12. Brokers. No broker, finder or similar
intermediary has acted for or on behalf of AFG or the Portfolio 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 AFG or any action taken by AFG.
Section 4.13. Registration and Regulation of Company. AFG
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. The Portfolio
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. The
Portfolio 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 the Portfolio is
determined using portfolio valuation methods that comply in all material
respects with the requirements of the Investment Company Act.
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Section 4.14. Registration of Portfolio Shares.
(a) The shares of beneficial interest of AFG are divided into
nine portfolios, including the Portfolio. The Portfolio has two classes of
shares, Class A Shares and Class B Shares. Under the Delaware Business Trust
Act and its Agreement and Declaration of Trust, as amended, AFG is authorized
to issue an unlimited number of shares of any class representing an investment
in each of its portfolios, including the Portfolio.
(b) The Portfolio Shares of AFG 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 AFG then in effect.
(c) The Portfolio Shares to be issued pursuant to Section
2.7 are duly authorized and on the Closing Date will be validly issued and
fully paid and non-assessable and will conform 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 net asset value in the normal course
of its business as an open-ended 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 AFG's Registration
Statement on Form N-14 shall be furnished to TBFI and BQB Shareholders entitled
to vote at the BQB Shareholders Meeting. The Combined Proxy
Statement/Prospectus and related Statement of Additional Information of the
Portfolio, when they become effective, shall conform 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 TBFI for inclusion in the Combined
Prospectus/Proxy Statement.
(e) The shares of the Portfolio which have been or are
being offered for sale (other than Portfolio Shares to be issued in connection
with the Reorganization) have been duly registered under the Securities Act by
the AFG Registration Statement then in effect and have been duly registered,
qualified or are exempt from registration or qualification under the securities
laws of each state
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or other jurisdiction in which such shares have been or are being offered for
sale, and no action has been taken by AFG to revoke or rescind any such
registration or qualification.
Section 4.15. Representations Concerning the Reorganization.
(a) AFG 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 Quality Bond 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 Quality Bond (within the meaning of
Section 1.368-1(d) of the Income Tax Regulations under the Code) or use a
significant portion of Baird Quality Bond's historic business assets in a
business.
Section 4.16. Prospectus. The current prospectus and
statement of additional information for the Portfolio 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.
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), TBFI shall conduct the business of Baird Quality Bond
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 of Baird
Quality Bond in the ordinary course in all material respects. Without limiting
the generality of the foregoing, TBFI shall
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not do any of the following with respect to Baird Quality Bond without the
prior written consent of AFG, 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 Quality Bond 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 Quality Bond, 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;
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(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), AFG 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 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 AFG, or its
directors, officers, partners, affiliates, employees, agents, advisors or
representatives (collectively "representatives") by TBFI or Baird Quality Bond
or their respective representatives relating to TBFI or Baird Quality Bond, and
all reports, analyses, compilations, studies and other materials prepared by
AFG 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, TBFI or Baird Quality Bond, a possible transaction with TBFI or
Baird Quality Bond 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 AFG, its
representatives or anyone to whom AFG or its representatives transmits any
Confidential Information, in breach of this Agreement or (ii) is or becomes
known or available to AFG on a non-confidential basis from a source (other than
TBFI or Baird Quality Bond or their respective representatives) who, insofar as
is known to AFG after due inquiry, is not prohibited from transmitting the
information to AFG or its representatives by a contractual, legal, fiduciary or
other obligation.
(b) Subject to Section 5.2(c) below, AFG and its
representatives shall keep the Confidential Information confidential and shall
not, without prior written consent of TBFI disclose, in whole or in part, and
will not use, Confidential Information, directly or indirectly, for any purpose
other than in
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connection with evaluating the transaction contemplated by this Agreement.
Moreover, AFG 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 AFG 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, AFG shall be responsible for any actions by its representatives
which are not in accordance with the provisions hereof. AFG agrees that
neither AFG nor its representatives will make inquires of, or conduct any
discussions with, any representative of TBFI or Baird Quality Bond 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 AFG, its representatives or
anyone to whom AFG or its representatives supply the Confidential Information
are requested or required to disclose any Confidential Information, AFG agrees
(i) to immediately notify TBFI of the existence, terms and circumstances
surrounding such a request, (ii) to consult with TBFI on the advisability of
taking legally available steps to resist or narrow the Confidential Information
which, in the opinion of its counsel, AFG is legally compelled to disclose and,
(iii) to cooperate with any action by TBFI or Baird Quality Bond 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 AFG 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 TBFI thereafter, AFG shall
redeliver to TBFI 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 TBFI or Baird
Quality Bond, its advisors or otherwise), and neither AFG 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 TBFI, compliance
with the foregoing shall be certified in writing to TBFI 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, TBFI
and AFG shall
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agree upon and release a mutually acceptable press release and TBFI 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
TBFI, AFG 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 Quality Bond and the
Portfolio shall each bear the expenses it incurs in connection with this
Agreement and the Reorganization and other transactions contemplated hereby.
Section 5.4. Further Assurances. Each of the parties
hereto shall execute such documents and other papers and perform such further
acts as may be reasonably required to carry out the provisions hereof and the
transactions contemplated hereby. Each such party shall, on or prior to the
Closing Date, use its reasonable best efforts to fulfill or obtain the
fulfillment of the conditions precedent to the consummation of the
Reorganization, including the execution and delivery of any documents,
certificates, instruments or other papers that are reasonably required for the
consummation of the Reorganization.
Section 5.5. Notice of Events. AFG shall give prompt
notice to TBFI, and TBFI shall give prompt notice to AFG, of (i) the occurrence
or nonoccurrence of any event of which to the knowledge of AFG or to the
knowledge of TBFI, the occurrence or non-occurrence of which would be likely to
result in any of the conditions specified in (x) in the case of AFG, Sections
6.1 and 6.2 or (y) in the case of TBFI, 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) TBFI will, during regular business hours and on reasonable
prior notice, allow AFG and its authorized representatives reasonable access to
the books and records of TBFI pertaining to the assets of Baird Quality Bond
and to
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employees of TBFI knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
TBFI.
(b) Any information made available to or obtained by AFG 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) AFG will, during regular business hours and on reasonable
notice, allow TBFI and its authorized representatives reasonable access to the
books and records of AFG pertaining to the assets of the Portfolio and to
employees of AFG knowledge thereof; provided, however, that any such access
shall not significantly interfere with the business or operations of AFG.
Section 5.7. Consents, Approvals and Filings. Each of
TBFI and AFG 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 TBFI and AFG
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
TBFI and AFG 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.
TBFI shall take all action necessary in accordance with applicable law and its
articles of incorporation and by-laws to convene the BQB Shareholders Meeting.
TBFI shall, through its Board of Directors, recommend to the BQB Shareholders
approval of this Agreement and the other transactions contemplated by this
Agreement, except to the extent provided in Section 5.10 hereof. TBFI shall
use its reasonable best efforts to hold the BQB Shareholders Meeting as soon as
practicable after the date hereof.
Section 5.9. Acquisition Proposals. TBFI shall not, nor
shall it authorize any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of TBFI to, directly or
indirectly (i) solicit, initiate
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or encourage the submission of any Acquisition Proposal or (ii) participate in
any discussions or negotiations regarding, or furnish to any Person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal, and TBFI shall promptly
terminate any such discussions with any Person that has expressed or expresses
an interest in acquiring Baird Quality Bond or negotiations pending at the date
of this Agreement provided, however, TBFI or any officer, director or employee
of, or any investment banker, attorney or other adviser or representative of
TBFI may, following the receipt of an Acquisition Proposal that the Board of
Directors of TBFI 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. TBFI shall promptly notify AFG, 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 Quality Bond 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
TBFI's Board of Directors concludes, after consultations with outside counsel,
that the disclosure of any such information would be a breach of a duty of
confidentiality imposed on TBFI with respect to such information. Subject to
the foregoing, TBFI shall keep AFG informed of the status and details of any
such Acquisition Proposal or inquiry.
Section 5.10. Fiduciary Duties. The Board of Directors of
TBFI shall not (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to AFG, 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 TBFI to enter into any agreement
with respect to any Acquisition Proposal, unless TBFI receives an Acquisition
Proposal and the Board of Directors of TBFI determines in good faith, after
consultation with outside counsel, that in order to comply with its fiduciary
duties to the shareholders of Baird Quality Bond under applicable law, the
Board of Directors of TBFI 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 TBFI
to enter into an agreement with respect to such Acquisition Proposal or
terminate this Agreement. Nothing contained in this Section 5.10 shall
prohibit TBFI from making any disclosure to the BQB Shareholders which, in the
good faith and reasonable judgment of the Board of Directors of TBFI 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 TBFI permitted by this Section 5.10 shall not
constitute a breach of this Agreement by TBFI.
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Section 5.11. Section 15(f) of the 1940 Act.
(a) Each of AFG and TBFI 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) AFG 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 trustees of AFG shall be "interested
persons" (as defined in the Investment Company Act) of the investment adviser
of Baird Quality Bond or any entity that served as investment advisor to Baird
Quality Bond 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, AFG will not take, recommend or endorse any action that would
cause more than 25% of the number of members of its board of trustees to be
such "interested persons."
(c) AFG represents and warrants that there is no express
or implied understanding, arrangement or intention on its part to impose an
"unfair burden" within the meaning of Section 15(f) of the Investment Company
Act on the Portfolio as a result of the transactions contemplated hereby, and
that for a period of not less than two years after the Closing Date, it shall
not take or recommend any act that would constitute an "unfair burden" on the
Portfolio.
Section 5.12. Sales Charges. TBFI shall deliver to AFG 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 Quality Bond shareholders, collected by Baird
Quality Bond or paid by Baird Quality Bond in connection with sales of its
shares since July 1, 1993.
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION
Section 6.1. Conditions Precedent of AFG. The obligation
of AFG 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 AFG.
(a) The representations and warranties of TBFI on behalf
of Baird Quality Bond set forth in this Agreement shall be true and correct in
all material
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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) TBFI shall have complied with and satisfied in all
material respects all agreements and conditions set forth herein on its part to
be performed or satisfied at or prior to the Closing Date.
(c) AFG shall have received at the Closing Date (i) a
certificate, dated as of the Closing Date, from an officer of TBFI on behalf of
TBFI, in such individual's capacity as an officer of TBFI 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 TBFI 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) AFG shall have received the signed opinion of Quarles
& Brady, counsel to TBFI, or other counsel reasonably acceptable to AFG, in
form and substance reasonably acceptable to counsel for AFG, as to the matters
set forth in Schedule 6.1(d).
Section 6.2. Mutual Conditions. The obligation of TBFI
and AFG 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 TBFI and AFG, 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 TBFI and AFG 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 BQB Shareholders
Meeting by the shareholders of Baird Blue Chip on the record date by the
Required BQB Shareholder Vote.
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(c) The assets of Baird Quality Bond 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 held by
Baird Quality Bond immediately prior to the Reorganization. For purposes of
this Section 6.2(c), assets used by Baird Quality Bond 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 of Baird Quality Bond's business as an
open-end diversified management investment company) after the date of this
Agreement shall be included as assets of Baird Quality Bond 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 AFG
with respect to the Portfolio Shares to be issued to BQB 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) TBFI and AFG shall have received on or before the
Closing Date an opinion of Ballard Spahr Andrews & Ingersoll in form, scope and
substance satisfactory to TBFI and AFG, set forth on Schedule 6.2(f).
(g) The transactions contemplated by that certain
Agreement and Plan of Reorganization dated December 20, 1995, between Baird
Blue Chip Fund, Inc. and AIM Equity Funds, Inc. acting on behalf of AIM Blue
Chip Fund, and that certain Agreement and Plan of Reorganization dated December
20, 1995 between Baird Capital Development Fund, Inc. and AIM Equity Funds,
Inc., acting on behalf of AIM Capital Development Fund, shall be consummated on
the Closing Date.
(h) The dividend or dividends described in the last
sentence of Section 3.16(b) shall have been declared.
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(i) A I M Advisors, Inc. ("AIM") shall have executed and
delivered to TBFI a certificate to the effect that:
(i) its balance sheet as at 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 at 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 funds advised by AIM (the "AIM Funds").
(ii) AIM is, and on the Closing Date shall be,
registered as an investment adviser under the Investment Advisers Act,
and registered as an investment adviser in all states where it is
required to be so registered.
(iii) AIM is in compliance in all material respects
with all laws, rules and regulations applicable to its business of
providing investment advisory services to the Portfolio and the AIM
Funds, including, without limitation, federal and state securities
laws.
(iv) Neither AIM nor any affiliated person of AIM
is ineligible to serve an employee, officer, director, member of an
advisory board, investment adviser, depositor or principal underwriter
of any investment company registered under the Investment Company Act
by reason of any conviction of a felony or misdemeanor, described in
Section 9(a)(1) of the Investment Company Act, and is not subject to
any order issued by the SEC under Section 9(b) of the Investment
Company Act. To the best of AIM's 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 and the AIM Funds.
(j) The transactions contemplated by that certain Acquisition
Agreement dated December 20, 1995 between Robert W. Baird & Co. Incorporated
and A I M Advisors, Inc. shall be consummated on the Closing Date.
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Section 6.3. Conditions Precedent of TBFI. The obligation
of TBFI 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 TBFI.
(a) The representations and warranties of AFG 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) AFG shall have complied with and satisfied in all
material respects all agreements and conditions set forth herein on its part to
be performed or satisfied at or prior to the Closing Date.
(c) TBFI shall have received on the Closing Date (i) a
certificate, dated as of the Closing Date, from an officer of AFG, in such
individual's capacity as an officer of AFG 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 AFG,
certifying as to the accuracy and completeness of the attached Agreement and
Declaration of Trust, as amended, and by-laws, as amended, and resolutions,
consents and authorizations with respect to the execution and delivery of this
Agreement and the transactions contemplated hereby.
(d) TBFI shall have received the signed opinion of
Ballard Spahr Andrews & Ingersoll, counsel to AFG, or other counsel reasonably
acceptable to TBFI, in form and substance reasonably acceptable to counsel for
TBFI, 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 TBFI and AFG; and
(ii) at the election of TBFI or AFG:
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(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 BQB Shareholders Meeting
or any adjournment thereof, the Required BQB Shareholder Vote
shall not have been obtained as contemplated by Section 5.8;
or
(C) if any Governmental Authority shall have
issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting
the Reorganization and such order, decree, ruling or other
action shall have become final and nonappealable; or
(iii) by TBFI in the event TBFI receives an
Acquisition Proposal and the Board of Directors of TBFI determines in
good faith, after consultation with outside counsel, that, in order to
comply with its fiduciary duties to the BQB Shareholders under
applicable law, the Board of Directors of TBFI should authorize TBFI
to terminate this Agreement; or
(iv) by AFG 45 days following the date on which TBFI
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 TBFI notifies AFG that such
Acquisition Proposal has been rejected and any such negotiations have
been terminated.
(b) The termination of this Agreement shall be effectuated by
the delivery by the terminating party to the other party of a written notice of
such termination. If this Agreement so terminates, it shall become null and
void and have no further force or effect, except as provided in Section 7.2.
Section 7.2. Survival After Termination. If this
Agreement is terminated in accordance with Section 7.1 hereof and the
transactions contemplated hereby are not consummated, this Agreement shall
become void and of no further force and effect, except for the provisions of
Section 5.2 and Section 5.3.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1. Nonsurvival of Representations and
Warranties. Except as set forth below, none of the representations, warranties
or covenants in this Agreement or in any certificate or instrument delivered
pursuant to this Agreement shall survive the Closing Date and no party shall,
therefore, have any recourse therefor against any other party in connection
therewith. This Section 8.1 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Closing Date.
Section 8.2. Law Governing. This Agreement shall be
construed and interpreted according to the laws of the State of Delaware
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. Obligations of AFG and TBFI.
(a) TBFI and AFG hereby acknowledge and agree that the
Portfolio is a separate investment portfolio of AFG, that AFG is executing this
Agreement on behalf of the Portfolio, and that any amounts payable by AFG under
or in connection with this Agreement shall be payable solely from the revenues
and assets of the Portfolio. TBFI further acknowledges and agrees that this
Agreement has been executed by an authorized officer of AFG in his or her
capacity as an officer of AFG intending to bind AFG as provided herein, and
that no officer, trustee or shareholder of AFG shall be personally liable for
the liabilities or obligations of AFG incurred hereunder.
(b) TBFI and AFG hereby acknowledge and agree that Baird
Quality Bond is a separate investment portfolio of TBFI, that TBFI is executing
this Agreement on behalf of Baird Quality Bond and that any amounts payable by
TBFI under or in connection with this Agreement shall be payable solely from
the revenues and assets of Baird Quality Bond.
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Section 8.5. Amendments. This Agreement may not be
amended, altered or modified except by a written instrument executed by TBFI
and AFG.
Section 8.6. Enforcement. The parties agree irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States or any state having jurisdiction, in addition to any other remedy
to which they are entitled at law or in equity.
Section 8.7. Interpretation. When a reference is made in
this Agreement to a Section or Schedule, such reference shall be to a Section
of, or a Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". Each representation and warranty contained in Article III or IV
that relates to a general category of a subject matter shall be deemed
superseded by a specific representation and warranty relating to a subcategory
thereof to the extent of such specific representation or warranty.
Section 8.8. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original and each of which
shall constitute one and the same instrument.
Section 8.9. Entire Agreement; Schedules. This Agreement,
including the Schedules, certificates and lists referred to herein, and any
documents executed by the parties simultaneously herewith or pursuant thereto,
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and 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
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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 AFG:
AIM Funds Group
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 TBFI:
The Baird Funds, 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.
THE BAIRD FUNDS, INC., acting
on behalf of Baird Quality
Bond Fund
By: /s/ M. C. LOW, JR.
__________________________________
AIM FUNDS GROUP, acting
on behalf of AIM Income Fund
By: /s/ ROBERT H. GRAHAM
__________________________________
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Schedule 3.12(a)
List of Contracts and Agreements.
1. Investment Advisory Agreement dated September 16, 1992 between
The Baird Funds, Inc. ("TBFI") and Robert W. Baird & Co.
Incorporated ("Baird"), for the Quality Bond Fund ("BQB
Fund").
2. Administration Agreement dated October 1, 1992 between TBFI
and Fiduciary Management, Inc.
3. Distribution Plan of BQB Fund.
4. Distribution Agreement dated September 16, 1992 between TBFI
and Baird for the BQB Fund.
5. Distribution Assistance Agreement dated September 16, 1992
between TBFI and Baird for the BQB Fund.
6. Custodian Agreement dated October 1, 1992 between TBFI and
Firstar Trust Company ("Firstar").
7. Transfer Agent Agreement dated October 1, 1992 between TBFI and
Firstar.
8. Agreement dated September 14, 1994, as amended, among TBFI,
Baird Blue Chip Fund, Inc. and Baird Capital Development Fund,
Inc. regarding allocation of fidelity bond coverage, pursuant
to Rule 17g-1(f) under the Investment Company Act of 1940.
9. $1,600,000 Fidelity Bond issued by Reliance Insurance Company.
10. Articles of Incorporation of TBFI.
11. Bylaws of TBFI.
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Schedule 6.1(d)
OPINION OF COUNSEL TO TBFI
1. TBFI is a corporation duly incorporated and validly existing
under the laws of the State of Wisconsin.
2. TBFI 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
TBFI have been duly authorized and approved by all requisite
corporate action on the part of TBFI. The Agreement has been
duly executed and delivered by TBFI and constitutes the valid
and binding obligation of Baird Quality Bond.
4. The BQB 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. TBFI 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 TBFI or who has devoted substantive
attention on behalf of TBFI 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
Quality Bond (i) with respect to the Agreement or (ii) which involves in excess
of $500,000 in damages.
1
<PAGE> 137
Schedule 6.2(g)
Tax Opinions.
(i) The transfer of the assets of Baird
Quality Bond to the Portfolio in exchange for the Portfolio Shares
distributed directly to the BQB Shareholders, as provided in the
Agreement, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code and that Baird Quality Bond and AFG 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 Quality Bond 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 Quality Bond in exchange for Portfolio
Shares issued directly to the BQB Shareholders
(iv) In accordance with Section 354(a)(1)
of the Code, no gain or loss will be recognized by BQB Shareholders on
issuance by AFG of Portfolio Shares in exchange for their BQB Shares.
(v) In accordance with Section 362(b) of
the Code, the basis to the Portfolio of the assets of Baird Quality
Bond transferred to it will be the same as the basis of such assets in
the hands of Baird Quality Bond immediately prior to the exchange.
(vi) In accordance with Section 358(a) of
the Code, a BQB Shareholder's basis for Portfolio Shares issued to
such BQB Shareholder pursuant to Section 2.7 of the Agreement ("Issued
Shares") will be the same as his basis for BQB Shares.
(vii) In accordance with Section 1223(1)
of the Code, a BQB Shareholder's holding period for Portfolio Shares
will be determined by including said BQB Shareholder's holding period
for BQB Shares exchanged therefor, provided that BQB Shareholder held
such BQB 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
Quality Bond
1
<PAGE> 138
transferred to the Portfolio will include the holding period for such
assets in the hands of Baird Quality Bond.
(ix) In accordance with Section 381(a)(2)
of the Code, the Portfolio will succeed to and take into account the
items of Baird Quality Bond described in Section 381(c) of the Code,
subject to the conditions and limitations specified in Sections 381
through 384 of the Code and the Internal Revenue Service regulations
thereunder.
2
<PAGE> 139
Schedule 6.3(d)
OPINION OF COUNSEL TO AFG
1. AFG is duly organized and validly existing as a business trust
under the Business Trust Law of the State of Delaware.
2. AFG 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
AFG have been duly authorized and approved by all requisite
trust action on the part of AFG. The Agreement has been duly
executed and delivered by AFG 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. AFG 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 AFG or who has devoted substantive
attention on behalf of AFG during the preceding twelve months and who is still
currently employed by or is currently a member of this firm, no litigation or
governmental proceeding is pending or threatened in writing against the
Portfolio (i) with respect to the Agreement or (ii) which involves in excess of
$500,000 in damages.
1
<PAGE> 140
APPENDIX III
Reproduced below is a discussion of the performance of AIM Income for the
six-month period ended June 30, 1995 that was prepared by its officers and AIM
and was included in its Semiannual Report dated June 30, 1995.
DISCUSSION & ANALYSIS
----------------
The Fund generally
increased its
holdings of
intermediate
and long-term
securities as
yields early in
the year were
viewed as
attractive.
----------------
AIM INCOME FUND CAPITALIZES ON BOND MARKET
RALLY TO PRODUCE SUPERIOR RETURNS
Following 1994, when bonds had one of their worst years on record, investors
were more than ready for good news.
The good news came in the form of evidence that the Federal Reserve
Board's much-sought "soft landing" for the economy--slowing growth but not to
the point of recession--was occurring. More than a year after the Fed began
trying to slow economic growth to a more sustainable 2.5% annual pace, the
results were in. A 2.7% annualized growth rate in the first quarter of 1995
showed the economy had slowed decidedly from the 5.1% annualized rate logged
in the fourth quarter of 1994.
During the second quarter of 1995, economic growth dropped to an
annual rate of less than 1%. Markets began to discount the possibility that the
Federal Reserve Board would ease short-term interest rates. Even a moderate
reduction in interest rates would save corporations and consumers billions of
dollars in borrowing costs and help to extend the favorable business cycle.
News that economic activity was moderating was a tonic for the
financial markets. After the Federal Reserve Board's final short-term interest
rate hike in February 1995, the Federal Funds rate remained targeted at 6.00%.
Longer-term rates began to decline. As of June 30, 1995, for example, the yield
on a 30-year U.S. Treasury Bond was 6.62%, down from 7.88% on December 30,
1994. Bond prices rallied. The Lehman Brothers Aggregate Bond Index was up
11.44% for the six-month period. A brief discussion of how interest rates and
bond prices interact appears on the opposite page.
Toward the end of the reporting period, evidence began to mount that
the economic slowdown could be both more abrupt and more pronounced than
desirable. The word "recession" began to supplant the phrase "soft landing"
when the business press attempted to forecast what lay ahead. Economic data
seemed contradictory. For example, while the Conference Board, a business
research organization, reported a sharp decline in consumer confidence during
May, Dun & Bradstreet Corp. found corporate executives more optimistic than
they had been earlier in the year. Personal income declined 0.2% during May,
but the housing market boomed with sales of new single-family homes up 12.5%.
YOUR INVESTMENT PORTFOLIO
AIM Income Fund thrived in this changing environment.
The Fund generally increased its holdings of intermediate and long-term
securities as yields early in the year were viewed as attractive. The
weighted average maturity of portfolio holdings was lengthened to 12 years from
less than 10 years as the bond market environment stabilized.
In addition, because of the significant increase in foreign interest
rates in 1994, foreign bonds offered attractive yields and return
possibilities. About 25% of holdings were in foreign bonds during the period.
Specifically, foreign holdings were allocated to Germany, the United Kingdom,
Canada, and Australia.
TOP 5 HOLDINGS
(as of 6/30/95)
<TABLE>
<CAPTION>
Issuer Coupon Maturity
- --------------------------------------------------------------------
<S> <C> <C>
1. Indiana Michigan Power Co. 9.82% 12/07/22
2. Province of Manitoba 7.75% 07/17/16
3. General Motors Corp. 8.80% 03/01/21
4. ITT Corp. 8.85% 07/15/05
5. Westinghouse Credit Corp. 8.875% 06/14/14
</TABLE>
1
<PAGE> 141
OUTLOOK FOR THE FUTURE
Shortly after the close of the period covered by this report, the Federal
Reserve Board lowered the Federal Funds rate by 0.25%. Major banks such as
Citibank and Chase Manhattan lowered their prime lending rates from the highest
point in more than four years, even as the market speculated whether the Fed's
move was an isolated cut or the first in a series of reductions. The Fed, in
the past, has not refrained from a policy of easing after a single 0.25% rate
cut.
A more accommodative monetary policy by the Federal Reserve should
spur continued growth in the economy. One important message revealed by the
bond market's impressive performance so far this year is that investors do not
believe inflation is a problem, even with moderate economic growth.
Fund management believes the bond market can be expected to benefit
from the lower and more stable interest rate climate, and therefore will
continue to provide shareholders with attractive total returns.
Rather than trying to determine the future direction of interest
rates, Fund management remains committed to its bottom-up investment strategy,
which seeks attractive portfolio positions one security at a time. By confining
our analysis to individual issues, we can rely on what we know about a
particular company and security rather than on a projection about the future.
Working within predetermined maturity targets, AIM's fixed-income portfolio
managers utilize an ongoing review process that concentrates on the credit and
structure of each security and how each security impacts the portfolio.
CURRENT YIELD ADVANTAGE
=======================================
30-day Yield as of 6/30/95
<TABLE>
<S> <C>
6 Month CDs* 4.96%
AIM Income Fund Class A* 7.36%
</TABLE>
*6.88% was the Class B 30-day yield. Performance of Class B shares will differ.
**Bank certificates of deposit, which are insured by the FDIC for up to
$100,000, are short-term investments that pay fixed principal and interest, but
are subject to fluctuating rollover rates and early withdrawal penalties. CD
income is calculated using the six-month annualized average monthly CD rate
reported by the Federal Reserve Board. Fund shares are not insured and their
value will vary with market conditions.
[GRAPH]
[INTEREST RATES AND BOND PRICES CHART]
The relationship between interest rates and the market value of a bond is
inverse. As interest rates rise, as they did during 1994, the value of an
existing bond generally declines--investors are less inclined to pay full price
for an older bond that yields, for example, 6% when a newer bond yields 9%.
Conversely, when interest rates fall, as they slowly did during the
first half of 1995, the market value of existing bonds generally rises;
investors are willing to pay a premium for an older bond yielding 9% if new
bonds yield only 6%. This situation is depicted in the accompanying see-saw
illustration.
In general, the longer the maturity of a bond, the more its value will
be affected by a change in interest rates. While this translates into the
potential for greater volatility in a bond fund that holds relatively long-term
bonds, it also translates into the potential for greater long-term reward.
2
<PAGE> 142
APPENDIX IV
Reproduced below is a discussion of the performance of Baird
Bond for its fiscal year ended September 30, 1995, that was prepared by its
officers and investment adviser and included in its Annual Report dated
November 9, 1995.
The bond markets staged a remarkable recovery during 1995
after a very difficult 1994. The yield on the benchmark thirty-year
Treasury bond, which increased from 6% on 09/30/93 to 7.80% by
09/30/94, fell back to around 6.50% by 09/30/95, the end of the Baird
Bond's fiscal year. As a result, the net asset value of Baird Bond,
which was $9.00 on 09/30/95, rose to $9.46 on 09/30/95.
This turnaround in the bond market was sparked by a slowdown
in economic growth and a significant improvement in the outlook for
inflation. Through most of 1994, the Federal Reserve was pushing
interest rates upward out of concern that the economy could be
overheating and inflation accelerating. That Fed tightening
apparently had the intended impact sooner than anticipated. In 1995,
the economy has been growing much slower and the rate of inflation has
dropped to around 2% or less. In response to these bullish economic
fundamentals, bond prices regained virtually all of the ground lost in
1994.
The performance of the bond market in the year ahead will
depend primarily upon whether the United States economy slips into a
recession. Those who project still lower bond yields argue that the
United States and the world economy will continue to weaken in 1996.
Others argue that the drop in interest rates in 1995 will spark a
rebound in business activity. Recent increases in the pace of home
sales and housing construction, in response to lower mortgage rates,
appear to support the view that the economy is improving somewhat. If
so, bond yields may not decline much further.
Our investment strategy for this economic environment is to
emphasize interest income rather than the potential for price
appreciation. We expect to keep the average maturity of the fund
within the lower half of the intermediate range and to invest
primarily in the corporate and Federal agency notes that offer yields
well above those of comparable Treasury notes. We also expect to
maintain an average quality rating of double A or higher.
<PAGE> 143
AIM FUNDS GROUP
SPECIAL PURPOSE STATEMENT OF ADDITIONAL INFORMATION
(PART B)
This Statement of Additional Information is not a prospectus but
should be read in conjunction with the Combined Proxy Statement and Prospectus
dated February 2, 1996 which may be obtained at no charge by writing AIM Funds
Group ("AFG"), 11 Greenway Plaza, Suite 1919, Houston, Texas 77046 or by
calling (713) 626-1919 in Houston, (800) 347-4246 elsewhere.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement and Prospectus.
The Statement of Additional Information for AIM Income Fund ("AIM
Income") dated May 1, 1995 has been filed with the SEC, is incorporated by
reference herein and is attached hereto as Appendix I (the "AIM Income Statement
of Additional Information").
The date of this Statement of Additional Information is February 2, 1996.
TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL INFORMATION ABOUT AFG AND AIM INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
AFG STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix I
AIM INCOME SEMI-ANNUAL REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix II
BAIRD BOND ANNUAL REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix III
</TABLE>
<PAGE> 144
ADDITIONAL INFORMATION ABOUT AFG AND AIM INCOME
Additional information about AFG and AIM Income is contained in the
AIM Income Statement of Additional Information. For more information with
respect to AFG and AIM Income concerning the following topics, please refer to
the AIM Income Statement of Additional Information as indicated: (i) see the
discussion "Introduction" and "General Information About the Trust" for further
general and historical information regarding AFG and AIM Income; (ii) see the
discussion "Investment Objectives and Policies," "Investment Restrictions,"
"Repurchase Agreements and Reverse Repurchase Agreements" and "Ratings of
Securities" for further information regarding the investment objectives and
policies of AIM Income; (iii) see the discussion "Management of the Trust" for
further information regarding management of AIM Income; (iv) see the discussion
"Investment Advisory and Other Services," "The Distribution Plans" and "The
Distributor" for further information regarding investment advisory and other
services for AIM Income; (v) see the discussion "Portfolio Transactions and
Brokerage" for further information regarding brokerage allocation and other
practices relating to AIM Income; (vi) see the discussion "General Information
About the Trust" for further information regarding the capital stock of AIM
Income; (vii) see the discussion "Purchase, Redemption and Pricing of
Securities," "Qualifying for a Reduced Front-End Sales Charge," "Programs and
Services for Shareholders" and "Redemptions Paid in Cash" for further
information regarding the purchase, redemption and pricing of the AIM Income
securities being offered; (viii) see the discussion "Tax Matters" for a
discussion of the tax status of AIM Income; (ix) see the discussion "The
Distributor" for further information regarding AIM Income's distributor; and
(x) see the discussion "Performance Information" for further information
regarding the calculation of AIM Income's performance data.
Information regarding control persons and principal holders of AIM
Income's securities is set forth under the discussion "Ownership of Baird Bond
and AIM Income Shares" in the Combined Proxy Statement and Prospectus relating
to this Statement of Additional Information.
FINANCIAL INFORMATION
FINANCIAL INFORMATION FOR AIM INCOME
The Financial Statements for AIM Income are set forth under the
discussion "Financial Statements" in the AIM Income Statement of Additional
Information attached hereto as Appendix I. The unaudited interim Financial
Statements for AIM Income for the six-month period ended June 30, 1995 are set
forth in the Semi-Annual Report of AIM Income, which is incorporated herein and
attached hereto as Appendix II.
FINANCIAL INFORMATION FOR BAIRD BOND
The Financial Statements for the Baird Quality Bond Fund ("Baird
Bond") for the fiscal year ended September 30, 1995 are set forth in the Annual
Report of Baird Bond dated November 9, 1995, which is incorporated herein and
attached hereto as Appendix III.
B-2
<PAGE> 145
APPENDIX I
AIM BALANCED FUND
AIM GLOBAL UTILITIES FUND
AIM GROWTH FUND
AIM HIGH YIELD FUND
AIM INCOME FUND
AIM INTERMEDIATE GOVERNMENT FUND
AIM MONEY MARKET FUND
AIM MUNICIPAL BOND FUND
AIM VALUE FUND
(SERIES PORTFOLIOS OF AIM FUNDS GROUP)
SUPPLEMENT DATED DECEMBER 28, 1995 TO THE
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995, AS REVISED
AUGUST 22, 1995 AND SUPPLEMENTED SEPTEMBER 20, 1995 AND OCTOBER 20, 1995
This Supplement replaces and incorporates the Supplements dated
September 20, 1995 and October 20, 1995.
The Sub-Advisory Agreement among CIGNA Investments, Inc., A I M
Advisors, Inc. ("AIM") and AIM Funds Group terminated effective September 20,
1995. As of that date, AIM assumed sole responsibility for providing investment
advice to AIM HIGH YIELD FUND.
The third sentence of the fourth paragraph on page 3 is revised to read
in its entirety as follows: "From time to time, sales literature and/or
advertisements for any of the Funds may disclose (i) the largest holdings in the
Fund's portfolio, (ii) certain selling group members and/or (iii) certain
institutional shareholders."
On page 32, Carl Frischling should be designated as a trustee who is an
"interested person" of the Trust as defined in the 1940 Act.
Effective September 25, 1995, the name of AIM GOVERNMENT SECURITIES
FUND was changed to AIM INTERMEDIATE GOVERNMENT FUND.
Effective October 19, 1995, The Bank of New York became the custodian
for AIM MUNICIPAL BOND FUND. The address of The Bank of New York is 110
Washington Street, New York, New York 10286.
The discussion under the caption "Determination of Net Asset Value"
beginning on page 49 is revised to reflect that effective January 2, 1996, the
net asset value per share (or share price) of each AIM Fund other than AIM MONEY
MARKET FUND will be determined as of the close of trading of the New York Stock
Exchange (generally 4:00 p.m. Eastern Time) on each business day of a fund. The
net asset value per share (or share price) of AIM MONEY MARKET FUND will be
determined as of 12:00 noon and the close of trading of the New York Stock
Exchange on each business day of the fund. For purposes of determining net asset
value per share, futures and options contacts generally will be valued 15
minutes after the close of trading of the New York Stock Exchange.
Shares of the AIM Funds are purchased, exchanged or redeemed at the net
asset value next determined after receipt of an order for purchase, exchange or
redemption in proper form. Accordingly, orders for purchases, exchanges and
redemptions of shares of an AIM Fund other than AIM MONEY MARKET FUND 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
<PAGE> 146
Clearing Corporation 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. Orders for purchases, exchanges and
redemptions of shares of AIM MONEY MARKET FUND received by dealers prior to
12:00 noon or 4:00 p.m. Eastern Time on any business day of the fund will be
confirmed at the price next determined.
<PAGE> 147
STATEMENT OF
ADDITIONAL INFORMATION
AIM FUNDS GROUP
AIM BALANCED FUND AIM INCOME FUND
AIM GLOBAL UTILITIES FUND AIM MONEY MARKET FUND
AIM GOVERNMENT SECURITIES FUND AIM MUNICIPAL BOND FUND
AIM GROWTH FUND AIM VALUE FUND
AIM HIGH YIELD FUND
11 Greenway Plaza
Suite 1919
Houston, Texas 77046-1173
(713) 626-1919
_________________________
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, AND IT SHOULD BE
READ IN CONJUNCTION WITH A PROSPECTUS FOR THE ABOVE-NAMED FUNDS, A COPY OF
WHICH MAY BE OBTAINED FROM AUTHORIZED DEALERS OR BY WRITING
A I M DISTRIBUTORS, INC., P.O. BOX 4739, HOUSTON, TEXAS 77210-4739, OR BY
CALLING (713) 626-1919 (IN HOUSTON) OR (800) 347-4246 (ELSEWHERE)
_________________________
Statement of Additional Information Dated: May 1, 1995 (as
revised August 22, 1995) Relating to the Prospectus
Dated: May 1, 1995 (as revised June 26, 1995)
<PAGE> 148
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GENERAL INFORMATION ABOUT THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Trust and its Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Total Return Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Yield Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
General Brokerage Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 28(e) Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
All Funds except AIM Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
AIM Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
AIM Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
AIM Global Utilities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Lending Portfolio Securities: All Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Covered Call Options: All Funds except AIM Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . 14
Short Sales: AIM Balanced Fund and AIM High Yield Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Futures Contracts: All Funds except AIM Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . 15
Options on Futures Contracts: All Funds except AIM Money Market Fund . . . . . . . . . . . . . . . . . . . 17
Risks as to Futures Contracts and Related Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Delayed Delivery Agreements: All Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
When-Issued Securities: All Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
AIM Balanced Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
AIM Global Utilities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
AIM Government Securities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
AIM Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
AIM Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
AIM Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
AIM Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
AIM Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
THE DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
i
<PAGE> 149
<TABLE>
<S> <C>
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
HOW TO PURCHASE AND REDEEM SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
QUALIFYING FOR A REDUCED FRONT-END SALES CHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
PROGRAMS AND SERVICES FOR SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Dividend Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
REDEMPTIONS PAID IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
DESCRIPTION OF MONEY MARKET INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Money Market Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
MISCELLANEOUS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Custodian and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
RATINGS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
ii
<PAGE> 150
INTRODUCTION
AIM Funds Group (the "Trust") is a series mutual fund. The rules and
regulations of the Securities and Exchange Commission (the "SEC") require all
mutual funds to furnish prospective investors certain information concerning
the activities of a fund being considered for investment. This information is
included in a Prospectus (the "Prospectus"), dated May 1, 1995 (as revised June
26, 1995), which relates to all nine of the Trust's portfolios (collectively,
the "Funds" and each separately a "Fund"). Copies of the Prospectus and
additional copies of this Statement of Additional Information may be obtained
without charge by writing the principal distributor of the Funds' shares, A I M
Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston, Texas
77210-4739, or by calling (713) 626-1919 (in Houston) or (800) 347-4246
(elsewhere). Investors must receive a Prospectus before they invest in any
Fund.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Funds. Some of
the information required to be in this Statement of Additional Information is
also included in the Funds' current Prospectus, and in order to avoid
repetition, reference will be made herein to sections of the Prospectus.
Additionally, the Prospectus and this Statement of Additional Information omit
certain information contained in the Trust's Registration Statement filed with
the SEC. Copies of the Registration Statement, including items omitted from the
Prospectus and this Statement of Additional Information, may be obtained from
the SEC by paying the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE TRUST
THE TRUST AND ITS SHARES
The Trust was previously organized as a Massachusetts business trust
pursuant to a Master Trust Agreement, dated October 30, 1984, as amended.
Pursuant to agreements and plans of reorganization, the Funds were reorganized
on October 15, 1993 as portfolios of AIM Funds Group, a Delaware business
trust. The Trust currently is organized under an Agreement and Declaration of
Trust, dated May 5, 1993, as amended (the "Trust Agreement"). Each Fund is a
series of shares of the Trust. Under the Trust Agreement, the Board of Trustees
is authorized to create new series of shares without the necessity of a vote of
shareholders of the Trust.
On October 15, 1993, the Funds (other than AIM BALANCED FUND and AIM
MONEY MARKET FUND) succeeded to the assets and assumed the liabilities of the
funds with corresponding names (the "Predecessor Funds") of AIM Funds Group, a
Massachusetts business trust ("AFG"), pursuant to an Agreement and Plan of
Reorganization between the Trust and AFG. Also on October 15, 1993, AIM
BALANCED FUND succeeded to the assets and assumed the liabilities of AIM
Convertible Securities, Inc., a Maryland corporation ("ACS"), pursuant to an
Agreement and Plan of Reorganization between the Trust and ACS. Finally, on
October 16, 1993, AIM MONEY MARKET FUND succeeded to the assets and assumed the
liabilities of the AIM Cash Fund and AIM Money Market Fund(C) portfolios of AFG
and the AIM Money Market Fund portfolio of Short-Term Investments Co., a
Massachusetts business trust ("STIC"), pursuant to an Agreement and Plan of
Reorganization among the Trust, AFG and STIC. All historical financial and
other information contained in this Statement of Additional Information for
periods prior to October 15, 1993 relating to the Funds (or a class thereof) is
that of the Predecessor Funds (or the corresponding class thereof) or ACS.
However, the historical financial and other information relating to AIM MONEY
MARKET FUND does not reflect information prior to October 16, 1993. Pursuant
to an Amendment to the Trust Agreement, dated May 1, 1995 AIM UTILITIES FUND
changed its name to AIM GLOBAL UTILITIES FUND. Shares of beneficial interest of
the Trust are redeemable at their net asset value at the option of the
shareholder or at the option of the Trust in certain circumstances. For
information concerning the methods of
1
<PAGE> 151
redemption and the rights of share ownership, investors should consult the
Prospectus under the captions "Organization of the Trust" and "How to Redeem
Shares."
The assets received by the Trust from the issue or sale of shares of
each of its series of shares, and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
the appropriate Fund. They constitute the underlying assets of each Fund, are
required to be segregated on the Trust's books of account, and are to be
charged with the expenses with respect to such Fund and its respective classes.
Any general expenses of the Trust not readily identifiable as belonging to a
particular Fund are allocated by or under the direction of the Board of
Trustees, primarily on the basis of relative net assets, or other relevant
factors.
Each share of each Fund represents an equal proportionate interest in
that Fund with each other share and is entitled to such dividends and
distributions out of the income belonging to such Fund as are declared by the
Board. Each Fund, except AIM MONEY MARKET FUND, offers two separate classes of
shares: Class A shares and Class B shares. AIM MONEY MARKET FUND offers three
separate classes of shares: Class A shares, Class B shares and Class C shares.
Each such class represents interests in the same portfolio of investments but,
as further described in the Prospectus, each such class is subject to differing
sales charges and expenses, which differences will result in differing net
asset values and dividends and distributions. Upon any liquidation of the
Trust, shareholders of each class are entitled to share pro rata in the net
assets belonging to the applicable Fund available for distribution.
PERFORMANCE INFORMATION
Total return and yield figures for the Funds are neither fixed nor
guaranteed, and no Fund's principal is insured. Performance quotations reflect
historical information and should not be considered representative of a Fund's
performance for any period in the future. Performance is a function of a
number of factors which can be expected to fluctuate. The Funds may provide
performance information in reports, sales literature and advertisements. The
Funds may also, from time to time, quote information about the Funds published
or aired by publications or other media entities which contain articles or
segments relating to investment results or other data about one or more of the
Funds. The following is a list of such publications or media entities:
<TABLE>
<S> <C> <C>
Advertising Age Forbes Nation's Business
Barron's Fortune New York Times
Best's Review Hartford Courant Pension World
Broker World Inc. Pensions & Investments
Business Week Institutional Investor Personal Investor
Changing Times Insurance Forum Philadelphia Inquirer
Christian Science Monitor Insurance Week USA Today
Consumer Reports Investor's Daily U.S. News & World Report
Economist Journal of the American Wall Street Journal
FACS of the Week Society of CLU & ChFC Washington Post
Financial Planning Kiplinger Letter CNN
Financial Product News Money CNBC
Financial Services Week Mutual Fund Forecaster PBS
Financial World
</TABLE>
2
<PAGE> 152
Each Fund may also compare its performance to performance data of
similar mutual funds as published by the following services:
<TABLE>
<S> <C>
Bank Rate Monitor Stanger
Donoghue's Weisenberger
Mutual Fund Values (Morningstar) Lipper Analytical Services
</TABLE>
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
<TABLE>
<S> <C>
Standard & Poor's 400 Index
Standard & Poor's 500 Stock Index Bond Buyer Index
Dow Jones Industrial Average NASDAQ
EAFE Index COFI
Consumer Price Index First Boston High Yield Index
Lehman Bond Indices
</TABLE>
Each Fund may also compare its performance to rates on Certificates of
Deposit and other fixed rate investments such as the following:
10 year Treasuries
30 year Treasuries
90 day Treasury Bills
Advertising for AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND and AIM
VALUE FUND may from time to time include discussions of general economic
conditions and interest rates. Advertising for such Funds and for AIM BALANCED
FUND may also include references to the use of those Funds as part of an
individual's overall retirement investment program. From time to time, sales
literature and/or advertisements for any of the Funds may disclose the largest
holdings in the Fund's portfolio.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is not limited to, literature addressing general information
about mutual funds, variable annuities, dollar-cost averaging, stocks, bonds,
money markets, certificates of deposit, retirement, retirement plans, asset
allocation, tax-free investing, college planning, inflation.
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential
investments, investors should note that the methods of computing performance of
other potential investments are not necessarily comparable to the methods
employed by a Fund.
TOTAL RETURN QUOTATIONS
The standard formula for calculating total return, as described in the
Prospectus, is as follows:
P(1+T)n=ERV
Where P = a hypothetical initial payment of $1,000.
T = average annual total return (assuming the applicable
maximum sales load is deducted at the beginning of the
1, 5, or 10 year periods).
n = number of years.
3
<PAGE> 153
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the 1, 5, or 10 year periods (or
fractional portion of such period).
The average annual total returns for each of the named Funds, with
respect to its Class A shares, for the one, five and ten year periods (or since
inception, if shorter) ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31, 1994
---------------------------------------
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS
-------------- ------ ------- --------
<S> <C> <C> <C>
AIM Balanced Fund (formerly ACS) . . . . . . . . . . . . . -9.92% 9.38% 8.23%
AIM Global Utilities Fund . . . . . . . . . . . . . . . . -16.43% 3.98% 9.93%*
AIM Government Securities Fund . . . . . . . . . . . . . . -8.02% 5.29% 6.28%*
AIM Growth Fund . . . . . . . . . . . . . . . . . . . . . -10.23% 3.94% 9.90%
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . -6.34% 11.20% 11.45%
AIM Income Fund . . . . . . . . . . . . . . . . . . . . . -12.02% 5.92% 9.31%
AIM Municipal Bond Fund . . . . . . . . . . . . . . . . . -8.37% 5.89% 9.09%
AIM Value Fund . . . . . . . . . . . . . . . . . . . . . . -2.40% 14.53% 16.03%
</TABLE>
* The inception dates of the Class A shares of AIM GOVERNMENT
SECURITIES FUND and AIM GLOBAL UTILITIES FUND were April 28, 1987 and
January 18, 1988, respectively.
The average annual total returns for each of the named Funds, with
respect to its Class B shares, for the periods ended December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
CLASS B SHARES: PERIODS ENDED DECEMBER 31, 1994
--------------- -------------------------------
1 YEAR SINCE INCEPTION**
------ -----------------
<S> <C> <C>
AIM Balanced Fund . . . . . . . . . . . . . . . . -10.77% -10.76%
AIM Global Utilities Fund . . . . . . . . . . . . -16.56% -15.53%
AIM Government Securities Fund . . . . . . . . . . -8.61% -5.79%
AIM Growth Fund . . . . . . . . . . . . . . . . . -10.39% -7.56%
AIM High Yield Fund . . . . . . . . . . . . . . . -6.92% -1.63%
AIM Income Fund . . . . . . . . . . . . . . . . . -12.72% -9.47%
AIM Municipal Bond Fund . . . . . . . . . . . . . -9.09% -4.77%
AIM Value Fund . . . . . . . . . . . . . . . . . . -2.54% -1.82%
</TABLE>
** The inception date of the Class B shares of AIM GLOBAL UTILITIES
FUND, AIM GOVERNMENT SECURITIES FUND, AIM GROWTH FUND, AIM HIGH YIELD
FUND, AIM INCOME FUND and AIM MUNICIPAL BOND FUND and was September 1,
1993; and the inception date of the Class B shares of AIM BALANCED
FUND and AIM VALUE FUND was October 18, 1993.
The average annual total returns for AIM MONEY MARKET FUND, with
respect to its Class A shares, Class B shares and Class C shares, for the year
ended December 31, 1994 were -2.43%, -2.38% and 3.42%, respectively; and since
inception (October 18, 1993) were -1.62%, -0.87% and 3.22%, respectively.
Standard total return quotes may be accompanied by total return
figures calculated by alternative methods. For example, average annual total
return may be calculated without assuming payment of the full sales load
according to the following formula:
P(1+U)n=ERV
4
<PAGE> 154
Where P = a hypothetical initial payment of $1,000.
U = average annual total return assuming payment of only a
stated portion of, or none of, the applicable maximum
sales load at the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
Cumulative total return across a stated period may be calculated as
follows:
P(1+V)n=ERV
Where P = a hypothetical initial payment of $1,000.
V = cumulative total return assuming payment of all of, a
stated portion of, or none of, the applicable maximum
sales load at the beginning of the stated period.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
YIELD QUOTATIONS
The standard formula for calculating yield (including tax-equivalent
yield for AIM MUNICIPAL BOND FUND) for each Fund except AIM MONEY MARKET FUND,
as described in the Prospectus, is as follows:
YIELD = 2[((a-b)/(c x d) + 1)6-1]
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 = expenses accrued during period (net of reimbursement).
c = the average daily number of shares outstanding during
the period.
d = the maximum offering price per share on the last day of
the period.
Tax-equivalent yield for AIM MUNICIPAL BOND FUND will be calculated by
dividing that portion of the yield of the Fund (as determined above) which is
tax-exempt by one minus a stated income tax rate and adding the product to that
portion of the yield that is not tax-exempt.
5
<PAGE> 155
The yields for each of the named Funds were as follows:
<TABLE>
<CAPTION>
30 DAYS ENDED DECEMBER 31, 1994
---------------------------------
CLASS A SHARES CLASS B SHARES
-------------- --------------
<S> <C> <C>
AIM Balanced Fund . . . . . . . . . . . . . . . . . . 3.45% 2.80%
AIM Global Utilities Fund . . . . . . . . . . . . . . 3.92% 3.23%
AIM Government Securities Fund . . . . . . . . . . . . 7.16% 6.62%
AIM High Yield Fund . . . . . . . . . . . . . . . . . 11.30%* 11.02%*
AIM Income Fund . . . . . . . . . . . . . . . . . . . 7.86% 7.36%
AIM Municipal Bond Fund . . . . . . . . . . . . . . . 5.21%** 4.64%**
</TABLE>
* The relatively high yields in this Fund, like that of other junk
bond funds, reflect a substantial premium for the high default
risk perceived by the market. Investors should not consider these
yields a measure of income potential.
** The tax-equivalent yield, assuming a tax rate of 36%, for the
Class A shares and Class B shares of AIM MUNICIPAL BOND FUND was
8.14% and 7.25%, respectively.
The standard formula for calculating annualized yield for AIM MONEY
MARKET FUND, as described in the Prospectus, is as follows:
Y = V1 - V0 X 365
------- ---
V0 7
Where Y = annualized yield.
V0 = the value of a hypothetical pre-existing account in
the Fund having a balance of one share at the
beginning of a stated seven-day period.
V1 = the value of such an account at the end of the stated
period.
The annualized yield for each of the Class A, Class B and Class C shares
of AIM MONEY MARKET FUND for the 7 days ended December 31, 1994 was 4.87%,
4.04% and 4.85%, respectively.
The standard formula for calculating effective annualized yield for AIM
MONEY MARKET FUND, as described in the Prospectus, is as follows:
EY = (Y+1) 365/7 -1
Where EY = effective annualized yield.
Y = annualized yield, as determined above.
The effective annualized yield for each of the Class A, Class B and
Class C shares of AIM MONEY MARKET FUND for the 7 days ended December 31, 1994
was 4.99%, 4.12% and 4.97%, respectively.
For the purpose of the annualized yield and effective annualized yield,
the net change in the value of the hypothetical AIM MONEY MARKET FUND account
reflects the value of additional shares purchased with dividends from the
original shares and any such additional shares, and all fees charged, other
than non-recurring account or sales charges, to all shareholder accounts in
proportion to the length of the base period and the Fund's average account
size, but does not include realized gains and losses or unrealized appreciation
and depreciation.
6
<PAGE> 156
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Trustees of the Trust,
A I M Advisors, Inc. ("AIM") is responsible for decisions to buy and sell
securities for each Fund, for the selection of broker-dealers, for the
execution of each Fund's investment portfolio transactions, for the allocation
of brokerage fees in connection with such transactions, and where applicable,
for the negotiation of commissions and spreads on 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, a Fund does not necessarily pay the
lowest commission or spread available.
A portion of the securities in which each Fund invests may be traded in
over-the-counter ("OTC") 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, without commissions as such, but
which include compensation in the form of mark up or mark down.
Foreign equity securities may be held by the Fund in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or
other securities representing underlying securities of foreign issuers, or
securities convertible into foreign equity 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.
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 Funds) over a certain time period. The target levels will be determined
based upon the following factors, among others: (1) the execution services
provided by the broker; (2) the research services provided by the broker; and
(3) the broker's attitude toward and interest in mutual funds in general and in
the Funds and other mutual funds advised by AIM (collectively, the "AIM Funds")
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 Funds, AIM may also consider sales of shares of the Funds and of the
other AIM Funds as a factor in the selection of broker-dealers to execute
portfolio transactions for the Funds.
AIM will seek, whenever possible, to recapture for the benefit of each
Fund any commissions, fees, brokerage or similar payments paid by such 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 Funds are 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 may
7
<PAGE> 157
receive orders for transactions by the Funds. Information so received will be
in addition to and not in lieu of the services required to be performed by AIM
under its agreements with the Trust, on behalf of each 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 other AIM Funds. Also, each Fund may pay a
higher price for securities or higher commissions in recognition of research
services furnished by broker-dealers.
For the year ended December 31, 1994, AIM BALANCED FUND, AIM GLOBAL
UTILITIES FUND, AIM GROWTH FUND, AIM INCOME FUND and AIM VALUE FUND directed
certain brokerage transactions to broker-dealers that provided AIM with
research, statistical and other information: $4,602,745, $17,012,734,
$35,033,004, $1,718,799 and $212,717,697, respectfully. For the same period,
AIM BALANCED FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM INCOME FUND
and AIM VALUE FUND paid the following in related brokerage commissions:
$7,677, $34,792, $67,451, $3,494 and $412,146, respectively.
AIM and its affiliates manage several other investment accounts, some of
which may have investment objectives similar to those of one or more of the
Funds. It is possible that, at times, identical securities will be appropriate
for investment by one or more of the Funds and by one or more of 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 also be determined by
its cash position. If the purchase or sale of securities is consistent with
the investment policies of a Fund and one or more of these accounts, and 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 a Fund to obtain or dispose of the full amount of a security which
it seeks to purchase or sell.
In some cases the procedure for allocating portfolio transactions among
the various investment accounts advised by AIM could have an adverse effect on
the price or amount of securities available to a 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.
From time to time, an identical security may be sold by an AIM Fund or
another investment account advised by AIM or A I M Capital Management, Inc.
("AIM Capital") and simultaneously purchased by another investment account
advised by AIM or AIM Capital, when such transactions comply with applicable
rules and regulations and are deemed consistent with the investment
objective(s) and policies of the investment accounts involved. Procedures
pursuant or Rule 17a-7 under the Investment Company Act of 1940, as amended
(the "1940 Act") regarding transactions between investment accounts advised by
AIM or AIM Capital have been adopted by the Boards of Directors/Trustees of the
various AIM Funds including the Trust. 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.
The increase in the portfolio turnover rate for AIM INCOME FUND from
1993 to 1994 was in response to increases in the prevailing market interest
rates, and resulted from AIM's attempt to shorten the Fund's average duration
and increase investments in the foreign sector and non-investment grade debt
securities. The decrease in the portfolio turnover rate for AIM MUNICIPAL BOND
FUND from 1992 to 1993 was due to a change in the investment advisor during
1993.
8
<PAGE> 158
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 an 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
[AIM's] 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 its
investment decision-making responsibilities. Accordingly, the price to a 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
Funds' investment programs. Research services received from brokers supplement
AIM's own research (and the research of sub-advisors to other clients of AIM),
and may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
political developments; portfolio management strategies; performance
information on securities and information concerning prices of securities; and
information supplied by specialized services to AIM and to the Trust's trustees
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 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 in advising clients
other than the Funds. 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 obligations to the Funds. AIM is of the opinion that this
material is beneficial in supplementing AIM's research and analysis and
therefore it may benefit the Funds by improving the quality of AIM's investment
advice. The advisory fees paid by the Funds 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 Funds.
With respect to AIM GOVERNMENT SECURITIES FUND, AIM HIGH YIELD FUND, AIM
INCOME FUND, AIM MONEY MARKET FUND and AIM MUNICIPAL BOND FUND, purchases and
sales of portfolio securities are generally transacted with the issuer or a
primary market maker for the securities on a net basis, without
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any brokerage commission being paid by the Funds for such purchases. Purchases
and sales of certain portfolio securities for AIM BALANCED FUND are transacted
on a net basis, without any brokerage commission being paid by the Fund.
Purchases from dealers serving as primary market makers reflect the spread
between the bid and asked prices. Purchases and sales for AIM GLOBAL UTILITIES
FUND, AIM GROWTH FUND and AIM VALUE FUND generally involve a broker, and
purchases and sales for AIM BALANCED FUND often involve a broker, and
consequently involve the payment of commissions.
Due to the beneficial ownership of CIGNA Corporation ("CIGNA") voting
stock by Sanford C. Bernstein & Co., Inc. ("SCB"), CIGNA may be deemed to be
an affiliated person of SCB pursuant to the provisions of the 1940 Act. As
long as CIGNA may be deemed to be an affiliated person of SCB and as long as
CIGNA Investments, Inc. ("CII") serves as investment sub-advisor, AIM HIGH
YIELD FUND will not engage in any transaction with SCB when it is acting for
its own account and will engage in brokerage transactions with SCB only under
circumstances where the commission, spread or profit received by SCB is fair
and reasonable pursuant to rules established by the SEC and procedures adopted
and monitored by the Board of Trustees of the Trust. Except as described
below, during 1994 none of the Funds paid brokerage commissions to SCB.
During 1994, AIM BALANCED FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH
FUND and AIM VALUE FUND paid brokerage commissions of $985, $3,600, $4,638 and
$97,051, respectively, to SCB. This amount of brokerage commissions
represented 1.15%, 0.45%, 0.58% and 1.47%, respectively, of the aggregate of
brokerage and underwriting commissions paid by the Funds in 1994 and
represented less than 0.01% of the total value of each Fund's portfolio
transactions which involved brokerage or underwriting commissions.
No dealer affiliated with CII, other than CIGNA Securities, Inc. and
CIGNA Capital Brokerage, Inc., sold shares of the Funds during 1994, and
neither CIGNA Securities, Inc., CIGNA Capital Brokerage, Inc. nor CII received
any compensation, either directly or indirectly, arising from portfolio
transactions of the Funds.
As of December 31, 1994, AIM MONEY MARKET FUND held an amount of
commercial paper issued by Merrill Lynch & Co. Inc. which represented 5.06% of
the Fund's assets. Merrill Lynch & Co. Inc. is a regular broker of the Trust,
as defined in Rule 10b-1 under the 1940 Act.
Except as noted, the Trust does not utilize an affiliated broker or
dealer in effecting portfolio transactions and does not recapture commissions
paid in such transactions. Brokerage commissions or underwriting concessions
(or both) paid by each of the Funds listed below were as follows for the years
ended December 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
FUND 1994 1993 1992 1992
---- ---- ---- ------------ ----------
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
AIM Global Utilities Fund . . . . . . . . . $ 799 $ 729 $ 573 $ 62
AIM Government Securities Fund . . . . . . -0- -0- -0- -0-
AIM Growth Fund . . . . . . . . . . . . . . 803 880 442 203
AIM High Yield Fund . . . . . . . . . . . . -0- -0- -0- -0-
AIM Income Fund . . . . . . . . . . . . . . 106 -0- -0- -0-
AIM Municipal Bond Fund . . . . . . . . . . -0- -0- -0- -0-
AIM Value Fund . . . . . . . . . . . . . . 6,611 3,075 820 163
</TABLE>
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<PAGE> 160
AIM BALANCED FUND (formerly ACS) paid brokerage commissions or
underwriting commissions (or both) for the year ended December 31, 1994 in the
amount of $85,610 for the four-month period ended December 31, 1993 in the
aggregate amount of $10,867, and for the years ended August 31, 1993 and 1992
in the amounts of $38,185 and $37,039, respectively.
Provisions of the 1940 Act and rules and regulations thereunder have
been construed to prohibit the Funds 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
Funds have obtained an order of exemption from the SEC which permits them to
engage in certain transactions with such 5% holder if the Funds comply with
conditions and procedures designed to ensure that such transactions are
executed at fair market value and present no conflict of interest.
INVESTMENT OBJECTIVES AND POLICIES
For a general discussion of the investment objective(s) and policies
of each Fund, see the sections entitled "Investment Objectives" and "Investment
Programs" in the Prospectus.
ALL FUNDS EXCEPT AIM MONEY MARKET FUND
AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND and AIM VALUE FUND invest
in securities traded in the over-the-counter market or listed on a national
securities exchange, while AIM GOVERNMENT SECURITIES FUND, AIM HIGH YIELD FUND,
AIM INCOME FUND and AIM MUNICIPAL BOND FUND generally acquire bonds in new
offerings or in principal trades with broker-dealers. AIM BALANCED FUND,
investing in both equity and debt securities, acquires securities in the over-
the-counter market and those traded on national securities exchanges, and
acquires bonds in new offerings or in principal trades with broker-dealers.
Ordinarily, the Funds do not purchase securities with the intention of engaging
in short-term trading. However, any particular security will be sold, and the
proceeds reinvested, whenever such action is deemed prudent from the viewpoint
of a Fund's investment objectives, regardless of the holding period of that
security.
The Funds may invest in high quality, short-term money market
instruments such as certificates of deposit, commercial paper, bankers'
acceptances, short-term U.S. Government obligations and repurchase agreements,
pending investment in portfolio securities or to meet anticipated short-term
cash needs such as dividend payments or redemptions of shares. Such
investments generally are the type in which AIM MONEY MARKET FUND invests,
generally will have maturities of 60 days or less and normally are held to
maturity. See "Description of Money Market Instruments." The underlying
securities that are subject to a repurchase agreement will be
"marked-to-market" on a daily basis so that the Fund's investment advisor can
determine the value of the securities in relation to the amount of the
repurchase agreement.
U.S. Government securities may take the form of participation
interests in, and may be evidenced by, deposit or safekeeping receipts.
Participation interests are pro rata interests in U.S. Government securities.
A Fund may acquire participation interests in pools of mortgages sold by the
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Banks. Instruments
evidencing deposit or safekeeping are documentary receipts for such original
securities held in custody by others.
U.S. Government securities, including those that are guaranteed by
federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. Some securities issued by federal
agencies or instrumentalities are only supported by the credit of the agency or
instrumentality (such as the Federal Home Loan Banks) while others have an
additional line of credit with the U.S. Treasury (such as the Federal National
Mortgage Association). In the case of securities not
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<PAGE> 161
backed by the full faith and credit of the United States, the Funds must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its
commitments.
AIM MONEY MARKET FUND
The types of money market instruments in which the Fund presently
invests are listed under "Description of Money Market Instruments" in the
Prospectus and this Statement of Additional Information. If the trustees
determine that it may be advantageous to invest in other types of money market
instruments, the Fund may invest in such instruments, if it is permitted to do
so by its investment objectives, policies and restrictions.
The rating applied to a security at the time the security is purchased
by the Fund may be changed while the Fund holds such security in its portfolio.
This change may affect, but will not necessarily compel, a decision to dispose
of a security. If the major rating services used by the Fund were to alter
their standards or systems for rating, the Fund would then employ ratings under
the revised standards or systems that would be comparable to those specified in
its current investment objectives, policies and restrictions.
The Board of Trustees has established procedures in compliance with
Rule 2a-7 under the 1940 Act that include reviews of portfolio holdings by the
trustees at such intervals as they may deem appropriate to determine whether
net asset value, calculated by using available market quotations, deviates from
$1.00 per share and, if so, whether such deviation may result in material
dilution or is otherwise unfair to investors or existing shareholders. In the
event the trustees determine that a deviation having such a result exists, they
intend to take such corrective action as they deem necessary and appropriate,
including the following: the sale of portfolio instruments prior to maturity in
order to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; authorizing redemption of shares in kind; or
establishing a net asset value per share by using available market quotations,
in which case, the net asset value could possibly be greater or less than $1.00
per share. If the trustees deem it inadvisable to continue the practice of
maintaining a net asset value of $1.00 per share, they may alter this
procedure. The shareholders of the Fund will be notified promptly after any
such change.
Any increase in the value of a shareholder's investment in the Fund
resulting from the reinvestment of dividend income is reflected by an increase
in the number of shares in the shareholder's account.
AIM MUNICIPAL BOND FUND
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source.
Industrial development bonds, which are municipal bonds, are in most cases
revenue bonds and do not generally constitute the pledge of the credit of the
issuer of such bonds.
The Fund invests in securities representing a number of different
investment classifications. In addition, there are variations in the security
of municipal bonds, both within a particular classification and between
classifications, depending on various factors.
AIM HIGH YIELD FUND
The Fund will not acquire equity securities, other than preferred
stocks, except when (a) attached to or included in a unit with
income-generating securities that otherwise would be attractive to the Fund;
(b) acquired through the exercise of equity features accompanying convertible
securities held by the Fund,
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<PAGE> 162
such as conversion or exchange privileges or warrants for the acquisition of
stock or equity interests of the same or a different issuer; or (c) in the case
of an exchange offer whereby the equity security would be acquired with the
intention of exchanging it for a debt security issued on a "when-issued" basis.
The Fund does not expect to invest more than 5% of the value of its total
assets in issues, other than preferred stocks, of the type discussed in this
paragraph.
AIM GLOBAL UTILITIES FUND
The Fund does not currently intend to invest in warrants.
DESCRIPTION OF THE UTILITIES INDUSTRY
Electric Utility Industry. Electric utilities are heavily regulated.
Local rates are subject to the review of state commissions, and sales either
between companies or that cross state lines are subject to review by the
Federal Energy Regulatory Commission. The industry is also subject to
regulation by the SEC under the Public Utility Holding Company Act of 1935. In
addition, companies constructing or operating nuclear powered generating
stations are subject to extensive regulation by the Nuclear Regulatory
Commission.
Electric utility companies are also subject to extensive local
regulation in environmental and site location matters. Future legislation with
regard to the issues of acid rain and toxic and radioactive wastes could have a
significant impact on the manner in which utility companies conduct their
business, and the costs that they incur. Since the late 1970s, investor-owned
utilities have experienced a number of unfavorable regulatory trends, including
increased regulatory resistance to price increases and new legislation
encouraging competition.
Natural Gas Industry. The natural gas industry is comprised primarily
of many small distribution companies and a few large interstate pipeline
companies. The Public Utility Holding Company Act of 1935 has generally acted
as a bar to the consolidation of pipeline and distribution companies.
Regulation of these companies is similar to that of electric companies. The
performance of natural gas utilities may also be substantially affected by
fluctuations in energy prices.
Communications Industry. Most of the communications industry capacity
is concentrated in the hands of a few very large publicly-held companies,
unlike the situation in the electric and gas industries. Significant risks for
the investor to overcome still exist, however, including risk relating to
pricing at marginal versus embedded cost. New entrants may have lower costs of
material due to newer technologies or lower standards of reliability than those
heretofore imposed by American Telephone & Telegraph ("AT&T") on the industry.
Accordingly, the marginal cost of incremental service is much lower than the
costs embedded in an existing network. Communications companies are not
subject to the Public Utility Holding Company Act of 1935.
Interstate communications service may be subject to Federal
Communications Commission regulation. Local service may be regulated by the
states. In addition, AT&T and its former subsidiaries are still subject to
judicial review pursuant to the settlement of the antitrust case brought
against them by the Department of Justice.
Water Utility Industry. The water utility industry is composed of
regulated public utilities that are involved in the distribution of drinking
water to densely populated areas. The industry is geographically diverse and
subject to the same rate base and rate of return regulations as are other
public utilities. Demand for water is most heavily influenced by the local
weather, population growth in the service area and new construction. Supplies
of clean, drinkable water are limited and are primarily a function of the
amount of past rainfall.
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Other. In addition to the particular types of utilities industries
described above, the Fund may invest in developing utility technology companies
(such as cellular telephone, fiber optics and satellite communications firms)
and in holding companies which derive a substantial portion of their revenues
from utility-related activities. Generally, a holding company will be
considered to derive a substantial portion of its revenues from utility-related
activities if such activities account for at least 40% of its revenues.
LENDING PORTFOLIO SECURITIES: ALL FUNDS
Consistent with applicable regulatory requirements, the Funds may lend
their portfolio securities (principally to broker-dealers) to the extent of
one-third of their respective total assets. Such loans would be callable at
any time and would be continuously secured by collateral equal to no less than
the market value, determined daily, of the loaned securities. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. The Funds would continue to receive the income on loaned
securities and would, at the same time, earn interest on the loan collateral or
on the investment of the loan collateral if it were cash. Any cash collateral
pursuant to these loans would be invested in short-term money market
instruments. Where voting or consent rights with respect to loaned securities
pass to the borrower, the Funds will follow the policy of calling the loan, in
whole or in part as may be appropriate, to permit the exercise of such voting
or consent rights if the matters involved are expected to have a material
effect on the Funds' investment in the loaned securities. Lending securities
entails a risk of loss to the Funds if and to the extent that the market value
of the securities loaned were to increase and the lender did not increase the
collateral accordingly.
COVERED CALL OPTIONS: ALL FUNDS EXCEPT AIM MONEY MARKET FUND
Each Fund may write call options, but only on a covered basis; that
is, the Fund will own the underlying security. Options written by a Fund
normally will have expiration dates between three and nine months from the date
written. The exercise price of a call option may be below, equal to, or above
the current market value of the underlying security at the time the option is
written. When a Fund writes a covered call option, an amount equal to the
premium received by the Fund is recorded as an asset and an equivalent
liability. The amount of the liability is subsequently "marked-to-market" to
reflect the current market value of the option written. The current market
value of a written option is the last sale price, or in the absence of a sale,
the last offering price. If a written call option expires on the stipulated
expiration date, or if the Fund enters into a closing purchase transaction, the
Fund realizes a gain (or a loss if the closing purchase transaction exceeds the
premium received when the option was written) without regard to any unrealized
gain or loss on the underlying security, and the liability related to such
option is extinguished. If a written option is exercised, the Fund realizes a
gain or a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and
the writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call option
owns or has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, a Fund has given up
the opportunity for capital appreciation above the exercise price should the
market price of the underlying security increase, but has retained the risk of
loss should the price of the underlying security decline. During the option
period, a Fund may be required at any time to deliver the underlying security
against payment of the exercise price. This obligation is terminated upon the
expiration of the option period or at such earlier time at which a Fund effects
a closing purchase transaction by purchasing (at a price which may be higher
than was received when the call option was written) a call option identical to
the one originally written. A Fund will not write a covered call option if,
immediately thereafter, the aggregate value of the securities underlying all
such options, determined as of the dates such options were written, would
exceed 5% of the net assets of the Fund.
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SHORT SALES: AIM BALANCED FUND AND AIM HIGH YIELD FUND
Each of AIM BALANCED FUND and AIM HIGH YIELD FUND may from time to
time make short sales of securities which it owns or which it has the right to
acquire through the conversion or exchange of other securities it owns. In a
short sale, a Fund does not immediately deliver the securities sold and does
not receive the proceeds from the sale. A Fund is said to have a short
position in the securities sold until it delivers the securities sold, at which
time it receives the proceeds of the sale. A Fund will neither make short
sales of securities nor 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." To secure its obligation to deliver the securities sold short, a Fund
will deposit in escrow in a separate account with State Street Bank and Trust
Company ("State Street") an equal amount of the securities sold short or
securities convertible into or exchangeable for such securities.
Since a Fund ordinarily will want to continue to receive interest and
dividend payments on securities in its portfolio which are convertible into the
securities sold short, the Fund will normally close out a short position by
purchasing and delivering an equal amount of the securities sold short, rather
than by delivering securities which it already holds.
A Fund will make a short sale, as a hedge, when it believes that the
price of a security may decline, causing a decline in the value of a security
owned by the Fund or a security convertible into or exchangeable for such
security, or when the Fund does not want to sell the security it owns, because,
among other reasons, it wishes to defer recognition of gain or loss for federal
income tax purposes. In such case, any future losses in a Fund's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount a Fund owns, either directly or
indirectly, and, in the case where the Fund owns convertible securities,
changes in the conversion premium. In determining the number of shares to be
sold short against a Fund's position in a convertible security, the anticipated
fluctuation in the conversion premium is considered. A Fund may also make
short sales to generate additional income from the investment of the cash
proceeds of short sales.
FUTURES CONTRACTS: ALL FUNDS EXCEPT AIM MONEY MARKET FUND
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 deposited in a segregated account with a
Fund's custodian to collateralize the position and ensure that the use of such
futures contracts is unleveraged. Unlike when a Fund purchases or sells a
security, no price is paid or received by a Fund upon the purchase or sale of a
futures contract. Initially, a Fund will be required to deposit with the
custodian for the Fund 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. This process is known as "marking-to-market." For example, when
a 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
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variation margin payment with respect to that increase in value. Conversely,
where a 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 a Fund has
purchased an interest rate futures contract. At any time prior to expiration
of the futures contract, a 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 a gain.
A Fund may also sell stock index futures contracts and interest rate
futures contracts as a hedge against adverse changes in the market value of its
portfolio securities as described below. A Fund may sell futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of a Fund's securities portfolio that might otherwise result.
A description of the various types of futures contracts utilized by
certain Funds and the identification of those Funds whose investment policies
permit such investments is as follows:
Stock Index Futures Contracts - AIM BALANCED FUND, AIM GLOBAL
UTILITIES FUND, AIM GROWTH FUND and AIM VALUE FUND ("Equity Funds")
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 Standard & Poor'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 an index.
An Equity 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 an Equity Fund intends to purchase. When an Equity
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 an Equity Fund's
portfolio of securities, the Fund may sell stock index futures contracts.
Interest Rate Futures Contracts - AIM BALANCED FUND, AIM GOVERNMENT
SECURITIES FUND, AIM HIGH YIELD FUND, AIM INCOME FUND and AIM MUNICIPAL BOND
FUND ("Debt Funds")
An interest rate futures contract is an agreement between two parties
to buy and sell a debt security for a set price on a future date. Currently,
there are futures contracts based on long-term U.S. Treasury bonds, U.S.
Treasury notes, U.S. Treasury bills, Eurodollars and the Bond Buyer Municipal
Bond Index.
A Debt Fund will only enter into interest rate futures contracts for
the purpose of hedging debt securities in its portfolio or the value of debt
securities which the Fund intends to purchase. For example, if the Debt Fund
owned long-term debt securities and interest rates were expected to increase,
it might sell
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interest rate futures contracts. If, on the other hand, the Debt Fund held
cash reserves and interest rates were expected to decline, the Debt Fund might
purchase interest rate futures contracts.
Foreign Currency Futures Contracts - All Funds (except AIM GOVERNMENT
SECURITIES FUND, AIM MONEY MARKET FUND and AIM MUNICIPAL BOND FUND)
Futures contracts may also be used to hedge the risk of changes in the
exchange rate of foreign currencies.
OPTIONS ON FUTURES CONTRACTS: ALL FUNDS EXCEPT AIM MONEY MARKET FUND
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the option exercise period.
The writer of the option is required upon exercise to assume an offsetting
futures position (a short position if the option is a call and a long position
if the option is a put) at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the assumption of
offsetting futures positions by the writer and holder of the option will be
accompanied by delivery of the accumulated cash balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
If an option on a futures contract is exercised on the last trading date prior
to the expiration date of the option, the settlement will be made entirely in
cash equal to the difference between the exercise price of the option and the
closing price of the futures contract on the expiration date.
A Fund may purchase and sell put and call options on futures contracts
to hedge against adverse changes in the market value of its portfolio
securities. Options on futures contracts may also be used to hedge the risks
of changes in the exchange rate of foreign currencies. Depending on the
pricing of the option compared to either the price of the futures contract upon
which it is based or the price of the underlying securities or currency, it may
or may not be less risky than ownership of the futures contract or underlying
securities or currency.
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS
The use of futures contracts and related options as hedging devices
presents several risks. 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 securities or foreign currency which are the subject
of the hedge. If the price of a hedging instrument moves less than the price
of the stocks, debt securities or foreign currency which are 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 securities or foreign
currency, a Fund will experience either a loss or a gain on the hedging
instrument which will not be completely offset by movements in the price of the
stock, debt securities or foreign currency which are the subject of the hedge.
The use of options on futures contracts involves the additional risk that
changes in the value of the underlying futures contract will not be fully
reflected in the value of the option.
Successful use of hedging instruments by a Fund is also subject to
AIM's ability to predict correctly movements in the direction of the stock
market (Equity Funds), of interest rates (Debt Funds) or of foreign exchange
rates (foreign currencies). Because of possible price distortions in the
futures and options 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.
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It is also possible that where a 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 a Fund's portfolio may decline.
If this occurred, a 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 or options may be closed out only on an
exchange on which such contracts are traded. Although the Funds intend to
purchase or sell futures contracts or purchase options only on exchanges or
boards of trade where there appears to be an active market, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
or purchase an option 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 or related options will be
limited by Internal Revenue Code requirements for qualification as a regulated
investment company and the Funds' intent to continue to qualify as such. The
result of a hedging program cannot be foreseen and may cause a Fund to suffer
losses which it would not otherwise sustain.
DELAYED DELIVERY AGREEMENTS: ALL FUNDS
Delayed delivery agreements involve commitments by a Fund to dealers
or issuers to acquire securities or instruments at a specified future date
beyond the customary same-day settlement for such securities or instruments.
These commitments may fix the payment price and interest rate to be received on
the investment. Delayed delivery agreements will not be used as a speculative
or leverage technique. Rather, from time to time, AIM can anticipate that cash
for investment purposes will result from, among other things, scheduled
maturities of existing portfolio instruments or from net sales of shares of a
Fund. To assure that a Fund will be as fully invested as possible in
instruments meeting the Fund's investment objective, the Fund may enter into
delayed delivery agreements, but only to the extent of anticipated funds
available for investment during a period of not more than five business days.
Until the settlement date, a Fund will segregate high-quality debt securities
of a dollar value sufficient at all times to make payment for the delayed
delivery securities. No more than 25% of a Fund's total assets will be
committed to delayed delivery agreements and when-issued securities, as
described below. The delayed delivery securities, which will not begin to
accrue interest or dividends until the settlement date, will be recorded as an
asset of a Fund and will be subject to the risks of market fluctuation. The
purchase price of the delayed delivery securities is a liability of a Fund
until settlement. Absent extraordinary circumstances, a Fund will not sell or
otherwise transfer the delayed delivery securities prior to settlement. If
cash is not available to a Fund at the time of settlement, the Fund may be
required to dispose of portfolio securities that it would otherwise hold to
maturity in order to meet its obligation to accept delivery under a delayed
delivery agreement. The Board of Trustees has determined that entering into
delayed delivery agreements does not present a materially increased risk of
loss to shareholders, but the Board of Trustees may restrict the use of delayed
delivery agreements if the risk of loss is determined to be material, or if it
affects the stable net asset value of AIM MONEY MARKET FUND.
WHEN-ISSUED SECURITIES: ALL FUNDS
Many new issues of securities are offered on a "when-issued" basis,
that is, the date for delivery of and payment for the securities is not fixed
at the date of purchase, but is set after the securities are issued (normally
within forty-five days after the date of the transaction). The payment
obligation and, if applicable, the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such securities with the intention of
actually acquiring such securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable. No additional
when-issued commitments will be made if as a result more than 25% of
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a Fund's total assets would become committed to purchases of when-issued
securities and delayed delivery agreements.
If a Fund purchases a when-issued security, it will direct its
custodian bank to collateralize the when-issued commitment by segregating
assets in the same fashion as required for a delayed delivery agreement. Such
segregated assets will likewise be marked-to-market, and the amount segregated
will be increased if necessary to maintain adequate coverage of the when-issued
commitments.
Securities purchased on a when-issued basis and the securities held in
a Fund's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and, if applicable,
changes in the level of interest rates. Therefore, if a Fund is to remain
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of
the Fund's assets will fluctuate to a greater degree. Furthermore, when the
time comes for the Fund to meet its obligations under when-issued commitments,
the Fund will do so by using then-available cash flow, by sale of the
segregated assets, by sale of other securities or, although it would not
normally expect to do so, by directing the sale of the when-issued securities
themselves (which may have a market value greater or less than the Fund's
payment obligation).
A sale of securities to meet such obligations carries with it a
greater potential for the realization of net short-term capital gains, which
are not exempt from federal income taxes. The value of when-issued securities
on the settlement date may be more or less than the purchase price.
INVESTMENT RESTRICTIONS
Each Fund is subject to the following restrictions which may not be
changed without approval of the lesser of (i) 67% or more of the Fund's shares
present at a meeting if the holders of more than 50% of the outstanding shares
are present in person or represented by proxy, or (ii) more than 50% of the
Fund's outstanding shares. Any investment restriction that involves a maximum
or minimum percentage of securities or assets shall not be considered to be
violated unless an excess over or a deficiency under the percentage occurs
immediately after, and is caused by, an acquisition or disposition of
securities or utilization of assets by the Fund.
AIM BALANCED FUND
The Fund may not:
1. With respect to 75% of its total assets, purchase the
securities of any issuer if such purchase would cause more than 5% of
the value of its total assets to be invested in the securities of such
issuer (except U.S. Government securities or securities issued by its
agencies and instrumentalities).
2. Concentrate 25% or more of its investments in a
particular industry.
3. Make short sales of securities or maintain a short
position in securities unless at all times when a short position is
open, it owns at least an equal amount of such securities or owns
securities comparable to or exchangeable for at least an equal amount
of such securities.
4. Purchase or sell commodity contracts, except that the Fund
may, as appropriate and consistent with its investment policies and
other investment restrictions, for hedging purposes, write, purchase
or sell options (including puts, calls and combinations thereof),
write covered call options, enter into futures contracts on
securities, securities indices and currencies, options on such
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futures contracts, forward foreign currency exchange contracts,
forward commitments and repurchase agreements.
5. Purchase or sell real estate (except that this restriction
does not preclude investments in companies engaged in real estate
activities or in real estate investment trusts or in securities
secured by real estate).
6. Borrow money or pledge its assets except that the Fund may
enter into reverse repurchase agreements and except, as a temporary
measure for extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow from banks (including the Fund's
custodian bank) amounts of up to 33-1/3% of the value of its total
assets (including the amount of such borrowings) less its liabilities
(excluding the amount of such borrowings) and may pledge amounts of up
to 33-1/3% of its total assets to secure such borrowings. The Fund
will not purchase securities while borrowings in an amount in excess
of 5% of its total assets are outstanding. The Fund may not issue
senior securities, except to the extent permitted by the 1940 Act,
including permitted borrowings.
7. Make loans, except (a) through the purchase of a portion
of an issue of bonds or other obligations of types commonly offered
publicly and purchased by financial institutions, (b) through the
purchase of short- term obligations (maturing within a year),
including repurchase agreements, and (c) the Fund may lend its
portfolio securities, provided that the value of the securities loaned
does not exceed 33-1/3% of the Fund's total assets.
8. Acquire for value the securities of any other investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets and except for the investment
in such securities of funds representing compensation otherwise
payable to its trustees pursuant to any deferred compensation plan
existing at any time between the Trust and its trustees.
AIM GLOBAL UTILITIES FUND
The Fund may not:
1. Purchase the securities of any issuer if such purchase
would cause more than 5% of the value of its assets to be invested in
the securities of such issuer.
2. Purchase the securities of any issuer if such purchase
would cause more than 5% of the voting securities, or more than 10% of
the securities of any class of such issuer, to be held by the Fund.
3. Make short sales of securities or purchase securities on
margin, but it may obtain such short-term credits as are necessary for
the clearance of purchases and sales of securities and may make margin
payments in connection with transactions in financial futures
contracts and options thereon.
4. Act as a securities underwriter.
5. Make loans, except (a) through the purchase of a portion
of an issue of bonds or other obligations of types commonly offered
publicly and purchased by financial institutions, and (b) through the
purchase of short-term obligations (maturing within a year), including
repurchase agreements, and (c) the Fund may lend its portfolio
securities, provided that the value of the securities loaned does not
exceed 33-1/3% of the Fund's total assets.
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<PAGE> 170
6. Borrow money or mortgage, pledge, or hypothecate its
assets, except that the Fund may enter into financial futures
contracts, and except that the Fund may borrow from banks to pay for
redemptions and for temporary purposes in an amount not exceeding
one-third of the value of its total assets (including the amount of
such borrowings) less its liabilities (excluding the amount of such
borrowings) and may secure such borrowings by pledging up to one-third
of the value of its total assets. For the purpose of this
restriction, collateral arrangements with respect to margin for a
financial futures contract are not deemed to be a pledge of assets.
The Fund will not purchase securities while borrowings in an amount in
excess of 5% of its total assets are outstanding.
7. Invest in puts, straddles, spreads or any combination
thereof, except, however, that the Fund may write covered call options
and purchase and sell options on stock index futures contracts and
options on stock indices.
8. Buy or sell commodities or commodity contracts, although
the Fund may purchase and sell financial futures contracts and options
thereon for hedging purposes.
9. Invest in real estate, although the Fund may purchase
securities secured by real estate or interests therein or issued by
issuers which invest in real estate.
10. Acquire for value the securities of any other investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets and except for the investment
in such securities of funds representing compensation otherwise
payable to its trustees pursuant to any deferred compensation plan
existing at any time between the Trust and its trustees.
AIM GOVERNMENT SECURITIES FUND
The Fund may not:
1. Purchase the securities of any issuer if such purchase
would cause more than 5% of the value of its assets to be invested in
the securities of such issuer (except U.S. Government securities,
including securities issued by its agencies and instrumentalities, as
described under "Investment Objectives" in the Prospectus).
2. Purchase the securities of any issuer if such purchase
would cause more than 5% of the voting securities, or more than 10% of
the securities of any class of such issuer, to be held by the Fund
(except U.S. Government securities including securities issued by its
agencies and instrumentalities, as described under "Investment
Objectives" in the Prospectus).
3. Concentrate 25% or more of its investments in a
particular industry.
4. Make short sales of securities or purchase securities on
margin, but it may obtain such short-term credits as are necessary for
the clearance of purchases and sales of securities and may make margin
payments in connection with transactions in financial futures
contracts and options thereon.
5. Act as a securities underwriter.
6. Make loans, except (a) through the purchase of a portion
of an issue of bonds or other obligations of types commonly offered
publicly and purchased by financial institutions, and (b) through the
purchase of short-term obligations (maturing within a year), including
repurchase agreements, and (c) the Fund may lend its portfolio
securities provided that the value of the securities loaned does not
exceed 33-1/3% of the Fund's total assets.
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7. Borrow money or mortgage, pledge, or hypothecate its
assets, except that the Fund may enter into financial futures
contracts, and except that the Fund may borrow from banks to pay for
redemptions and for temporary purposes in an amount not exceeding
one-third of the value of its total assets (including the amount of
such borrowings) less its liabilities (excluding the amount of such
borrowings) and may secure such borrowings by pledging up to one-third
of the value of its total assets. For the purpose of this
restriction, collateral arrangements with respect to margin for a
financial futures contract are not deemed to be a pledge of assets.
The Fund will not purchase securities while borrowings in an amount in
excess of 5% of its total assets are outstanding.
8. Invest in puts, calls, straddles, spreads or any
combination thereof, except, however, that the Fund may purchase and
sell options on financial futures contracts and may sell covered call
options.
9. Buy or sell commodities or commodity contracts, although
the Fund may purchase and sell financial futures contracts and options
thereon.
10. Invest in real estate, although the Fund may purchase
securities secured by real estate or interests therein or issued by
issuers which invest in real estate.
11. Acquire for value the securities of any other investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets and except for the investment
in such securities of funds representing compensation otherwise
payable to its trustees pursuant to any deferred compensation plan
existing at any time between the Trust and its trustees.
AIM GROWTH FUND
The Fund may not:
1. Purchase the securities of any issuer if such purchase
would cause more than 5% of the value of its assets to be invested in
the securities of such issuer (except U.S. Government securities,
including securities issued by its agencies and instrumentalities).
2. Purchase the securities of any issuer if such purchase
would cause more than 5% of the voting securities, or more than 10% of
the securities of any class of such issuer, to be held by the Fund.
3. Concentrate 25% or more of its investments in a
particular industry.
4. Make short sales of securities or purchase securities on
margin, but it may obtain such short-term credits as are necessary for
the clearance of purchases and sales of securities and may make margin
payments in connection with transactions in stock index futures
contracts and options thereon.
5. Act as a securities underwriter.
6. Make loans, except (a) through the purchase of a portion
of an issue of bonds or other obligations of types commonly offered
publicly and purchased by financial institutions, (b) through the
purchase of short-term obligations (maturing within a year), including
repurchase agreements, and (c) the Fund may lend its portfolio
securities, provided that the value of the securities loaned does not
exceed 33-1/3% of the Fund's total assets.
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<PAGE> 172
7. Borrow, except that the Fund may enter into stock index
futures contracts and that the right is reserved to borrow from banks,
provided that no borrowing may exceed one-third of the value of its
total assets (including the amount of such borrowings) less its
liabilities (excluding the amount of such borrowings) and may secure
such borrowings by pledging up to one-third of the value of its total
assets. For the purposes of this restriction, collateral arrangements
with respect to margin for a stock index futures contract are not
deemed to be a pledge of assets. The Fund will not purchase
securities while borrowings in excess of 5% of its total assets are
outstanding.
8. Invest in puts, calls, straddles, spreads or any
combination thereof, except, however, that the Fund may invest in
financial futures and options thereon for hedging purposes and may
sell covered call options.
9. Buy or sell commodities or commodity contracts, although
the Fund may invest in financial futures and options thereon for
hedging purposes.
10. Invest in real estate, although the Fund may purchase
securities secured by real estate or interests therein or issued by
issuers which invest in real estate.
11. Acquire for value the securities of any other investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets and except for the investment
in such securities of funds representing compensation otherwise
payable to its trustees pursuant to any deferred compensation plan
existing at any time between the Trust and its trustees.
AIM HIGH YIELD FUND
The Fund may not:
1. Borrow money or issue senior securities or mortgage,
pledge, or hypothecate its assets, except that the Fund may enter into
financial futures contracts, and borrow from banks to pay for
redemptions and for temporary purposes in an amount not exceeding
one-third of the value of its total assets (including the amount of
such borrowings) less its liabilities (excluding the amount of such
borrowings) and may secure such borrowings by pledging up to one-third
of the value of its total assets. For the purpose of this
restriction, collateral arrangements with respect to margin for a
financial futures contract are not deemed to be a pledge of assets.
Secured temporary borrowings may take the form of reverse repurchase
agreements, pursuant to which the Fund would sell portfolio securities
for cash and simultaneously agree to repurchase them at a specified
date for the same amount of cash plus an interest component. The Fund
will not purchase securities while borrowings in excess of 5% of its
total assets are outstanding.
2. Make short sales of securities or maintain short
positions, unless, at all times when a short position is open, the
Fund owns at least an equal amount of the securities sold short or
owns securities convertible into or exchangeable for at least an equal
amount of such securities sold short, without the payment of further
consideration.
3. Purchase or sell real estate or interests therein, but the
Fund may purchase and sell (a) securities which are secured by real
estate, and (b) the securities of companies which invest or deal in
real estate or interests therein, including real estate investment
trusts.
4. Act as a securities underwriter.
5. Purchase or sell commodities or commodity contracts, other
than financial futures contracts and options thereon.
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6. With respect to 75% of the value of its total assets,
invest more than 5% of the market value of its total assets in the
securities of any one issuer, other than obligations of or guaranteed
by the U.S. Government or any of its agencies or instrumentalities.
7. Concentrate 25% or more of the value of its total assets
in the securities of issuers which conduct their principal business
activities in the same industry. Gas, electric, water and telephone
companies as well as banks, credit institutions, and insurance
companies will be considered to be in separate industries.
8. Make loans, except that the Fund may lend its portfolio
securities provided that the value of the securities loaned does not
exceed 33-1/3% of its total assets, and except that the Fund may enter
into repurchase agreements.
9. Purchase securities on margin, except that the Fund may
obtain such short-term credits as may be necessary for the clearance
of purchases and sales of securities and may make margin payments in
connection with transactions in financial futures contracts and
options thereon.
10. Invest in puts, calls, or any combinations thereof,
except, however, that the Fund may invest in financial futures
contracts, purchase and sell options on financial futures contracts,
may acquire and hold puts which relate to equity securities acquired
by the Fund when such puts are attached to or included in a unit with
such equity securities, and may sell covered call options.
11. Acquire for value the securities of any other investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets and except for the investment
in such securities of funds representing compensation otherwise
payable to its trustees pursuant to any deferred compensation plan
existing at any time between the Trust and its trustees.
AIM INCOME FUND
The Fund may not:
1. Purchase the securities of any issuer if such purchase
would cause more than 5% of the value of its assets to be invested in
the securities of such issuer (except U.S. Government securities,
including securities issued by its agencies and instrumentalities).
2. Purchase the securities of any issuer if such purchase
would cause more than 5% of the voting securities, or more than 10% of
the securities of any class of such issuer, to be held by the Fund.
3. Concentrate 25% or more of its investments in a
particular industry.
4. Make short sales of securities or purchase securities on
margin, but it may obtain such short-term credits as are necessary for
the clearance of purchases and sales of securities and may make margin
payments in connection with transactions in financial futures
contracts and options thereon.
5. Act as a securities underwriter.
6. Make loans, except (a) through the purchase of a portion
of an issue of bonds or other obligations of types commonly offered
publicly and purchased by financial institutions, (b) through the
purchase of short-term obligations (maturing within a year), including
repurchase agreements, and (c) the Fund may lend its portfolio
securities, provided that the value of the securities loaned does not
exceed 33-1/3% of the Fund's total assets.
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7. Borrow, except that the Fund may enter into financial
futures contracts and that the right is reserved to borrow from banks,
provided that no borrowing may exceed one-third of the value of its
total assets (including the amount of such borrowings) less its
liabilities (excluding the amount of such borrowings) and may secure
such borrowings by pledging up to one-third of the value of its total
assets. (For the purposes of this restriction, collateral
arrangements with respect to margin for a financial futures contract
are not deemed to be a pledge of assets.) The Fund will not purchase
securities while borrowings in an amount in excess of 5% of its total
assets are outstanding.
8. Invest in puts, calls, straddles, spreads or any
combination thereof, except, however, that the Fund may purchase and
sell options on financial futures contracts and may sell covered call
options.
9. Buy or sell commodities or commodity contracts, although
the Fund may purchase and sell financial futures contracts and options
thereon.
10. Invest in real estate, although the Fund may purchase
securities secured by real estate or interests therein or issued by
issuers which invest in real estate.
11. Acquire for value the securities of any other investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets and except for the investment
in such securities of funds representing compensation otherwise
payable to its trustees pursuant to any deferred compensation plan
existing at any time between the Trust and its trustees.
12. Invest in securities with unlimited liability except for
assessability allowed by statutes with respect to wages.
AIM MONEY MARKET FUND
The Fund may not:
1. Purchase the securities of any issuer if such purchase
would cause more than 5% of the value of its assets to be invested in
the securities of such issuer, except U.S. Government securities,
including securities issued by its agencies and instrumentalities, and
except to the extent permitted by Rule 2a-7 under the 1940 Act, as
amended from time to time.
2. Concentrate 25% or more of its investments in a particular
industry, provided that this limitation does not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and obligations of domestic banks.
3. Pledge, mortgage or hypothecate more than 33-1/3% of the
total assets of the Fund, except that reverse repurchase agreements
and loans of portfolio securities are not deemed to involve pledging,
mortgaging or hypothecating assets.
4. Purchase securities on margin or make short sales of
securities, except as is necessary for the clearance of purchases and
sales of securities.
5. Underwrite securities (except to the extent that the
purchase of securities either directly from the issuer or from an
underwriter for an issuer and the later disposition of such securities
may be deemed an underwriting).
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6. Make loans, except it may purchase instruments and
securities permitted by the investment objectives and policies, it may
invest in reverse repurchase agreements, and it may loan portfolio
securities in an amount equal to one-third of its total assets.
7. Borrow money or issue senior securities (which term shall
not include delayed delivery and when- issued securities) except as a
temporary measure for extraordinary or emergency purposes and except
that the Fund may enter into reverse repurchase agreements in amounts,
inclusive of all borrowings, up to one-third of the value of the
Fund's total assets (including the amount of such borrowings) less its
liabilities (excluding the amount of such borrowings) at the time it
enters into such agreements. The Fund will not purchase portfolio
securities while borrowings in an amount in excess of 5% of its total
assets are outstanding.
8. Invest in puts or calls or engage in arbitrage
transactions.
9. Buy or sell commodities or commodity futures contracts.
10. Invest in real estate, although the Fund may purchase
securities secured by real estate or interests therein or issued by
issuers which invest in real estate or interests therein.
11. Acquire for value the securities of any other investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets and except for the investment
in such securities of funds representing compensation otherwise
payable to its trustees pursuant to any deferred compensation plan
existing at any time between the Trust and its trustees.
AIM MUNICIPAL BOND FUND
The Fund may not:
1. Invest less than 65% of its total assets in securities
other than municipal bonds.
2. Purchase the securities of any issuer if such purchase
would cause more than 5% of the value of its assets to be invested in
the securities of such issuer (except U.S. Government securities,
including securities issued by its agencies and instrumentalities).
For the purpose of this restriction and that set forth in restriction
3, the Fund will regard each state and each political subdivision,
agency or instrumentality of such state and each multi-state agency of
which such state is a member as a separate issuer.
3. Purchase the securities of any issuer if such purchase
would cause more than 10% of the debt obligations of such issuer to be
held by the Fund.
4. Purchase securities if such purchase would cause, at the
time of purchase, 25% or more of total Fund assets to be invested in
any one industry. Investment in municipal bonds and obligations
issued or guaranteed by the U.S. Government, its agencies, authorities
or instrumentalities does not involve investment in any industry.
5. Make short sales of securities or purchase securities on
margin, but it may obtain such short-term credits as are necessary for
the clearance of purchases and sales of securities and may make margin
payments in connection with transactions in financial futures
contracts and options thereon and municipal bond index futures
contracts.
6. Act as a securities underwriter except to the extent that
it may be deemed to be an underwriter under the Securities Act of 1933
when purchasing or selling a portfolio security.
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7. Make loans, except that it may purchase debt instruments,
including repurchase agreements maturing within seven days, as
permitted by the investment objective and policies of the Fund, and
except that it may lend its portfolio securities provided that the
value of the securities loaned does not exceed 33-1/3% of its total
assets.
8. Borrow, except that the Fund may enter into financial
futures contracts and municipal bond index futures contracts and that
the right is reserved to borrow from banks, provided that no borrowing
may exceed one-third of the value of its total assets (including the
amount of such borrowings) less its liabilities (excluding the amount
of such borrowings) and may secure such borrowings by pledging up to
one-third of the value of its total assets. (For the purposes of this
restriction, collateral arrangements with respect to margin for a
financial or a municipal bond index futures contract are not deemed to
be a pledge of assets.) The Fund will not purchase securities while
borrowings in excess of 5% of its total assets are outstanding.
9. Invest in puts, calls, straddles, spreads or any
combination thereof, except, however, that the Fund may purchase and
sell options on financial futures contracts and may sell covered call
options.
10. Buy or sell commodities or commodity contracts, although
the Fund may purchase and sell financial futures contracts and options
thereon and municipal bond index futures contracts.
11. Invest in real estate, although the Fund may purchase
securities secured by real estate or interests therein or issued by
issuers which invest in real estate.
12. Acquire for value the securities of any other investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets and except for the investment
in such securities of funds representing compensation otherwise
payable to its trustees pursuant to any deferred compensation plan
existing at any time between the Trust and its trustees.
AIM VALUE FUND
The Fund may not:
1. Purchase the securities of any issuer if such purchase
would cause more than 5% of the value of its assets to be invested in
the securities of such issuer (except U.S. Government securities,
including securities issued by its agencies and instrumentalities).
2. Purchase the securities of any issuer if such purchase
would cause more than 5% of the voting securities, or more than 10% of
the securities of any class of such issuer, to be held by the Fund.
3. Concentrate 25% or more of its investments in a
particular industry.
4. Make short sales of securities or purchase securities on
margin, but it may obtain such short-term credits as are necessary for
the clearance of purchases and sales of securities and may make margin
payments in connection with transactions in stock index futures
contracts and options thereon.
5. Act as a securities underwriter.
6. Make loans, except (a) through the purchase of a portion
of an issue of bonds or other obligations of types commonly offered
publicly and purchased by financial institutions, (b) through the
purchase of short-term obligations (maturing within a year), including
repurchase agreements,
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and (c) the Fund may lend its portfolio securities, provided that the
value of the securities loaned does not exceed 33-1/3% of the Fund's
total assets.
7. Borrow, except that the Fund may enter into stock index
futures contracts and that the right is reserved to borrow from banks,
provided that no borrowing may exceed one-third of the value of its
total assets (including the amount of such borrowings) less its
liabilities (excluding the amount of such borrowings) and may secure
such borrowings by pledging up to one-third of the value of its total
assets. (For the purposes of this restriction, collateral
arrangements with respect to margin for a stock index futures contract
are not deemed to be a pledge of assets.) The Fund will not purchase
securities while borrowings in an amount in excess of 5% of its total
assets are outstanding.
8. Invest in puts, calls, straddles, spreads or any
combination thereof, except, however, that the Fund may invest in
financial futures and options thereon for hedging purposes and may
sell covered call options.
9. Buy or sell commodities or commodity contracts, although
the Fund may invest in financial futures and options thereon for
hedging purposes.
10. Invest in real estate, although the Fund may purchase
securities secured by real estate or interests therein or issued by
issuers which invest in real estate.
11. Acquire for value the securities of any other investment
company, except in connection with a merger, consolidation,
reorganization or acquisition of assets and except for the investment
in such securities of funds representing compensation otherwise
payable to its trustees pursuant to any deferred compensation plan
existing at any time between the Trust and its trustees.
In order to permit the sale of the Funds' shares in certain states,
the Funds may from time to time make commitments that are more restrictive than
the restrictions described above. For example, as of the date of this Statement
of Additional Information, (1) each of the Funds has undertaken that it will
not invest more than 15% of its average net assets at the time of purchase in
investments which are not readily marketable (Texas); (2) AIM BALANCED FUND,
AIM GROWTH FUND and AIM VALUE FUND have undertaken that each Fund's investments
in warrants, valued at the lower of cost or market, may not exceed 5% of its
net assets, and that included within that amount (but not to exceed 2% of the
value of net assets) may be warrants which are not listed on the New York or
American stock exchanges (Texas); (3) AIM HIGH YIELD FUND has undertaken that
it will notify shareholders in writing at least 30 days prior to any change in
its investment objective (Arizona, Kentucky and South Dakota); (4) each of the
Funds will comply with California Rule 260.140.85(b) by purchasing and selling
only financial futures contracts, options on financial futures contracts and
municipal bond index futures contracts which are listed on national securities
or commodities exchanges, by limiting the aggregate premiums paid on all such
options held at any one time to less than 20% of each Fund's net assets and by
limiting the aggregate margin deposits required on all such futures contracts
or options thereon to less than 5% of each Fund's total assets; (5) no Fund
will exercise its right to redeem shareholder accounts of less than $500 unless
the account balance falls below $500 as a result of shareholder action and not
as a result of market fluctuation (Texas); (6) AIM BALANCED FUND and AIM VALUE
FUND will comply with Texas Rule 123.2(6), and follow SEC guidelines, that
provide that loans of their portfolio securities will be fully collateralized;
and (7) each of the Funds will comply with Texas Rule 123.2(4) and not issue
shares for any consideration other than cash. These restrictions are not
fundamental and may be changed by the trustees without shareholder approval.
In accordance with the requirements of the Texas State Securities
Board, the Funds will not purchase or sell real estate (including limited
partnership interests) and shall not invest in oil, gas or mineral leases. In
addition, none of the Funds intends to: (1) purchase securities of any company
with a record
28
<PAGE> 178
of less than three years' continuous operation (including that of predecessors)
if such purchase would cause the Fund's aggregate investments in all such
companies taken at cost to exceed 5% of the Fund's total assets taken at market
value; (2) invest for the purpose of influencing management or exercising
control; or (3) purchase or retain the securities of any issuer if those
officers and trustees of the Trust or officers and directors of its investment
advisor who own beneficially more than 1/2 of 1% of the securities of such
issuer together own more than 5% of the securities of such issuer. These
restrictions are not fundamental and may be changed by the trustees without
shareholder approval.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 8, 1995, the trustees and officers of the Trust as a
group owned less than 1% of all classes of outstanding shares of the Trust;
except that the trustees and officers as a group owned 1.03% of the outstanding
Class C shares of AIM MONEY MARKET FUND.
To the best knowledge of the Trust, the names and addresses of the
holders of 5% or more of the outstanding shares of each class of the Trust's
equity securities as of January 31, 1995 and the amount of the outstanding
shares held by such holders are set forth below:
<TABLE>
<CAPTION>
Percent
Owned of
Percent Record
Name and Address Owned of and
Fund of Owner Record* Beneficially
- ---- --------------------- -------- ------------
<S> <C> <C> <C>
AIM Balanced Fund - Merrill Lynch, Pierce, 7.7% -0-%
Class A shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
Class B shares Merrill Lynch, Pierce, 6.0% -0-%
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
AIM Global Utilities Fund - Merrill Lynch, Pierce, 7.0% -0-%
Class B shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
</TABLE>
__________________________________
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
29
<PAGE> 179
<TABLE>
<CAPTION>
Percent
Owned of
Percent Record
Name and Address Owned of and
Fund of Owner Record* Beneficially
- ---- --------------------- -------- ------------
<S> <C> <C> <C>
AIM Government Securities Fund - Merrill Lynch, Pierce, 6.0% -0-%
Class A shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
Class B shares Merrill Lynch, Pierce, 5.2% -0-%
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
AIM Growth Fund - Merrill Lynch, Pierce, 13.0% -0-%
Class B shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
AIM High Yield Fund - Merrill Lynch, Pierce, 5.6% -0-%
Class A shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
Class B shares Merrill Lynch, Pierce, 10.9% -0-%
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
AIM Income Fund - Merrill Lynch, Pierce, 7.2% -0-%
Class B shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
AIM Value Fund - Merrill Lynch, Pierce, 13.4% -0-%
Class A shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
</TABLE>
____________________________
* The Trust has no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
30
<PAGE> 180
<TABLE>
<CAPTION>
Percent
Owned of
Percent Record
Name and Address Owned of and
Fund of Owner Record* Beneficially
- ---- --------------------- -------- ------------
<S> <C> <C> <C>
Class B shares Merrill Lynch, Pierce, 14.9% -0-%
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
</TABLE>
__________________________________
* The Trust has no knowledge as to whether all or any portion of
the shares owned of record only are also owned beneficially.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The trustees and officers of the Trust and their principal occupations
during the last five years are set forth below. Unless otherwise indicated,
the address of each trustee and officer is 11 Greenway Plaza, Suite 1919,
Houston, Texas 77046.
*CHARLES T. BAUER, Trustee 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, Trustee (51)
COMSAT Corporation
6560 Rock Spring Drive
Bethesda, MD 20817
Director, President and Chief Executive Officer, COMSAT Corporation
(includes COMSAT World Systems, COMSAT Mobile Communications, COMSAT Video
Enterprises, COMSAT RSI and COMSAT International Ventures). Previously,
President and Chief Operating Officer, COMSAT Corporation; President, World
Systems Division, COMSAT Corporation; and Chairman, Board of Governors of
INTELSAT; (each of the COMSAT companies listed above is an international
communication, information and entertainment-distribution services company).
__________________________________
* A trustee who is an "interested person" of the Trust and A I M
Advisors, Inc. as defined in the 1940 Act.
31
<PAGE> 181
OWEN DALY II, Trustee (70)
6 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, Trustee (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, Trustee and President (48)
Director, President and Chief Operating Officer, A I M Management Group
Inc.; Director and President, A I M Advisors, Inc.; Director and Executive Vice
President, A I M Distributors, Inc.; Director and Senior Vice President, A I M
Capital Management, Inc., A I M Fund Services, Inc., A I M Global Associates,
Inc., A I M Global Holdings, Inc., AIM Global Ventures Co., A I M Institutional
Fund Services, Inc. and Fund Management Company; and Senior Vice President, AIM
Global Advisors Limited.
JOHN F. KROEGER, Trustee (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, Trustee (52)
6363 Woodway, Suite 825
Houston, TX 77057
Attorney in private practice in Houston, Texas.
__________________________
* A trustee who is an "interested person" of the Trust and
A I M Advisors, Inc. as defined in the 1940 Act.
** A trustee who is an "interested person" of the Trust as defined in the
1940 Act.
32
<PAGE> 182
IAN W. ROBINSON, Trustee (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, Trustee (55)
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 (50)
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 (47)
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., AIM Global Ventures
Co.; Director, A I M Distributors, Inc.; Senior Vice President, AIM Global
Advisors Limited.
***CAROL F. RELIHAN, Vice President and Secretary (40)
Vice President, General Counsel and Secretary, A I M Management Group
Inc., A I M Advisors, Inc., A I M Fund Services, Inc., A I M Institutional
Fund Services, Inc. and Fund Management Company; Vice President and
Secretary, A I M Distributors, Inc., 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.; and Secretary, A I M Capital
Management, 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.
_______________________
*** Mr. Arthur and Ms. Relihan are married.
33
<PAGE> 183
ROBERT G. ALLEY, Vice President (46)
Senior Vice President, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc. Formerly, Senior Fixed Income Money Manager,
Waddell and Reed, Inc.
STUART W. COCO, Vice President (39)
Senior Vice President, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
MELVILLE B. COX, Vice President (51)
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.
KAREN DUNN KELLEY, Vice President (34)
Director, A I M Global Management Company Limited; Senior Vice
President, A I M Capital Management, Inc. and AIM Global Advisors Limited;
and Vice President, A I M Advisors, Inc. and AIM Global Ventures Co.
JONATHAN C. SCHOOLAR, Vice President (33)
Director and Senior Vice President, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
The standing committees of the Board of Trustees 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 Funds' auditors to review audit procedures and results and to
consider any matters arising from an audit to be brought to the attention of
the trustees as a whole with respect to the Funds' fund accounting or its
internal accounting controls, and for considering such matters as may from time
to time be set forth in a charter adopted by the Board of Trustees and such
committee.
The members of the Investments Committee are Messrs. Bauer, Crockett,
Daly (Chairman), Kroeger and Pennock. The Investments 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 Trustees 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 trustees who are not interested persons as
long as the Trust maintains a distribution plan pursuant to Rule 12b-1 under
the 1940 Act, reviewing from time to time the compensation payable to the
disinterested trustees, and considering such matters as may from time to time
be set forth in a charter adopted by the Board of Trustees and such committee.
34
<PAGE> 184
Remuneration of Trustees
Each trustee is reimbursed for expenses incurred in connection with
each meeting of the Board of Trustees or any Committee attended. The Trustees
of the Trust who do not serve as officers of the Trust 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 trustee 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
during the fiscal year ended December 31, 1994 for each trustee of the Trust:
<TABLE>
<CAPTION>
============================================================================================
RETIREMENT
BENEFITS TOTAL
AGGREGATE ACCRUED COMPENSATION
COMPENSATION BY ALL AIM FROM ALL AIM
Trustee FROM TRUST(1) FUNDS(2) FUNDS(3)
------- ------------- -------- --------
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------------------
Bruce L. Crockett 9,063.56 2,814.00 45,093.75
- --------------------------------------------------------------------------------------------
Owen Daly II 9,033.43 14,375.00 45,843.75
- --------------------------------------------------------------------------------------------
Carl Frischling 9,064.64 7,542.00 45,093.75(4)
- --------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- --------------------------------------------------------------------------------------------
John F. Kroeger 9,033.32 20,517.00 45,843.75
- --------------------------------------------------------------------------------------------
Lewis F. Pennock 9,032.72 5,093.00 45,843.75
- --------------------------------------------------------------------------------------------
Ian W. Robinson 9,070.20 10,396.00 45,093.75
- --------------------------------------------------------------------------------------------
Louis S. Sklar 9,064.63 4,682.00 45,093.75
============================================================================================
</TABLE>
__________________________________
(1) The total amount of compensation deferred by all Trustees of the Trust
during the fiscal year ended December 31, 1994, including amounts
earned thereon, was $39,291.39.
(2) During the fiscal year ended December 31, 1994, the total amount of
expenses allocated to the Trust in respect of such retirement
benefits was $9,211.17.
(3) Messrs. Bauer, Daly, Graham, Kroeger and Pennock each serves as a
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. The information reflects compensation
earned for the calendar year ended December 31, 1994.
(4) See also page 37 regarding fees earned by Mr. Frischling's former law
firm.
35
<PAGE> 185
AIM Funds Retirement Plan for Eligible Directors/Trustees
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each trustee (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 Trustees.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible trustee has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "AIM
Funds"). Each eligible trustee 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 5% of such Trustee's
compensation paid by the AIM Funds multiplied by the number of such Trustee'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 trustee in
quarterly installments for a period of no more than five years. If an eligible
trustee dies after attaining the normal retirement date but before receipt of
any benefits under the Plan commences, the trustee's surviving spouse (if any)
shall receive a quarterly survivor's benefit equal to 50% of the amount payable
to the deceased trustee, for no more than five years beginning the first day of
the calendar quarter following the date of the trustee'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 trustee upon retirement assuming various compensation
and years of service classifications. The estimated credited years of service
(as of December 31, 1994) for Messrs. Crockett, Daly, Frischling, Kroeger,
Pennock, Robinson and Sklar are 7, 8, 17, 17, 13, 7 and 5 years, respectively.
<TABLE>
<CAPTION>
Annual Compensation Paid By All AIM Funds
$40,000 $45,000 $50,000 $55,000
==============================================================================
<S> <C> <C> <C> <C> <C>
Number of 10 $20,000 $22,500 $25,000 $27,500
Years of ------------------------------------------------------------------------------
Service With 9 $18,000 $20,250 $22,500 $24,750
AIM Funds ------------------------------------------------------------------------------
8 $16,000 $18,000 $20,000 $22,000
------------------------------------------------------------------------------
7 $14,000 $15,750 $17,500 $19,250
------------------------------------------------------------------------------
6 $12,000 $13,500 $15,000 $16,500
------------------------------------------------------------------------------
5 $10,000 $11,250 $12,500 $13,750
==============================================================================
</TABLE>
Deferred Compensation Agreements
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring trustees") have each executed a Deferred
Compensation Agreement (collectively, the "Compensation Agreements"). Pursuant
to the Agreements, the deferring trustees may elect to defer receipt of up to
100% of their compensation payable by the Trust, and such amounts are placed
into a deferral account. Currently, the deferring trustees may select various
AIM Funds in which all or part of his deferral account shall be deemed to be
invested. Distributions from the deferring trustees' deferral accounts will be
paid in cash, in generally equal quarterly installments over a period of five
years beginning on the date the deferring trustee's retirement benefits
commence under the Plan. The Trust's Board of Trustees, in its sole
discretion, may accelerate or extend the distribution of such deferral accounts
after the deferring trustee's termination of service as a trustee of the Trust.
If a deferring trustee 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 trustee's
36
<PAGE> 186
death. The Compensation Agreements are not funded and, with respect to the
payments of amounts held in the deferral accounts, the deferring trustees have
the status of unsecured creditors of the Trust and of each other AIM Fund from
which they are deferring compensation.
AIM and the Trust have adopted a 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 of Ethics also prohibits investment
personnel from purchasing securities in an initial public offering. Personal
trading reports are reviewed periodically by AIM, and the Board of Trustees
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.
During the year ended December 31, 1994, AIM BALANCED FUND, AIM GLOBAL
UTILITIES FUND, AIM GOVERNMENT SECURITIES FUND, AIM GROWTH FUND, AIM HIGH YIELD
FUND, AIM INCOME FUND, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND FUND and AIM
VALUE FUND each paid $3,018, $1,638, $3,146, $3,301, $1,665, $1,140, $4,238,
$1,016, and $2,858, respectively, in legal fees to Reid & Priest, the law firm
in which Mr. Frischling, a trustee of the Trust, is a partner, as counsel to
the Board of Trustees. Effective September 1994, Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel was appointed as counsel to the Board of Trustees. A
member of the Funds' new counsel is also a Trustee. Each of these funds paid
the following legal fees to Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
for services rendered: AIM BALANCED FUND, AIM GLOBAL UTILITIES FUND, AIM
GOVERNMENT SECURITIES FUND, AIM GROWTH FUND, AIM HIGH YIELD FUND, AIM INCOME
FUND, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND FUND and AIM VALUE FUND paid
$194, $239, $223, $227, $389, $233, $303, $259, and $658, respectively.
INVESTMENT ADVISORY AND OTHER SERVICES
The Trust, on behalf of each Fund, has entered into a Master
Investment Advisory Agreement and a Master Administrative Services Agreement
with AIM. With respect to AIM HIGH YIELD FUND, the Trust and AIM have entered
into a Sub-Advisory Agreement with CII, which formerly served as investment
advisor to certain of the Funds.
Each of the Master Investment Advisory Agreement and the Sub-Advisory
Agreement provides that it will continue in effect from year to year only if
such continuance is specifically approved at least annually by the Trust's
Board of Trustees and by the affirmative vote of a majority of the trustees who
are not parties to the agreement or "interested persons" of any such party (the
"Qualified Trustees") by votes cast in person at a meeting called for such
purpose. The Master Investment Advisory Agreement and the Sub-Advisory
Agreement were initially approved by the Trust's Board of Trustees (including
the affirmative vote of all the Qualified Trustees) on July 19, 1993. Both the
Master Investment Advisory Agreement and the Sub-Advisory Agreement were
approved by the applicable Funds' initial shareholder on August 6, 1993. The
agreements became effective as of October 18, 1993. Each agreement provides
that any of the parties thereto may terminate such agreement on 60 days'
written notice without penalty. Each agreement terminates automatically in the
event of its assignment.
AIM is a direct, wholly-owned subsidiary of A I M Management Group
Inc. ("AIM Management"), and is the sole shareholder of the Funds' principal
underwriter, A I M Distributors, Inc. ("AIM Distributors").
Subject to the control and periodic review of the Board of Trustees,
AIM determines what investments shall be purchased, held, sold or exchanged for
the account of the Funds and what portion, if any, of the assets of the Funds
shall be held in cash and other temporary investments. Accordingly, the
37
<PAGE> 187
role of the trustees is not to approve specific investments, but rather to
exercise a control and review function.
For its services as sub-advisor to AIM HIGH YIELD FUND, CII assists
AIM in providing a continuous investment management program for that Fund,
including the provision of investment research and advice with respect to
securities purchased, sold or held by the Fund and the placement of orders for
the purchase or sale of portfolio securities on behalf of the Fund.
Pursuant to the Master Investment Advisory Agreement, AIM receives a
fee from each of AIM GOVERNMENT SECURITIES FUND, AIM INCOME FUND and AIM
MUNICIPAL BOND FUND calculated at the following annual rates, based on the
average daily net assets of the Fund during the year:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $200 million 0.50%
Next $300 million 0.40%
Next $500 million 0.35%
Amount over $1 billion 0.30%
</TABLE>
Pursuant to the Master Investment Advisory Agreement, AIM receives a fee
from AIM MONEY MARKET FUND calculated at the following annual rates, based on
the average daily net assets of the Fund during the year:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $1 billion 0.55%
Amount over $1 billion 0.50%
</TABLE>
Pursuant to the Master Investment Advisory Agreement, AIM receives a fee
from AIM BALANCED FUND calculated at the following annual rates, based on the
average daily net assets of the Fund during the year:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $150 million 0.75%
Amount over $150 million 0.50%
</TABLE>
Pursuant to the Master Investment Advisory Agreement, AIM receives a fee
from AIM HIGH YIELD FUND calculated at the following annual rates, based on the
average daily net assets of the Fund during the year:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $200 million 0.625%
Next $300 million 0.550%
Next $500 million 0.500%
Amount over $1 billion 0.450%
</TABLE>
38
<PAGE> 188
As compensation for its services as sub-advisor to AIM HIGH YIELD FUND,
CII receives an annual fee from AIM, payable monthly, based upon the following
annual rates, based on the average daily net assets of the Fund during the year
(provided, however, that the minimum annual fee shall be $280,000):
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $300 million 0.15%
Over $300 million 0.10%
</TABLE>
Pursuant to the Master Investment Advisory Agreement, AIM receives a fee
from AIM GROWTH FUND and AIM VALUE FUND calculated at the following annual
rates, based on the average net assets of the Fund during the year:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $150 million 0.80%
Amount over $150 million 0.625%
</TABLE>
Pursuant to the Master Investment Advisory Agreement, AIM receives
a fee from AIM GLOBAL UTILITIES FUND calculated at the following annual rates,
based on the average daily net assets of the Fund during the year:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL RATE
---------- -----------
<S> <C>
First $200 million 0.60%
Next $300 million 0.50%
Next $500 million 0.40%
Amount over $1 billion 0.30%
</TABLE>
The Master Investment Advisory Agreement provides that if, for any
fiscal year, the total of all ordinary business expenses of each Fund,
including all investment advisory fees, but excluding brokerage commissions and
fees, taxes, interest and extraordinary expenses, such as litigation costs,
exceed the applicable expense limitations imposed by state securities
regulations in any state in which the 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 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 fee otherwise payable to AIM during such
fiscal year. If required pursuant to such state securities regulations, AIM
will reimburse the 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).
Each Fund (other than AIM BALANCED FUND) paid to AIM the following
management fees net of any expense limitations for the years ended December 31,
1994 and 1993, and for the six-month period ended December 31, 1992:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
AIM Global Utilities Fund . . . . . . $1,226,429 $ 961,659 $318,467
AIM Government Securities Fund . . . . 734,086 686,539 305,031
AIM Growth Fund . . . . . . . . . . . 1,012,632 918,416 498,976
AIM High Yield Fund . . . . . . . . . 3,881,526 2,574,933 906,421
</TABLE>
39
<PAGE> 189
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
AIM Income Fund . . . . . . . . . . . 1,110,855 1,157,555 554,086
AIM Money Market Fund . . . . . . . . 2,057,756 214,124* N/A
AIM Municipal Bond Fund . . . . . . . 1,327,611 1,348,764 647,661
AIM Value Fund . . . . . . . . . . . . 6,674,684 2,570,113 586,747
</TABLE>
* Fee paid by AIM MONEY MARKET FUND was for period October 16,
1993 through December 31, 1993.
For the years ended December 31, 1994 and 1993, and for the six-month
period ended December 31, 1992, AIM paid CII, as sub-advisor to AIM HIGH YIELD
FUND, a sub-advisory fee of $846,305, $590,897 and $226,613, respectively.
AIM BALANCED FUND (formerly ACS) paid to AIM management fees net of
any expense limitations for the year ended December 31, 1994, in the amount of
$137,235, the four-month period ended December 31, 1993 in the amount of
$54,454, and for the years ended August 31, 1993 and 1992 in the amounts of
$112,306 and $88,578, respectively.
Each Fund formerly advised by CII paid to CII a management fee net of
the expense limitation for the six-month period ended June 30, 1992 as follows:
<TABLE>
<CAPTION>
FUND 1992
---- ----
<S> <C>
AIM Global Utilities Fund . . . . . . $273,345
AIM Government Securities Fund . . . . 278,428
AIM Growth Fund . . . . . . . . . . . 523,836
AIM High Yield Fund . . . . . . . . . 837,548
AIM Income Fund . . . . . . . . . . . 543,203
AIM Municipal Bond Fund . . . . . . . 634,403
AIM Value Fund . . . . . . . . . . . . 509,282
</TABLE>
The Trust pays all expenses not specifically assumed by AIM or AIM
Distributors including compensation and expenses of trustees who are not
directors, officers or employees of AIM, AIM Distributors or any other
affiliates of AIM Management; registration, filing and other fees in connection
with filings with regulatory authorities; the fees and expenses of independent
accountants; costs of printing and mailing registration statements,
prospectuses, proxy statements, and annual and periodic reports to
shareholders; custodian and transfer agent fees; brokerage commissions and
securities transactions costs incurred by the Funds; taxes and corporate fees;
legal fees incurred in connection with the affairs of the Funds; and expenses
of meetings of shareholders and trustees.
AIM, at its own expense, furnishes to the Trust office space and
facilities. AIM furnishes to the Trust all personnel for managing the affairs
of the Trust and each of its series of shares and is reimbursed under the
Master Administrative Services Agreement for the services of a principal
financial officer of the Trust and his staff. The Master Administrative
Services Agreement between the Trust and AIM provides that AIM may perform or
arrange for the provision of certain accounting, shareholder service and other
administrative services to each Fund which are not required to be performed by
AIM under the Master Investment Advisory Agreement. The Master Administrative
Services Agreement provides that such agreement will continue in effect from
year to year only if such continuance is specifically approved at least
annually by the Trust's Board of Trustees, including the Qualified Trustees, by
votes cast in person at a meeting called for such purpose. The Master
Administrative Services Agreement was initially approved by the Trust's Board
of Trustees (including the Qualified Trustees) on July 19, 1993, and became
effective as of October 18, 1993.
40
<PAGE> 190
The Funds (other than AIM BALANCED FUND) paid AIM the following amounts,
which represented the indicated annualized percentage of average net assets for
such period, as reimbursement of administrative services costs for the years
ended December 31, 1994 and 1993, and for the six-month period ended December
31, 1992.
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AVERAGE AVERAGE AVERAGE
AMOUNT PAID NET ASSETS AMOUNT PAID NET ASSETS AMOUNT PAID NET ASSETS
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
AIM Global Utilities Fund . . . . $171,972 .08% $ 91,549 .06% $18,765 .04%
AIM Government Securities Fund . 92,487 .06% 59,584 .04% 11,856 .02%
AIM Growth Fund . . . . . . . . . 134,789 .09% 97,029 .06% 19,307 .02%
AIM High Yield Fund . . . . . . . 313,218 .04% 172,279 .04% 40,607 .03%
AIM Income Fund . . . . . . . . . 154,517 .07% 86,396 .04% 25,107 .02%
AIM Money Market Fund* . . . . . $209,642 .05% $ 39,325 .06% N/A N/A
AIM Municipal Bond Fund . . . . . 103,945 .04% 65,114 .02% $28,800 .02%
AIM Value Fund . . . . . . . . . 884,123 .06% 220,898 .05% 20,202 .02%
</TABLE>
_________________________
* Amount paid by AIM MONEY MARKET FUND was for period October 16, 1993
through December 31, 1993.
For the six-month period ended June 30, 1992, the reimbursed costs for
the Office of the Treasurer and the Office of the Secretary, payable to CII
pursuant to the master investment advisory agreement previously in effect, were
as follows:
<TABLE>
<CAPTION>
OFFICE OF OFFICE OF
THE TREASURER THE SECRETARY
-------------- -------------
<S> <C> <C>
AIM Global Utilities Fund . . . . . . . $18,098 $ 4,734
AIM Government Securities Fund . . . . . 20,983 5,099
AIM Growth Fund . . . . . . . . . . . . 31,877 8,342
AIM High Yield Fund . . . . . . . . . . 42,754 11,201
AIM Income Fund . . . . . . . . . . . . 38,763 10,127
AIM Municipal Bond Fund . . . . . . . . 44,856 11,717
AIM Value Fund . . . . . . . . . . . . . 26,847 7,055
</TABLE>
AIM BALANCED FUND (formerly ACS) reimbursed AIM for administrative
services costs incurred by AIM, for the year ended December 31, 1994 in the
amount of $81,734, which represented 0.18% of the Fund's average net assets;
for the four-month period ended December 31, 1993 in the amount of $14,083,
which represented .19% of the Fund's average net assets; and for the years
ended August 31, 1993 and 1992 in the amounts of $36,641 and $38,164,
respectively, which represented .24% and .32%, respectively, of the Fund's
average net assets.
THE DISTRIBUTION PLANS
THE CLASS A AND CLASS C PLAN. The Trust has adopted a Master
Distribution Plan pursuant to Rule 12b-1 under the 1940 Act relating to the
Class A shares of the Funds and the Class C shares of AIM MONEY MARKET FUND
(collectively, the "Covered Classes"). Such plan (the "Class A and Class C
Plan") provides that each Covered Class pays 0.25% per annum of its average
daily net assets as compensation to AIM Distributors for the purpose of
financing any activity which is primarily intended to result in the sale of
shares of the Covered Class. Activities appropriate for financing under the
Class A and Class C Plan include, but are not limited to, the following:
printing of prospectuses and statements of additional information and reports
for other than existing shareholders; overhead; preparation and distribution of
advertising material and sales literature; expenses of organizing and
conducting sales seminars;
41
<PAGE> 191
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements; and costs of administering the Class A and Class C Plan.
THE CLASS B PLAN. The Trust has also adopted a Master Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares of
the Funds (the "Class B Plan", and collectively with the Class A and Class C
Plan, the "Plans"). Under the Class B Plan, each Fund pays compensation to AIM
Distributors at an annual rate of 1.00% of the average daily net assets
attributable to Class B shares. Of such amount, each Fund pays a service fee of
0.25% of the average daily net assets attributable to Class B shares to
selected dealers and other institutions which furnish continuing personal
shareholder services to their customers who purchase and own Class B shares.
Amounts paid in accordance with the Class B Plan may be used to finance any
activity primarily intended to result in the sale of Class B shares, including
but not limited to printing of prospectuses and statements of additional
information and reports for other than existing shareholders; overhead;
preparation and distribution of advertising material and sales literature;
expenses of organizing and conducting sales seminars; supplemental payments to
dealers and other institutions such as asset-based sales charges or as payments
of service fees under shareholder service arrangements; and costs of
administering the Class B Plan. AIM Distributors may transfer and sell its
rights to payments under the Class B Plan in order to finance distribution
expenditures in respect of Class B shares.
BOTH PLANS. Pursuant to an incentive program, AIM Distributors may
enter into agreements ("Shareholder Service Agreements") with investment
dealers selected from time to time by AIM Distributors for the provision of
distribution assistance in connection with the sale of the Funds' shares to
such dealers' customers, and for the provision of continuing personal
shareholder services to customers who may from time to time directly or
beneficially own shares of the Funds. The distribution assistance and
continuing 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 Funds; 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 Funds' shares;
assisting in the establishment and maintenance of customer accounts and records
and in the processing of purchase and redemption transactions; investing
dividends and any capital gains distributions automatically in the Funds'
shares; and providing such other information and services as the Funds or the
customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding a Fund and
the Trust; performing sub-accounting; establishing and maintaining shareholder
accounts and records; processing customer purchase and redemption transactions;
providing periodic statements showing a shareholder's account balance and the
integration of such statements with those of other transactions and balances in
the shareholder's other accounts serviced by the bank; forwarding applicable
prospectuses, proxy statements, reports and notices to bank clients who hold
Fund shares; and such other administrative services as a Fund reasonably may
request, to the extent permitted by applicable statute, rule or regulation.
Similar agreements may be permitted under the Plans for institutions which
provide recordkeeping for and administrative services to 401(k) plans.
Financial intermediaries and any other person entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another.
42
<PAGE> 192
Under a Shareholder Service Agreement, a 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 will be calculated at the end of each payment period for each
business day of the Funds during such period at the annual rate of 0.25% of the
average daily net asset value of the Funds' 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 such Fund's shares are held.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the National Association of Securities Dealers,
Inc. ("NASD"). The Plans conform to rules of the NASD by limiting payments
made to dealers and other financial institutions who provide continuing
personal shareholder services to their customers who purchase and own shares of
the Funds to no more than 0.25% per annum of the average daily net assets of
the funds attributable to the customers of such dealers or financial
institutions, and by imposing a cap on the total sales charges, including asset
based sales charges, that may be paid by the Funds and their respective
classes.
AIM Distributors does not act as principal, but rather as agent for
the Funds, in making dealer incentive and shareholder servicing payments under
the Plans. These payments are an obligation of the Funds and not of AIM
Distributors.
For the year ended December 31, 1994, the various classes of the Funds
(other than AIM MONEY MARKET FUND) paid to AIM Distributors the following
amounts pursuant to the Plans:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
<S> <C> <C>
AIM Balanced Fund . . . . . . . . . . . . . . . . . . . . $ 79,663 $ 127,368
AIM Global Utilities Fund . . . . . . . . . . . . . . . . 422,862 361,395
AIM Government Securities Fund . . . . . . . . . . . . . 327,060 159,848
AIM Growth Fund . . . . . . . . . . . . . . . . . . . . . 327,254 247,715
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . 1,446,888 1,173,408
AIM Income Fund . . . . . . . . . . . . . . . . . . . . . 547,787 85,988
AIM Municipal Bond Fund . . . . . . . . . . . . . . . . . 690,578 56,949
AIM Value Fund . . . . . . . . . . . . . . . . . . . . . 2,712,116 3,596,079
</TABLE>
The amounts for the Class A shares were spent as follows:
<TABLE>
<CAPTION>
PRINTING AND SHAREHOLDER SERVICE
ADVERTISING MAILING AGREEMENTS
----------- ------------- ------------
<S> <C> <C> <C>
AIM Balanced Fund . . . . . . . . . . . . . . . . . . $ 2,474 $22,269 $ 54,920
AIM Global Utilities Fund . . . . . . . . . . . . . . 2,795 11,915 408,152
AIM Government Securities Fund . . . . . . . . . . . 2,184 9,950 314,926
AIM Growth Fund . . . . . . . . . . . . . . . . . . . 1,617 6,085 319,552
AIM High Yield Fund . . . . . . . . . . . . . . . . . 22,677 58,312 1,365,899
AIM Income Fund . . . . . . . . . . . . . . . . . . . 1,937 7,288 538,562
AIM Municipal Bond Fund . . . . . . . . . . . . . . . 2,966 10,514 677,098
AIM Value Fund . . . . . . . . . . . . . . . . . . . 30,063 90,189 2,591,864
</TABLE>
43
<PAGE> 193
The amounts for the Class B shares were spent as follows:
<TABLE>
<CAPTION>
SALES SHAREHOLDER SERVICE
COMMISSIONS AGREEMENTS
------------- ------------
<S> <C> <C>
AIM Balanced Fund . . . . . . . . . . . . . . . . . . . . . . . $ 95,526 $ 31,842
AIM Global Utilities Fund . . . . . . . . . . . . . . . . . . . 271,046 90,349
AIM Government Securities Fund . . . . . . . . . . . . . . . . 119,886 39,962
AIM Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . 185,786 61,929
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . . . . 880,056 293,352
AIM Income Fund . . . . . . . . . . . . . . . . . . . . . . . . 64,491 21,497
AIM Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . 42,712 14,237
AIM Value Fund . . . . . . . . . . . . . . . . . . . . . . . . 2,697,059 899,020
</TABLE>
For the year ended December 31, 1994, the Class A shares of AIM MONEY
MARKET FUND paid $227,607 to AIM Distributors pursuant to the Class A and Class
C Plan, of which $11,193 was spent on advertising, $24,186 was spent on
printing and mailing and $241,508 was spent pursuant to Shareholder Service
Agreements. For the year ended December 31, 1994, the Class B shares of AIM
MONEY MARKET FUND paid $191,213 to AIM Distributors pursuant to the Class B
Plan, of which $143,410 was spent on sales commissions and $47,803 was spent
pursuant to Shareholder Service Agreements. For the year ended December 31,
1994, the Class C shares of AIM MONEY MARKET FUND paid $785,906 to AIM
Distributors pursuant to the Class A and Class C Plan, of which $56,740 was
spent on advertising, $88,746 was spent on printing and mailing and $640,420
was spent pursuant to Shareholder Service Agreements.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board of Trustees, including a majority
of the trustees who are not "interested persons" (as defined in the 1940 Act)
of the Trust and who have no direct or indirect financial interest in the
operation of the Plans or in any agreements related to the Plans (the
"Independent Trustees"). In approving the Plans in accordance with the
requirements of Rule 12b-1, the trustees considered various factors and
determined that there is a reasonable likelihood that the Plans would benefit
each class of the Funds and its respective shareholders.
The Plans do not obligate the Funds to reimburse AIM Distributors for
the actual expenses AIM Distributors may incur in fulfilling its obligations
under the Plans. Thus, even if AIM Distributors' actual expenses exceed the
fee payable to AIM Distributors thereunder at any given time, the Funds will
not be obligated to pay more than that fee. If AIM Distributors' expenses are
less than the fee it receives, AIM Distributors will retain the full amount of
the fee.
The Plans require AIM Distributors to provide the Board of Trustees at
least quarterly with a written report of the amounts expended pursuant to the
Plans and the purposes for which such expenditures were made. The Board of
Trustees reviews these reports in connection with their decisions with respect
to the Plans.
Unless terminated earlier in accordance with their terms, the Plans
continue in effect until June 30, 1995 and thereafter, as long as such
continuance is specifically approved at least annually by the Board of
Trustees, including a majority of the Independent Trustees.
The Plans may be terminated by the vote of a majority of the
Independent Trustees, or, with respect to a particular class, by the vote of a
majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the
distribution expenses paid by the applicable class requires shareholder
approval; otherwise, it may be amended by the trustees, including a majority of
the Independent Trustees, by votes cast in person at a meeting called for the
purpose of
44
<PAGE> 194
voting upon such amendment. As long as the Plans are in effect, the selection
or nomination of the Independent Trustees is committed to the discretion of the
Independent Trustees.
The principal differences between the Class A and Class C Plan and the
Class B Plan are: The Class A and Class C Plan allows payment to AIM
Distributors or to dealers or financial institutions of up to 0.25% of average
daily net assets of each Fund's Class A and Class C shares as compared to 1.00%
of such assets of each Fund's Class B shares; (ii) the Class B Plan obligates
Class B shares to continue to make payments to AIM Distributors following
termination of the Class B shares Distribution Agreement with respect to Class
B shares sold by or attributable to the distribution efforts of AIM
Distributors unless there has been a complete termination of the Class B Plan
(as defined in such Plan); and (iii) the Class B Plan expressly authorizes AIM
Distributors to assign, transfer or pledge its rights to payments pursuant to
the Class B Plan.
THE DISTRIBUTOR
Information concerning AIM Distributors and the continuous offering of
the Funds' shares is set forth in the Prospectus under the headings "How to
Purchase Shares" and "Terms and Conditions of Purchase of the AIM Funds." A
Master Distribution Agreement with AIM Distributors relating to the Class A
shares of the Funds and the Class C shares of AIM MONEY MARKET FUND was
approved by the Board of Trustees on July 19, 1993. A Master Distribution
Agreement with AIM Distributors relating to the Class B shares of the Funds was
also approved by the Board of Trustees on July 19, 1993. Both such Master
Distribution Agreements are hereinafter collectively referred to as the
"Distribution Agreements."
The Distribution Agreements provide that AIM Distributors will bear
the expenses of printing from the final proof and distributing the Funds'
prospectuses and statements of additional information relating to public
offerings made by AIM Distributors pursuant to the Distribution Agreements
(other than those prospectuses and statements of additional information
distributed to existing shareholders of the Funds), 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 Funds' shares, including
expenses of advertising in connection with such public offerings. AIM
Distributors has not undertaken to sell any specified number of shares of any
classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B shares of the Funds at
the time of such sales. Payments with respect to Class B shares will equal
4.0% of the purchase price of the Class B shares sold by the dealer or
institution, and will consist of a sales commission equal to 3.75% of the
purchase price of the Class B shares sold plus an advance of the first year
service fee os 0.25% with respect to such shares. The portions of the payments
to AIM Distributors under the Class B Plan which constitutes an asset-based
sales charge (0.75%) is intended in part to permit AIM Distributors to recoup a
portion of such sales commissions plus financing costs. AIM Distributors
anticipates that it requires a number of years to recoup from Class B Plan
payments the sales commissions paid to dealers and institutions in connection
with sales of Class B shares. In the future, if multiple distributors serve a
Fund, each such distributor (or its assignee or transferee) would receive a
share of the payments under the Class B Plan based on the portion of the Fund's
Class B shares sold by or attributable to the distribution efforts of that
distributor.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on sixty (60) days' written notice
without penalty. The Distribution Agreements will terminate automatically in
the event of their assignment. In the event the Class B shares Distribution
Agreement is terminated, AIM Distributors would continue to receive payments of
asset based distribution fees in respect of the outstanding Class B shares
attributable to the distribution efforts of AIM Distributors; provided,
however, that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all
45
<PAGE> 195
payments to AIM Distributors. Termination of the Class B Plan or Distribution
Agreement does not affect the obligation of the Fund and its Class B
shareholders to pay Contingent Deferred Sales Charges.
The following chart reflects the total sales charges paid in
connection with the sale of Class A shares of each Fund (other than AIM
BALANCED FUND) and the amount retained by AIM Distributors for the years ended
December 31, 1994 and 1993 and for the six-month period ended December 31,
1992:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
AIM Global Utilities Fund . . . . $ 1,198,533 $ 168,696 $ 3,474,558 $ 477,431 $ 419,870 $72,184
AIM Government Securities Fund . 644,604 108,048 904,645 156,795 357,101 67,273
AIM Growth Fund . . . . . . . . . 255,624 37,866 183,096 29,279 67,059 11,316
AIM High Yield Fund . . . . . . . 5,149,515 808,554 6,526,992 1,062,165 1,378,476 54,266
AIM Income Fund . . . . . . . . . 554,349 94,637 770,766 134,790 214,074 38,272
AIM Money Market Fund . . . . . . 996,876 182,129 78,035 14,644 N/A N/A
AIM Municipal Bond Fund . . . . . 527,008 82,774 710,819 124,164 173,597 30,536
AIM Value Fund . . . . . . . . . 22,815,744 3,063,899 14,439,158 2,057,628 1,569,988 58,126
</TABLE>
The total sales charges paid in connection with the sale of Class A
shares of AIM BALANCED FUND for the year ended December 31, 1994 was $379,087,
of which A I M Distributors retained $63,481, and for the four-month period
ended December 31, 1993 was $85,265, of which AIM Distributors retained
$14,333. For the years ended August 31, 1993 and 1992, the total sales charges
paid in connection with the sale of shares of ACS were $96,742 and $78,909,
respectively; and the amounts AIM Distributors retained for the same periods
were $19,211 and $14,912, respectively.
The following chart reflects the total sales charges paid in
connection with the sale of shares of each Fund and the amount CIGNA Capital
Brokerage, Inc. (the previous principal underwriter) retained for the six-month
period ended June 30, 1992:
<TABLE>
<CAPTION>
SALES AMOUNT
CHARGES RETAINED
------- --------
<S> <C> <C>
AIM Global Utilities Fund . . . . . . . . $333,038 $ 38,099
AIM Government Securities Fund . . . . . . 643,892 71,603
AIM Growth Fund . . . . . . . . . . . . . 93,705 10,633
AIM High Yield Fund . . . . . . . . . . . 351,959 38,520
AIM Income Fund . . . . . . . . . . . . . 215,851 24,077
AIM Municipal Bond Fund . . . . . . . . . 187,836 21,621
AIM Value Fund . . . . . . . . . . . . . . 941,735 110,802
</TABLE>
The following chart reflects the contingent deferred sales charges
paid by Class B shareholders for the year ended December 31, 1994 and the
period ended December 31 1993:
<TABLE>
<CAPTION>
1994 1993*
---- ----
<S> <C> <C>
AIM Balanced Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,532 $ 6
AIM Global Utilities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,127 3,301
AIM Government Securities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 70,431 42
AIM Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,475 3,970
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391,108 1,799
AIM Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,712 2,339
</TABLE>
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<TABLE>
<CAPTION>
1994 1993*
---- ----
<S> <C> <C>
AIM Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,600 37
AIM Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,017 -0-
AIM Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584,611 3,425
</TABLE>
___________________________
* The inception date of the Class B shares of AIM GLOBAL
UTILITIES FUND, AIM GROWTH FUND, AIM HIGH YIELD FUND, and AIM
MUNICIPAL BOND FUND was September 1, 1993; the inception date
of the Class B shares of AIM GOVERNMENT SECURITIES FUND and
AIM INCOME FUND was September 7, 1993; the inception date of
the Class B shares of AIM MONEY MARKET FUND was October 16,
1993: and the inception date of the Class B shares of AIM
BALANCED FUND and AIM VALUE FUND was October 18, 1993.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner in which shares of the Funds may
be purchased appears in the Prospectus under the headings "How to Purchase
Shares," "Terms and Conditions of Purchase of the AIM Funds" and "Special
Plans."
The sales charge normally deducted on purchases of Class A shares is
used to compensate AIM Distributors and participating dealers for their
expenses incurred in connection with the distribution of the Funds' Class A
shares. Since there is little expense associated with unsolicited orders
placed directly with AIM Distributors by persons who, because of their
relationship with the Funds or with AIM and its affiliates, are familiar with
the Funds, 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 Funds' best interest
that such persons, and certain other persons whose purchases result in
relatively low expenses of distribution, be permitted to purchase Class A
shares of the Funds through AIM Distributors without payment of a sales charge.
The persons who may purchase Class A shares of the Funds without a sales charge
are set forth in the Prospectus.
Complete information concerning the method of exchanging shares of the
Funds for shares of the other AIM Funds is set forth in the Prospectus under
the heading "Exchange Privilege."
Information concerning redemption of the Funds' shares is set forth in
the Prospectus under the heading "How to Redeem Shares." In addition to the
Funds' 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 Funds (Telephone: (713) 626-1919 (in Houston)
or (800) 959-4246 (elsewhere)) and guarantee delivery of all required documents
in good order. A repurchase is effected at the net asset value per share of
the applicable Fund next determined after the repurchase order is received.
Such an arrangement is subject to timely receipt by A I M Fund Services, Inc.,
the Funds' transfer agent, of all required documents in good order. If such
documents are not received within a reasonable time after the order is placed,
the order is subject to cancellation. While there is no charge imposed by a
Fund or by AIM Distributors (other than any applicable contingent deferred
sales charge) 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
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<PAGE> 197
making disposition of portfolio securities or the valuation of the net assets
of the Fund not reasonably practicable.
A Fund's net asset value is calculated by dividing the number of
outstanding shares into the net assets of the Fund. Net assets are the excess
of a Fund's assets over its liabilities.
For AIM Money Market Fund: The Fund may use the amortized cost method
to determine its net asset value so long as the Fund does not (a) purchase any
instrument with a remaining maturity greater than 397 days (for these purposes,
repurchase agreements shall not be deemed to involve the purchase by the Fund
of the securities pledged as collateral in connection with such agreements) or
(b) maintain a dollar-weighted average portfolio maturity in excess of 90 days,
and otherwise complies with the terms of rules adopted by the SEC.
Under the amortized cost method, each investment is valued at its cost
and thereafter any discount or premium is amortized on a constant basis to
maturity. While this method provides certainty of valuation, it may result in
periods in which the amortized cost value of the Fund's investments is higher
or lower than the price that would be received if the investments were sold.
During periods of declining interest rates, use by the Fund of the amortized
cost method of valuing its portfolio may result in a lower value than the
market value of the portfolio, which could be an advantage to new investors
relative to existing shareholders. The converse would apply in a period of
rising interest rates.
The Board of Trustees has established procedures designed to stabilize
at $1.00, to the extent reasonably possible, the Fund's net asset value per
share. Such procedures include review of portfolio holdings by the trustees at
such intervals as they may deem appropriate to determine whether net asset
value, calculated by using available market quotations, deviates from $1.00 per
share and, if so, whether such deviation may result in material dilution or is
otherwise unfair to investors or existing shareholders. In the event the
trustees determine that a deviation having such a result exists, they intend to
take such corrective action as they deem necessary and appropriate, including
the sale of portfolio securities prior to maturity in order to realize capital
gains or losses or to shorten average portfolio maturity; withholding
dividends; redemption of shares in kind; or establishing a net asset value per
share by using available market quotations, in which case, the net asset value
could possibly be more or less than $1.00 per share.
For all other Funds: The following formula may be used to determine
the public offering price per Class A share of an investor's investment:
Net Asset Value / (1 - Sales Charge as % of Offering Price) = Offering
Price.
For example, at the close of business on December 31, 1994, AIM VALUE
FUND - Class A shares had 64,258,401 shares outstanding, net assets of
$1,358,724,515 and a net asset value per share of $21.14. The offering price,
therefore, was $22.37.
AIM HIGH YIELD FUND
Variable Annuity Contracts--Currently, shares of AIM HIGH YIELD FUND
may be purchased at net asset value by the Life Insurance Company of North
America ("LINA") under an arrangement whereby the shares will serve as an
underlying investment medium for certain variable annuity contracts previously
issued by LINA.
The basic objective of the variable annuity contracts is to provide
individuals with retirement benefits through net purchase payment accumulations
and annuity payments which are based upon the performance of AIM HIGH YIELD
FUND or other available funds. The contracts allow their owners and
participants to defer federal income tax ("FIT") payments on contract
investment accumulations until annuity
48
<PAGE> 198
payments begin. The annuity payment options generally provide for lifetime
annuity payments based upon the life of the named annuitant (and joint
annuitant, if applicable). Such payments may be made for a guaranteed minimum
number of years. Certain charges are made in connection with the sale of the
contracts.
The LINA contracts are no longer being issued except that existing
owners, participants and, in some cases, new participants under existing group
contracts under certain tax-qualified plans, may continue to make contributions
under the contract. Persons who wish to receive additional information
concerning investment in AIM HIGH YIELD FUND through LINA's variable annuity
contracts are urged to read the LINA prospectus which describes them. LINA
variable annuity information and a prospectus may be obtained by writing to INA
Security Corporation, 601 Walnut Street, Ninth Floor, Philadelphia,
Pennsylvania 19102, or by calling (215) 351-3121.
QUALIFYING FOR A REDUCED FRONT-END SALES CHARGE
As described in the Prospectus, the front-end sales charge for Class A
shares is calculated by multiplying an investor's total investment by the
applicable sales charge rate. The applicable rate varies with the amount
invested. The Funds offer programs such as Right of Accumulation and Letter of
Intent, which are described in the Prospectus, and are designed to permit
investors to aggregate purchases of different funds, or separate purchases over
time, in order to qualify for a lower sales charge rate. See "Terms and
Conditions of Purchase of the AIM Funds -- Reductions in Initial Sales Charges"
in the Prospectus.
DETERMINATION OF NET ASSET VALUE
For AIM Money Market Fund: The net asset value per share of the Fund
is determined daily as of 12:00 noon and 4:15 p.m. Eastern time on each
business day of the Fund. Net asset value per share is determined by dividing
the value of the Fund's securities, cash and other assets (including interest
accrued but not collected), less all its liabilities (including accrued
expenses and dividends payable), by the number of shares outstanding of the
Fund and rounding the resulting per share net asset value to the nearest one
cent. 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 15 minutes following the close of the New York Stock Exchange on
such day. Determination of the Fund's net asset value per share is made in
accordance with generally accepted accounting principles.
The securities of the Fund are valued on the basis of amortized cost.
This method values a security at its cost on the date of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the security. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if the security were
sold. During such periods, the daily yield on shares of the Fund computed as
described under "Performance Information" may differ somewhat from an identical
computation made by another investment company with identical investments
utilizing available indications as to the market value of its portfolio
securities.
The valuation of portfolio instruments based upon their amortized cost
and the concomitant maintenance of the net asset value per share of $1.00 for
the Fund is permitted in accordance with applicable rules and regulations of
the SEC which require the Fund to adhere to certain conditions. These rules
require, among other things, that the Fund maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 calendar days or less and invest only in securities
determined by the Board of Trustees to be "Eligible Securities" and to present
49
<PAGE> 199
minimal credit risk to the Fund. For the definition of "Eligible Securities"
see the caption "Description of Money Market Instruments."
The Board of Trustees is required to establish procedures designed to
stabilize, to the extent reasonably practicable, the Fund's price per share at
$1.00, as computed for the purpose of sales and redemptions. Such procedures
include review of the Fund's holdings by the Board of Trustees at such
intervals as they may deem appropriate, to determine whether the net asset
value calculated by using available market quotations or other reputable
sources for the Fund deviates from $1.00 per share and, if so, whether such
deviation may result in material dilution or is otherwise unfair to existing
holders of the Fund's shares. In the event the Board of Trustees determines
that such a deviation exists for the Fund, it will take such corrective action
as the Board of Trustees deems necessary and appropriate with respect to the
Fund, including the sale of portfolio instruments prior to maturity to realize
capital gains or losses or to shorten the average portfolio maturity; the
withholding of dividends; redemption of shares in kind; or the establishment of
a net asset value per share by using available market quotations.
The Fund intends to comply with any amendments made to Rule 2a-7 which
may require corresponding changes in the Fund's procedures which are designed
to stabilize the Fund's price per share at $1.00.
For All Other Funds: The net asset value per share of each Fund is
normally determined daily as of 4:15 p.m. Eastern time on each business day of
the Fund. Net asset value per share is determined by dividing the value of a
Fund's securities, cash and other assets (including interest accrued but not
collected), less all its liabilities (including accrued expenses and dividends
payable), by the total number of Fund shares outstanding. 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 15 minutes
following the close of the New York Stock Exchange on such day. Determination
of a Fund's net asset value per share is made in accordance with generally
accepted accounting principles.
Each equity security held by a Fund is valued at its last sales price
on the exchange where the security is principally traded or, lacking any sales
on a particular day, the security is valued at the mean between the closing bid
and asked prices on that day. Exchange listed convertible debt securities are
valued at the mean between the last bid and asked prices obtained from
broker-dealers. 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.
Non-convertible debt securities are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, yield, quality, coupon
rate, maturity, type of issue, individual trading characteristics and other
market data. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the
supervision of the Trust's officers in a manner specifically authorized by the
Board of Trustees. Short-term obligations having 60 days or less to maturity
are valued on the basis of amortized cost.
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 New York Stock Exchange.
The values of such securities used in computing the net asset value of each
Fund's shares are determined at such times. Foreign currency exchange rates
are also generally determined prior 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 such values are determined and the
close of the New York Stock Exchange which will not be reflected in the
computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities
50
<PAGE> 200
will be valued at their fair value as determined in good faith by or under the
supervision of the Board of Trustees.
TAX MATTERS
Each Fund is treated as a separate association taxable as a
corporation. Each Fund intends to qualify under the Internal Revenue Code of
1986, as amended (the "Code"), as a regulated investment company ("RIC") for
each taxable year. Accordingly, each Fund must, among other things, meet the
following requirements: (A) each Fund must generally derive at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities, foreign
currencies, or other income derived with respect to its business of investing
in such stock, securities or currencies; and (B) each Fund must derive less
than 30% of its gross income from the sale or disposition of any of the
following held less than three months: (i) stock or securities, (ii) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies), or (iii) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies are not
directly related to the Fund's business of investing in stock, securities or
options and futures thereon. There are exceptions to the 30% test when a Fund,
in certain circumstances, realizes gains to satisfy abnormal redemptions.
Abnormal redemptions occur on any day when net redemptions exceed one percent
of the Fund's net asset value. Accordingly, the extent to which the Funds may
engage in futures contracts and related options may be materially limited by
this 30% test, with the exception of AIM MONEY MARKET FUND which does not
engage in such transactions. Each Fund must diversify its holdings so that, at
the end of each fiscal quarter: (i) at least 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities and other
securities, with such other securities limited, with respect to any one issuer,
to an amount not greater than 5% of the Fund's assets and not more than 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer (other
than U.S. Government securities).
As a RIC, each Fund will generally not be subject to FIT on its income
and gains distributed to shareholders if it currently distributes the sum of
(i) at least 90% of its investment company taxable income for the taxable year
and (ii) at least 90% of the excess of its tax-exempt interest income under
Code Section 103(a) over its deductions disallowed under Code Sections 265 and
171(a)(2) (the "Distribution Requirement"). Distributions made by a Fund
during its taxable year, or under certain circumstances within 12 months after
the end of its taxable year, will be considered distributions made during the
taxable year and will therefore satisfy the Distribution Requirement.
Each Fund is subject to a nondeductible 4% excise tax if it does not
meet certain distribution requirements under the Code. To avoid this excise
tax, during each calendar year, each Fund must distribute: (1) at least 98% of
its ordinary income (not taking into account any capital gains or losses) for
the calendar year (except that any foreign currency gain or loss occurring
after October 31 shall be taken into account the following year), (2) at least
98% of its capital gains in excess of its capital losses for the 12-month
period ending on October 31, and (3) all ordinary income and capital gains from
previous calendar years that were not distributed during such years. Dividends
declared to shareholders of record on a date in October, November or December
will be taxable to shareholders on December 31 in the year declared as long as
the Fund pays the dividends no later than January 31 of the following year.
All Funds except AIM MONEY MARKET FUND: Section 1092 of the Code
affects the taxation of certain transactions involving futures or options
contracts. If a futures or options contract is part of a "straddle" (which
could include another futures contract or underlying stock or securities), as
defined in Section 1092 of the Code, then, generally, losses are deferred first
to the extent that the modified "wash sale" rules of the Section 1092
regulations apply, and second to the extent of unrecognized gains on offsetting
positions. Further, the Funds may be required to capitalize, rather than
deduct currently, any
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interest expense on indebtedness incurred or continued to purchase or carry any
positions that are part of a straddle. Sections 1092 and 246 of the Code and
the Regulations thereunder also suspend the holding periods for straddle
positions with possible adverse effects regarding long-term capital gain
treatment and the corporate dividends received deduction.
Section 1256 of the Code generally requires that futures contracts and
options on future contracts be "marked-to-market" at the end of each year for
FIT purposes. Code Section 1256 further characterizes 60% of any capital gain
or loss with respect to such futures and options contracts as long-term capital
gain or loss and 40% as short-term capital gain or loss. If such a future or
option is held as an offsetting position and can be considered a straddle under
Section 1092 of the Code, such a straddle will constitute a mixed straddle. A
mixed straddle will be subject to both Section 1256 and Section 1092 unless
certain elections are made by the Fund.
The Funds may have invested in certain foreign currency transactions,
the gain or loss from which may be subject to taxation as ordinary income or
loss under Code Section 988.
AIM GLOBAL UTILITIES FUND: Pursuant to the investment
objectives of the Fund, the Fund may invest in foreign securities. Dividends
and interest received by the Fund with respect to these investments may give
rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If more than 50% in value of the Fund's total assets at
the close of its taxable year consists of stock or securities of foreign
corporations, the Fund will be eligible, to file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
include their proportionate share of such withholding taxes in their United
States income tax returns as gross income, treat such proportionate share as
taxes paid by them, and deduct such proportionate share in computing their
taxable income or, alternatively, use them as foreign tax credits to the extent
allowed against their United States income taxes subject to certain provisions
and limitations contained in the Code. The Fund will report annually to its
shareholders the amount per share of such withholding taxes. Please note that
such foreign tax credits are non-refundable and therefore cannot be claimed by
certain retirement accounts and other persons not otherwise subject to United
States income taxation.
AIM HIGH YIELD FUND: The notes to the financial statements of the
Fund for the year ended December 31, 1994 detail the amount of capital loss
carryover for FIT purposes to which the Fund is entitled. To the extent losses
are used to offset any future capital gains realized during the carryover
period, no capital gains tax liability will be incurred for gains realized and
not distributed.
AIM MUNICIPAL BOND FUND: With respect to interest income that is
exempt from FIT, the Fund intends to comply with Section 852(b)(5) of the Code,
which enables distributions of tax-exempt income to retain their character when
distributed to shareholders as an exempt interest dividend. Each year, the
Fund provides shareholders a statement indicating the amount of distribution
that is exempt from FIT. This statement also provides a breakdown showing the
percentage of such income that came from each state. In addition, the Fund
reports for FIT purposes any net realized capital gains and any ordinary income
from the Fund's short-term holdings. In 1994, approximately 0% of the
dividends paid from income was taxable as ordinary income; however, this
percentage may change in future periods. Further, the Fund also reports
certain interest from "Qualified Private Activity Bonds" which shareholders may
be required to include in the alternative minimum tax calculation.
The Tax Reform Act of 1986 (the "1986 Act") divided municipal debt
obligations into three categories, only one of which ("Public Purpose Bonds")
bears interest which is exempt from both the regular income tax and the
alternative minimum tax as it applies to individuals. For corporations, some
or all of the income from Public Purpose Bonds would be includable in the
corporate alternative minimum tax base. Of the other two categories
("Qualified Private Activity Bonds" and "Private Activity Bonds"), for both
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<PAGE> 202
individuals and corporations, Qualified Private Activity Bonds bear interest
which is excluded from income for purposes of the regular income tax but must
generally be included in the alternative minimum tax base, and Private Activity
Bonds are taxable under both the regular and alternative minimum taxes.
The 1986 Act also applied limitations on the issuance of bonds whose
proceeds are used by organizations exempt from tax under Code Section
501(c)(3), as well as general limitations on the amount of Qualified Private
Activity Bonds governmental units may issue.
The 1986 Act limitations on tax-exempt bonds apply generally to bonds
issued after August 16, 1986. The private activity bond rules are generally
applicable to bonds issued on or after September 1, 1986, with the alternative
minimum tax rules applicable generally to bonds issued on or after August 7,
1986. AIM MUNICIPAL BOND FUND intends to limit its investments in Qualified
Private Activity Bonds and taxable securities to no more than 20% of its total
assets in any given year, consistent with its stated investment objective.
Original issue discount on tax-exempt bonds is accrued as tax-exempt
interest (except for a portion thereof in the case of certain stripped
tax-exempt bonds), and is included in the tax basis of the security for capital
gain and loss computation purposes. Any gain or loss from the sale or other
disposition of a tax-exempt security is generally treated as either long-term
or short-term capital gain or loss, depending upon its holding period, and is
fully taxable. However, gain recognized from the sale or other disposition of
a tax-exempt security purchased after April 30, 1993, will be treated as
ordinary income to the extent of the accrued market discount on such security.
Interest on indebtedness incurred by shareholders (including financial
institutions) will not be deductible for FIT purposes to the extent that the
money was used to purchase or carry tax-exempt securities. The purchase of
shares may be considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of Fund shares.
Further, persons who are "substantial users" (or persons related thereto) of
facilities financed by private activity bonds should consult their own tax
advisor before purchasing Fund shares.
The exemption of interest income for FIT purposes does not necessarily
result in exemption under state and local laws. Shareholders should consult
their tax advisors as to the treatment of such income under state and local
laws.
PROGRAMS AND SERVICES FOR SHAREHOLDERS
The Funds provide certain services for shareholders and certain
investment or redemption programs. See "Exchange Privilege" and "How to Redeem
Shares" in the Prospectus. All inquiries concerning these programs should be
made directly to A I M Distributors, Inc., P.O. Box 4739, Houston, Texas
77210-4739 toll free at (800) 572-4462.
DIVIDEND ORDER
Dividends may be paid to someone other than the registered owner, or
sent to an address other than the address of record. (Please note that
signature guarantees are required to effect this option). An investor also may
direct that his or her dividends be invested in one of the other Funds in the
Trust, provided however, that dividends attributable to Class A shares may not
be reinvested in Class B shares, dividends attributable to Class B shares may
only be reinvested in Class B shares and dividends attributable to Class C
shares may be reinvested in Class A shares or Class C shares. There is no
sales charge for these deposits; initial investment minimums apply. See
"Dividends, Distributions and Tax Matters -- Dividends and Distributions" in
the Prospectus. To effect this option, please contact your
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authorized dealer. For more information concerning AIM Funds other than those
in the Trust, please obtain a current prospectus by contacting your authorized
dealer, by writing to A I M Distributors, Inc., P.O. Box 4739, Houston, Texas
77210-4739, or by calling toll free (800) 959-4246.
REDEMPTIONS PAID IN CASH
Pursuant to Rule 18f-1 under the 1940 Act, each Fund has committed to
pay in cash all requests for redemption by any shareholder of record, limited
in amount with respect to each shareholder during any 90-day period to the
lesser of $250,000 or 1% of the net assets of the Fund at the beginning of such
period. This election is irrevocable while such Rule is in effect unless the
SEC by order upon application permits the withdrawal of the Fund's notification
of election. Redemptions by any one shareholder during any 90-day period in
excess of $250,000 or 1% of the net assets of the Fund may be made in readily
marketable securities.
DESCRIPTION OF MONEY MARKET INSTRUMENTS
U.S. Government Obligations consist of marketable securities and
instruments issued or guaranteed by the United States Government or by certain
of its agencies or instrumentalities. Direct obligations are issued by the
United States Treasury and include bills, certificates of indebtedness, notes
and bonds. Obligations of United States Government agencies and
instrumentalities ("Agencies") are issued by government-sponsored agencies and
enterprises acting under authority of Congress. Certain Agencies are backed by
the full faith and credit of the United States Government, and others are not.
MONEY MARKET OBLIGATIONS
AIM MONEY MARKET FUND will limit its investments to those securities
which at the time of purchase are "First Tier" securities as defined in Rule
2a-7 under the 1940 Act, as such Rule may be amended from time to time. Rule
2a-7 defines a "First Tier" security as any "Eligible Security" that:
(i) is rated (or that has been issued by an issuer that is
rated with respect to a class of short-term debt obligations, or any
security within that class, that is comparable in priority and
security with the security) by the Requisite NRSRO(1) in the highest
rating category for short-term debt obligations (within which there
may be sub-categories or gradations indicating relative standing); or
(ii) is a security described in paragraph (a)(5)(ii) of Rule
2a-7 (i.e. a security that at the time of issuance was a long-term
security but has a remaining maturity of 397 days or less) whose
issuer has received from the Requisite NRSROs a rating, with respect
to a class of short-term debt obligations (or any security within that
class) that now is comparable in priority and security with
__________________________________
(1) "Requisite NRSRO" shall mean (a) any two nationally recognized
statistical rating organizations ("NRSROs") that have issued a rating
with respect to a security or class of debt obligations of an issuer,
or (b) if only one NRSRO has issued a rating with respect to such
security or issuer at the time the Fund purchases or rolls over the
security, that NRSRO. At present the NRSROs are: Standard & Poor's
Corp. ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff and
Phelps, Inc. ("Duff & Phelps"), Fitch Investors Services, Inc.
("Fitch") and, with respect to certain types of securities, IBCA
Limited and its affiliate, IBCA Inc. Subcategories or gradations in
ratings (such as a "+" or "") do not count as rating categories.
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the security, in the highest rating category for short-term debt
obligations (within which there may be sub-categories or gradations
indicating relative standing); or
(iii) is an Unrated Security(2) that is of comparable quality
to a security meeting the requirements of clauses (i) and (ii) above,
as determined by the Board of Trustees.
Subsequent to its purchase by AIM MONEY MARKET FUND, a security may
cease to be a First Tier security. Subject to certain exceptions set forth in
Rule 2a-7, such an event will not require the disposition of the security by
the Fund, but AIM will consider such an event to be relevant in its
determination of whether the Fund should continue to hold the security. To the
extent that the ratings applied by an NRSRO to a security may change as a
result of changes in these rating systems, the Funds will attempt to use
comparable ratings as standards for its investments in accordance with the
investment policies described herein.
Rule 2a-7 defines an "Eligible Security" as follows:
(i) a security with a remaining maturity of 397 days or less that
is rated (or that has been issued by an issuer that is rated
with respect to a class of short-term debt obligations, or any
security within that class, that is comparable in priority and
security with the security) by the Requisite NRSROs in one of
the two highest rating categories for short-term debt
obligations (within which there may be sub-categories or
gradations indicating relative standing); or
(ii) a security:
(A) that at the time of issuance was a long-term security
but that has a remaining maturity of 397 calendar
days or less; and
(B) whose issuer has received from the Requisite NRSROs a
rating, with respect to a class of short-term debt
obligations (or any security within that class) that
is now comparable in priority and security with the
security, in one of the two highest rating categories
for short-term debt obligations (within which there
may be sub-categories or gradations indicating
relative standing); or
(iii) an unrated security that is of comparable quality to a
security meeting the requirements of (i) or (ii) above, as
determined by the Trust's Board of Trustees; provided,
however, that:
(A) the Board of Trustees may base its determination that
a standby commitment is an Eligible Security upon a
finding that the issuer of the commitment presents a
minimal risk of default; and
__________________________________
(2) An "Unrated Security" is a security (i) issued by an issuer that does
not have a current short-term rating from any NRSRO, either as to the
particular security or as to any other short-term obligations of
comparable priority and security; (ii) that was a long-term security
at the time of issuance and whose issuer has not received from any
NRSRO a rating with respect to a class of short-term obligations now
comparable in priority and security; or (iii) that is rated but which
is the subject of an external credit support agreement not in effect
when the security was assigned its rating, provided that a security is
not an unrated security if any short-term debt obligation issued by
the issuer and comparable in priority and security is rated by any
NRSRO.
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(B) a security that at the time of issuance was a
long-term security but that has a remaining maturity
of 397 calendar days or less and that is an unrated
security is not an Eligible Security if the security
has a long-term rating from any NRSRO that is not
within the NRSRO's two highest categories (within
which there may be sub-categories or gradations
indicating relative standing).
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Each of the Funds may engage in repurchase and reverse repurchase
agreement transactions involving the types of securities in which it is
permitted to invest.
REPURCHASE AGREEMENTS under which the purchaser (for example, a Fund)
acquires ownership of a security and the seller agrees, at the time of the
sale, to repurchase the security at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. A Fund
may, however, enter into a "continuing contract" or "open" repurchase agreement
under which the seller is under a continuing obligation to repurchase the
underlying obligation from the Fund on demand and the effective interest rate
is negotiated on a daily basis. In general, a Fund will enter into repurchase
agreements only with domestic banks with total assets of at least $1 billion or
with primary dealers in U.S. Government securities, but total assets will not
be the sole determinative factor, and a Fund may enter into repurchase
agreements with other institutions which the Board of Trustees believes present
minimal credit risks. Nevertheless, if the seller of a repurchase agreement
fails to repurchase the debt instrument in accordance with the terms of the
agreement, the Fund which entered into the repurchase agreement may incur a
loss to the extent that the proceeds it realizes on the sale of the underlying
obligation are less than the repurchase price. Repurchase agreements are
considered to be loans by a Fund under the 1940 Act.
Rule 2a-7 under the 1940 Act provides that AIM MONEY MARKET FUND may
not invest more than 5% of its total assets in securities issued by the issuer
of the security, provided that the Fund may invest more than five percent of
its total assets in the First Tier securities of a single issuer for a period
of up to three business days after the purchase thereof, provided further, that
the Fund may not make more than one investment in accordance with the foregoing
proviso at any time. Under Rule 2a-7, for purposes of determining the
percentage of the Fund's total assets that are invested in securities of an
issuer, a repurchase agreement shall be deemed to be an acquisition of the
underlying securities, provided that the obligation of the seller to repurchase
the securities from the Fund is fully collateralized. To be fully
collateralized, the collateral must, among other things, consist entirely of
U.S. Government securities or securities that, at the time the repurchase
agreement is entered into, are rated in the highest rating category by the
Requisite NRSROs.
REVERSE REPURCHASE AGREEMENTS, which involve the sale of securities
held by a Fund, with an agreement that the Fund will repurchase the securities
at an agreed upon price and date. A Fund may employ reverse repurchase
agreements when necessary to meet unanticipated net redemptions so as to avoid
liquidating other portfolio securities during unfavorable market conditions.
At the time it enters into a reverse repurchase agreement, a Fund will
segregate cash or high-quality debt securities having a dollar value equal to
the repurchase price. A Fund will utilize reverse repurchase agreements when
the income to be earned from portfolio investments which would otherwise have
to be liquidated to meet redemptions is greater than the expense incurred as a
result of the reverse repurchase transactions. Reverse repurchase agreements
are considered borrowings by a Fund under the 1940 Act.
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MISCELLANEOUS INFORMATION
AUDIT REPORTS
The Board of Trustees will issue to shareholders at least
semi-annually the Funds' financial statements. Financial statements, audited
by independent auditors, will be issued annually. The firm of Price Waterhouse
LLP served as the auditors to the Funds other than AIM BALANCED FUND and AIM
MONEY MARKET FUND for the year ended December 31, 1992. The firm of KPMG Peat
Marwick LLP served as the auditors of ACS (the predecessor of AIM BALANCED
FUND) for the year ended August 31, 1993. The firm of KPMG Peat Marwick LLP
currently serves as the auditors of the Funds.
LEGAL MATTERS
Legal matters for the Trust 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 Funds. Under its contract with the Trust, the Custodian maintains the
portfolio securities of the Funds, administers the purchases and sales of
portfolio securities, collects interest and dividends and other distributions
made on the securities held in the portfolios of the Funds and performs other
ministerial duties. A I M Fund Services, Inc. (a wholly-owned subsidiary of
AIM) (the "Transfer Agent"), P.O. Box 4739, Houston, Texas 77210-4739 acts as
transfer and dividend disbursing agent for the Funds. These services do not
include any supervisory function over management or provide any protection
against any possible depreciation of assets. The Funds pay 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.
RATINGS OF SECURITIES
The following is a description of the factors underlying the
commercial paper and debt ratings of Moody's, S&P, Fitch and Duff & Phelps:
MOODY'S BOND RATINGS
Moody's describes its ratings for corporate bonds as follows:
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.
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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. These are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium- grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
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Note: Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A
groups when assigning ratings to industrial development bonds and bonds secured
by either a letter of credit or bond insurance. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
MOODY'S MUNICIPAL BOND RATINGS
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.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
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Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca
Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
MOODY'S SHORT-TERM LOAN RATINGS
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in bond
risk, long-term secular trends for example, may be less important over the
short run.
A short-term rating may also be assigned on an issue having a demand
feature (i.e., a variable rate demand obligation or VRDO). Such ratings will
be designated as VMIG or, if the demand feature is not rated, as NR.
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. Additionally, the source of payment may be limited to the external
liquidity with no or limited legal recourse to the issuer in the event the
demand is not met.
A VMIG rating may also be assigned to commercial paper programs. Such
programs are characterized as having variable short-term maturities but having
neither a variable rate nor demand feature.
Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4.
Gradations of investment quality are indicated by rating symbols, with
each symbol representing a group in which the quality characteristics are
broadly the same.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
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MIG 3/VMIG 3
This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4/VMIG 4
This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issues
to repay punctually promissory obligations not having an original maturity in
excess of nine months.
PRIME-1
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return
on funds employed; conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earnings coverage
of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
PRIME-3
Issuers rated Prime-3 (or related supported institutions) have an
acceptable capacity for repayment of short- term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
NOT PRIME
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P BOND RATINGS
S&P describes its ratings for corporate bonds as follows:
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AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A
Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB
Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB-B-CCC-CC-C
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have, as part of
their structure, a put option or demand feature.
The first rating addresses the likelihood of repayment of principal
and interest as due, and the second rating addresses only the demand feature.
The long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (e.g.,
AAA/A-1+). With short-term demand debt, the note rating symbols are used with
the commercial paper rating symbols (e.g., SP-1+/A-1+).
S&P MUNICIPAL NOTE RATINGS
An S&P note rating reflects the liquidity factors and market-access
risks unique to notes. Notes maturing in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment: amortization schedule (the larger the final maturity relative
to other maturities, the more likely the issue will be treated as a note); and
source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols and definitions are as follows:
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SP-1
Category denotes strong capacity to pay principal and interest. Those
issues determined to possess very strong characteristics are given a plus (+)
designation.
SP-2
Rating denotes satisfactory capacity to pay principal and interest,
with some vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3
Speculative capacity to pay principal and interest.
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days.
Rating categories are as follows:
A-1
This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2
This rating indicates capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3
This rating indicates adequate capacity for timely payment. However,
the relative degree of safety is not as high as for issues designated A-1.
B
This rating indicates only a speculative capacity for timely payment.
C
This rating indicates, for short-term debt, a doubtful capacity for
payment.
D
This rating indicates that payment is in default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless it is
believed that such payments will be made during such grace period.
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FITCH INVESTMENT GRADE BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be
provided by insurance policies or financial guaranties unless otherwise
indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
or taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA
Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
A
Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB
Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
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PLUS (+) MINUS (-)
Plus and minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the "AAA" category.
NR
Indicates that Fitch does not rate the specific issue.
CONDITIONAL
A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.
SUSPENDED
A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
WITHDRAWN
A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FITCHALERT
Ratings are placed on FitchAlert to notify investors of an occurrence
that is likely to result in a rating change and the likely direction of such
change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," where ratings may be raised
or lowered. FitchAlert is relatively short-term, and should be resolved within
12 months.
CREDIT TREND
Credit trend indicators show whether credit fundamentals are
improving, stable, declining, or uncertain, as follows:
Improving Up Arrow
Stable Horizontal Arrow
Declining Down Arrow
Uncertain Vertical Arrow
Credit trend indicators are not predictions that any rating change
will occur, and have a longer-term time frame than issues placed on FitchAlert.
FITCH SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or
liquidation.
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The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB
Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B
Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC
Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C
Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D
Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
PLUS (+) MINUS (-)
Plus and minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus
signs, however, are not used in the "DDD", "DD", or "D" categories.
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FITCH SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2
Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned "F-1+" and "F-1" ratings.
F-3
Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities to be rated
below investment grade.
F-S
Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near-term adverse changes in financial and economic conditions.
D
Default. Issues assigned this rating are in actual or imminent payment
default.
LOC
The symbol LOC indicates that the rating is based on a letter of
credit issued by a commercial bank.
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DUFF & PHELPS LONG-TERM RATINGS
AAA
Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA AND AA-
High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A AND A-
Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB AND BBB-
Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
BB+, BB AND BB-
Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B AND B-
Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according
to economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
CCC
Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP
Preferred stock with dividend arrearages.
68
<PAGE> 218
DUFF & PHELPS SHORT-TERM RATINGS
D - 1+
Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations.
D - 1
Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.
D - 1-
High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D - 2
Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
D - 3
Satisfactory liquidity and other protection factors qualify issue as
to investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
D - 4
Speculative investment characteristics. Liquidity is not sufficient
to insure against disruption in debt service. Operating factors and market
access may be subject to a high degree of variation.
D - 5
Issuer failed to meet scheduled principal and/or interest payments.
69
<PAGE> 219
FINANCIAL STATEMENTS
F-1
<PAGE> 220
AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Balanced Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Balanced Fund (a portfolio of AIM Funds Group), including the schedule of
investments, as of December 31, 1994, and the related statements of operations
for the year then ended, changes in its net assets for the year then ended and
the four-month period ended December 31, 1993, and the financial highlights for
the year then ended, the four-month period ended December 31, 1993, and each of
the years in the eight-year period ended August 31, 1993. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Balanced Fund as of December 31, 1994, the results of its operations for the
year then ended, changes in its net assets for the year then ended and the
four-month period ended December 31, 1993, and the financial highlights for the
year then ended, the four-month period ended December 31, 1993, and each of the
years in the eight-year period ended August 31, 1993, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
February 3, 1995
F-2
<PAGE> 221
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
<C> <S> <C>
BONDS & NOTES-19.64%
AUTOMOBILE-MANUFACTURERS-0.71%
$ 400,000 General Motors Corp., Pass-Through Deb., 8.80%, 03/01/21 $ 409,532
-------------------------------------------------------------------------------------------
BANKING-3.30%
800,000 First Union Corp., Sub. Notes, 6.375%, 01/15/09 643,016
-------------------------------------------------------------------------------------------
700,000 Mercantile Bank, Sub. Notes, 6.375%, 01/15/04 604,653
-------------------------------------------------------------------------------------------
800,000 Wachovia Corp., Sub. Notes, 6.375%, 02/01/09 660,592
-------------------------------------------------------------------------------------------
1,908,261
-------------------------------------------------------------------------------------------
BUSINESS SERVICES-0.52%
300,000 Olsten Corp., Conv. Sub. Deb., 4.875%, 05/15/03 301,500
-------------------------------------------------------------------------------------------
COMPUTER NETWORKING-0.37%
200,000 3 Com Corp., Conv. Sub. Notes, 10.25%, 11/01/01(a) 213,000
(Acquired 11/08/94; cost $200,000)
-------------------------------------------------------------------------------------------
COMPUTER PERIPHERALS-1.56%
100,000 EMC Corp., Conv. Sub. Deb., 6.25%, 04/01/02 698,212
-------------------------------------------------------------------------------------------
200,000 Seagate Technology, Conv. Sub. Deb., 5.00%, 11/01/03(a)
(Acquired 04/13/94; cost $209,500) 206,750
-------------------------------------------------------------------------------------------
904,962
-------------------------------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.31%
200,000 Network Equipment Technologies, Inc., Conv. Deb., 7.25%,
05/15/14 178,500
-------------------------------------------------------------------------------------------
CONGLOMERATES-1.05%
600,000 ITT Corp., Deb., 9.50%, 04/15/21 604,578
-------------------------------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-3.11%
150,000 Chrysler Financial Corp., Putable-Extendible Adjustable Rate
Notes, 8.50% 02/01/18 151,641
-------------------------------------------------------------------------------------------
500,000 Countrywide Funding Corp., Sub. Notes, 8.25%, 07/15/02 479,890
-------------------------------------------------------------------------------------------
800,000 Ford Motor Credit Co., Notes, 6.75%, 08/15/08 675,536
-------------------------------------------------------------------------------------------
500,000 GMAC, Putable Notes, 5.50%, 10/15/02 492,220
-------------------------------------------------------------------------------------------
1,799,287
-------------------------------------------------------------------------------------------
FOREIGN GOVERNMENTS-0.60%
500,000 CAD New Brunswick (Province of), Deb., 8.94%, 01/15/05 351,083
-------------------------------------------------------------------------------------------
MEDICAL SERVICES-0.57%
300,000 Healthsouth Rehabilitation Corp., Conv. Sub. Deb., 5.00%,
04/01/01 329,625
-------------------------------------------------------------------------------------------
NATURAL GAS (PIPELINES & DISTRIBUTORS)-2.94%
800,000 Enron Corp., Sr. Sub. Deb., 6.75%, 07/01/05 692,920
-------------------------------------------------------------------------------------------
750,000 Panhandle Eastern Pipe Line Co., Notes, 7.875%, 08/15/04 715,275
-------------------------------------------------------------------------------------------
300,000 Pogo Producing Co., Conv. Sub. Notes, 5.50%, 03/15/04 287,250
-------------------------------------------------------------------------------------------
1,695,445
-------------------------------------------------------------------------------------------
</TABLE>
F-3
<PAGE> 222
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
<S> <C> <C>
RETAIL STORES-1.63%
$ 200,000 Home Depot, Inc., Conv. Deb., 4.50%, 02/15/97 $ 241,000
-------------------------------------------------------------------------------------------
500,000 Office Depot, Inc., Liquid Yield Option Notes, 4.00%,
11/01/08(b) 275,000
-------------------------------------------------------------------------------------------
300,000 Pep Boys-Manny, Moe & Jack, Conv. Sub. Notes, 4.00%, 09/01/99 285,000
-------------------------------------------------------------------------------------------
150,000 Pier 1 Imports Inc., Conv. Deb., 6.875%, 04/01/02 141,562
-------------------------------------------------------------------------------------------
942,562
-------------------------------------------------------------------------------------------
SEMICONDUCTORS-0.61%
Motorola, Inc.,
200,000 Liquid Yield Option Notes, 6.00%, 09/07/09(b) 212,202
-------------------------------------------------------------------------------------------
200,000 Liquid Yield Option Notes, 2.25%, 09/27/13(b) 140,750
-------------------------------------------------------------------------------------------
352,952
-------------------------------------------------------------------------------------------
UTILITIES-2.36%
125,000 Century Telephone Enterprises, Inc., Conv. Deb., 6.00%,
02/01/07(a) (Acquired 02/04/93; cost $159,375) 148,750
-------------------------------------------------------------------------------------------
750,000 Commonwealth Edison Co., Sr. Sub. Deb., 9.75%, 02/15/20 732,630
-------------------------------------------------------------------------------------------
453,542 Indiana-Michigan Power Co., Deb., 9.82%, 12/07/22 484,030
-------------------------------------------------------------------------------------------
1,365,410
-------------------------------------------------------------------------------------------
Total Bonds & Notes 11,356,697
-------------------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
COMMON STOCKS-49.98%
ADVERTISING/BROADCASTING-0.36%
4,500 Meredith Corp. 209,812
-------------------------------------------------------------------------------------------
APPLIANCES-0.99%
15,000 Maytag Corp. 225,000
-------------------------------------------------------------------------------------------
8,000 Premark International Inc. 350,000
-------------------------------------------------------------------------------------------
575,000
-------------------------------------------------------------------------------------------
AUTOMOBILE MANUFACTURERS-0.39%
8,000 Ford Motor Co. 224,000
-------------------------------------------------------------------------------------------
AUTOMOBILE/TRUCKS PARTS & TIRES-1.17%
12,000 Dana Corp. 280,500
-------------------------------------------------------------------------------------------
8,000 Eaton Corp. 396,000
-------------------------------------------------------------------------------------------
676,500
-------------------------------------------------------------------------------------------
BANKING-2.28%
3,000 First American Corp. 80,625
-------------------------------------------------------------------------------------------
6,000 First Interstate Bancorp 405,750
-------------------------------------------------------------------------------------------
8,000 First Union Corp. 331,000
-------------------------------------------------------------------------------------------
4,500 Mellon Bank Corp. 137,812
-------------------------------------------------------------------------------------------
8,000 NationsBank Corp. 361,000
-------------------------------------------------------------------------------------------
1,316,187
-------------------------------------------------------------------------------------------
BANKING (MONEY CENTER)-0.36%
5,000 Citicorp(c) 206,875
-------------------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE> 223
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
BEVERAGES-0.56%
9,000 PepsiCo Inc. 326,250
-------------------------------------------------------------------------------------------
BUILDING MATERIALS-0.81%
1,000 Armstrong World Industries, Inc. $ 38,500
-------------------------------------------------------------------------------------------
4,300 Black & Decker Corp.(c) 102,125
-------------------------------------------------------------------------------------------
4,000 Owens Corning Fiberglass Corp.(c) 128,000
-------------------------------------------------------------------------------------------
7,000 Toro Co. 201,250
-------------------------------------------------------------------------------------------
469,875
-------------------------------------------------------------------------------------------
BUSINESS SERVICES-1.35%
9,500 Diebold, Inc. 390,687
-------------------------------------------------------------------------------------------
7,000 Equifax, Inc. 184,625
-------------------------------------------------------------------------------------------
6,000 Healthcare Compare Corp.(c) 204,750
-------------------------------------------------------------------------------------------
780,062
-------------------------------------------------------------------------------------------
CHEMICALS-2.30%
6,200 Dow Chemical Co. 416,950
-------------------------------------------------------------------------------------------
4,000 Goodrich (B.F.) Co. (The) 173,500
-------------------------------------------------------------------------------------------
9,000 PPG Industries, Inc. 334,125
-------------------------------------------------------------------------------------------
3,000 Rohm & Haas Co. 171,375
-------------------------------------------------------------------------------------------
8,000 Union Carbide Corp. 235,000
-------------------------------------------------------------------------------------------
1,330,950
-------------------------------------------------------------------------------------------
CHEMICAL (SPECIALTY)-0.49%
4,000 Air Products & Chemicals, Inc. 178,500
-------------------------------------------------------------------------------------------
5,000 Praxair, Inc. 102,500
-------------------------------------------------------------------------------------------
281,000
-------------------------------------------------------------------------------------------
COMPUTER MAINFRAMES-0.76%
6,000 International Business Machines Corp. 441,000
-------------------------------------------------------------------------------------------
COMPUTER MINI/PCS-1.00%
7,000 COMPAQ Computer Corp.(c) 276,500
-------------------------------------------------------------------------------------------
3,000 Hewlett-Packard Co. 299,625
-------------------------------------------------------------------------------------------
576,125
-------------------------------------------------------------------------------------------
COMPUTER NETWORKING-0.88%
4,200 Bay Networks, Inc.(c) 123,900
-------------------------------------------------------------------------------------------
5,000 Cisco Systems, Inc.(c) 175,007
-------------------------------------------------------------------------------------------
6,000 DSC Communications Corp.(c) 215,250
-------------------------------------------------------------------------------------------
514,157
-------------------------------------------------------------------------------------------
COMPUTER PERIPHERALS-0.31%
4,000 Oracle Systems Corp. 176,500
-------------------------------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.86%
6,500 Adobe Systems, Inc. 193,375
-------------------------------------------------------------------------------------------
3,000 Microsoft Corp.(c) 183,375
-------------------------------------------------------------------------------------------
4,000 Silicon Graphics, Inc.(c) 123,500
-------------------------------------------------------------------------------------------
500,250
-------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE> 224
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
CONGLOMERATES-2.12%
7,000 Allied-Signal, Inc. $ 238,000
-------------------------------------------------------------------------------------------
7,000 Corning, Inc. 209,125
-------------------------------------------------------------------------------------------
4,000 Dial Corp. (The) 85,000
-------------------------------------------------------------------------------------------
3,500 Dupont (E.I.) de Nemours & Co. 196,875
-------------------------------------------------------------------------------------------
3,000 ITT Corp. 265,875
-------------------------------------------------------------------------------------------
3,500 TRW, Inc. 231,000
-------------------------------------------------------------------------------------------
1,225,875
-------------------------------------------------------------------------------------------
CONTAINERS-0.12%
2,300 Ball Corp. 72,450
-------------------------------------------------------------------------------------------
COSMETICS/TOILETRIES-0.97%
7,500 Gillette Co. (The) 560,625
-------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS-1.78%
11,000 General Electric Co. 561,000
-------------------------------------------------------------------------------------------
16,000 Philips Electronics N.V.-New York Shares-ADR(c) 470,000
-------------------------------------------------------------------------------------------
1,031,000
-------------------------------------------------------------------------------------------
ELECTRONIC/DEFENSE-0.41%
2,500 General Motors Corp.-Class H 87,187
-------------------------------------------------------------------------------------------
5,000 Watkins-Johnson Co. 148,750
-------------------------------------------------------------------------------------------
235,937
-------------------------------------------------------------------------------------------
ELECTRONIC/PC DISTRIBUTORS-0.76%
6,000 Arrow Electronics, Inc.(c) 215,250
-------------------------------------------------------------------------------------------
6,000 Avnet, Inc. 222,000
-------------------------------------------------------------------------------------------
437,250
-------------------------------------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.36%
6,000 Schwab (Charles) Corp. 209,250
-------------------------------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-3.52%
8,000 American Express Co. 236,000
-------------------------------------------------------------------------------------------
4,000 Federal Home Loan Mortgage Association 202,000
-------------------------------------------------------------------------------------------
10,000 Federal National Mortgage Association 728,750
-------------------------------------------------------------------------------------------
8,600 Green Tree Financial Corp. 261,225
-------------------------------------------------------------------------------------------
15,000 MBNA Corp. 350,625
-------------------------------------------------------------------------------------------
4,000 Student Loan Marketing Association 130,000
-------------------------------------------------------------------------------------------
3,500 SunAmerica, Inc. 126,875
-------------------------------------------------------------------------------------------
2,035,475
-------------------------------------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-0.46%
6,000 St. Paul Companies, Inc. 268,500
-------------------------------------------------------------------------------------------
LEISURE & RECREATION-0.37%
11,500 Brunswick Corp. 217,062
-------------------------------------------------------------------------------------------
MACHINE TOOLS-0.20%
4,800 Cincinnati Milacron, Inc. 113,400
-------------------------------------------------------------------------------------------
</TABLE>
F-6
<PAGE> 225
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
MACHINERY (HEAVY)-1.09%
3,750 Agco Corp. 113,906
-------------------------------------------------------------------------------------------
4,000 Caterpillar, Inc. 220,500
-------------------------------------------------------------------------------------------
4,000 Foster Wheeler Corp. 119,000
-------------------------------------------------------------------------------------------
6,000 Trinova Corp. 176,250
-------------------------------------------------------------------------------------------
629,656
-------------------------------------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.47%
6,000 Thermo Electron Corp.(c) $ 269,283
-------------------------------------------------------------------------------------------
MEDICAL (DRUGS)-1.15%
12,000 Abbott Laboratories 391,500
-------------------------------------------------------------------------------------------
3,200 Johnson & Johnson 175,200
-------------------------------------------------------------------------------------------
4,000 Teva Pharmaceuticals Industries, Inc.-ADR(c) 96,750
-------------------------------------------------------------------------------------------
663,450
-------------------------------------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-0.03%
1,100 Isolyser Co., Inc.(c) 19,800
-------------------------------------------------------------------------------------------
MEDICAL SERVICES-1.35%
9,000 Baxter International, Inc. 254,250
-------------------------------------------------------------------------------------------
4,500 Columbia/HCA Healthcare 164,250
-------------------------------------------------------------------------------------------
3,500 Foundation Health Corp.(c) 108,500
-------------------------------------------------------------------------------------------
4,500 Quantum Health Resources, Inc. 129,375
-------------------------------------------------------------------------------------------
3,000 US Healthcare Corp. 123,750
-------------------------------------------------------------------------------------------
780,125
-------------------------------------------------------------------------------------------
METAL-0.30%
4,000 Illinois Tool Works, Inc. 175,000
-------------------------------------------------------------------------------------------
OFFICE AUTOMATION-0.50%
2,900 Xerox Corp. 287,100
-------------------------------------------------------------------------------------------
OFFICE PRODUCTS-0.39%
6,300 Avery-Dennison Corp. 223,650
-------------------------------------------------------------------------------------------
OIL & GAS-0.35%
2,400 Mobil Corp. 202,200
-------------------------------------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-0.52%
4,000 Halliburton Co. 132,500
-------------------------------------------------------------------------------------------
10,000 Transco Energy Co. 166,250
-------------------------------------------------------------------------------------------
298,750
-------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.60%
6,000 Federal Paper Board Co., Inc. 174,000
-------------------------------------------------------------------------------------------
3,500 Mead Corp. (The) 170,187
-------------------------------------------------------------------------------------------
344,187
-------------------------------------------------------------------------------------------
REAL ESTATE-0.24%
8,000 Webb (Del) Corp. 141,000
-------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE> 226
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS-3.29%
5,000 Avalon Properties, Inc. 115,000
-------------------------------------------------------------------------------------------
13,000 Bay Apartment Communities(c) 261,625
-------------------------------------------------------------------------------------------
25,000 Equity Inns, Inc. 275,000
-------------------------------------------------------------------------------------------
2,700 Felcor Suite Hotels Inc. 52,650
-------------------------------------------------------------------------------------------
25,000 Innkeepers USA Trust 181,250
-------------------------------------------------------------------------------------------
4,000 Meditrust 121,000
-------------------------------------------------------------------------------------------
2,200 Mid-America Apartment Communities 58,850
-------------------------------------------------------------------------------------------
9,500 National Health Investors, Inc. 248,187
-------------------------------------------------------------------------------------------
10,200 Oasis Residential Inc. 249,900
-------------------------------------------------------------------------------------------
14,900 RFS Hotel Investors Inc. 217,912
-------------------------------------------------------------------------------------------
10,000 South West Property Trust 122,500
-------------------------------------------------------------------------------------------
1,903,874
-------------------------------------------------------------------------------------------
RESTAURANTS-0.20%
4,500 Sbarro Inc. $ 117,000
-------------------------------------------------------------------------------------------
RETAIL STORES-1.77%
10,000 Circuit City Stores, Inc. 222,500
-------------------------------------------------------------------------------------------
5,000 Dayton Hudson Corp. 353,750
-------------------------------------------------------------------------------------------
12,000 Federated Department Stores(c) 231,000
-------------------------------------------------------------------------------------------
7,000 Toys 'R' Us Inc.(c) 213,500
-------------------------------------------------------------------------------------------
1,020,750
-------------------------------------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.30%
5,000 Varian Associates, Inc. 175,000
-------------------------------------------------------------------------------------------
SEMICONDUCTORS-2.71%
4,600 Applied Materials Inc.(c) 194,350
-------------------------------------------------------------------------------------------
2,000 Intel Corp. 127,750
-------------------------------------------------------------------------------------------
10,000 National Semiconductor Corp.(c) 195,000
-------------------------------------------------------------------------------------------
14,000 Texas Instruments Inc. 1,048,250
-------------------------------------------------------------------------------------------
1,565,350
-------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-4.76%
10,000 ALC Communications Corp.(c) 311,250
-------------------------------------------------------------------------------------------
12,000 American Telephone & Telegraph Co. 603,000
-------------------------------------------------------------------------------------------
13,000 British Sky-ADR(c) 312,000
-------------------------------------------------------------------------------------------
6,000 Grupo Iusacell, S.A. de C.V.-ADR(c) 111,750
-------------------------------------------------------------------------------------------
4,500 Nokia Corp. ADR(c) 337,500
-------------------------------------------------------------------------------------------
3,800 PT Indostat-ADR 135,850
-------------------------------------------------------------------------------------------
5,000 Sprint Corp. 138,125
-------------------------------------------------------------------------------------------
4,700 Tele Danmark A/S-ADR(c) 119,850
-------------------------------------------------------------------------------------------
2,500 Telecom Corp. of New Zealand Limited-ADR 128,437
-------------------------------------------------------------------------------------------
2,700 Telefonaktiebolaget L.M. Ericsson 149,341
-------------------------------------------------------------------------------------------
7,300 Telefonaktiebolaget L.M. Ericsson-ADR 402,412
-------------------------------------------------------------------------------------------
2,749,515
-------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE> 227
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
TEXTILES-0.35%
8,000 Fieldcrest Cannon Inc.(c) 204,000
-------------------------------------------------------------------------------------------
TOBACCO-0.70%
7,000 Philip Morris Companies Inc. 402,500
-------------------------------------------------------------------------------------------
UTILITIES-2.97%
7,000 ALLTEL Corp. 210,875
-------------------------------------------------------------------------------------------
5,000 Ameritech Corp. 201,875
-------------------------------------------------------------------------------------------
4,000 Bell Atlantic Corp. 199,000
-------------------------------------------------------------------------------------------
5,600 Chilgener S.A.-ADR 137,900
-------------------------------------------------------------------------------------------
5,100 Nynex Corp. 187,425
-------------------------------------------------------------------------------------------
5,400 Royal PTT Nederland N.V.-ADR(a)(c)
(Acquired 06/13/94; cost $144,443) 182,250
-------------------------------------------------------------------------------------------
5,500 Southwestern Bell Corp. 222,062
-------------------------------------------------------------------------------------------
1,075 Veba A.G. 374,588
-------------------------------------------------------------------------------------------
1,715,975
-------------------------------------------------------------------------------------------
Total Common Stocks 28,899,532
-------------------------------------------------------------------------------------------
PREFERRED STOCKS-5.70%
AUTOMOBILE/TRUCKS PARTS & TIRES-0.21%
2,000 Federal-Mogul Corp., Series D, $3.87 Conv. Pfd.(a)
(Acquired 04/19/94; cost $177,000) $ 122,806
-------------------------------------------------------------------------------------------
AUTOMOBILE MANUFACTURERS-1.35%
2,000 Chrysler Corp., Series A, $4.625 Conv. Dep. Pfd.(a)
(Acquired 07/28/92-09/11/92; cost $137,146) 272,119
-------------------------------------------------------------------------------------------
3,000 Ford Motor Co., Series A, $4.20 Conv. Pfd. 276,000
-------------------------------------------------------------------------------------------
4,000 General Motors Corp., Series C, $3.25 Conv. Dep. Pfd. 229,500
-------------------------------------------------------------------------------------------
777,619
-------------------------------------------------------------------------------------------
BANKING (MONEY CENTER)-0.66%
3,000 Chemical Banking Corp., $5.00 Conv. Pfd. 206,250
-------------------------------------------------------------------------------------------
1,500 Citicorp, $5.375 Conv. Pfd. 172,376
-------------------------------------------------------------------------------------------
378,626
-------------------------------------------------------------------------------------------
CHEMICALS-0.54%
12,000 Atlantic Richfield Co., $2.2275 Conv. Pfd. DECS 313,500
-------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS-0.51%
22,000 Westinghouse Electric Corp.,-Series C, $1.30 Conv. Dep.
Pfd.(a) (Acquired 03/22/94; cost $317,680) 297,000
-------------------------------------------------------------------------------------------
FUNERAL SERVICES-0.63%
7,000 Service Corp. International, $3.125 Conv. Pfd. 364,000
-------------------------------------------------------------------------------------------
RETAIL STORES-0.22%
3,000 Best Buy Co., Inc., $3.24 Conv. Dep. Pfd., 128,625
-------------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE> 228
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
STEEL-1.20%
10,000 AK Steel, $2.15 Conv. Dep. Pfd. SAILS 312,500
-------------------------------------------------------------------------------------------
9,000 WHX Corp., $3.91 Conv. Dep. Pfd. 382,500
-------------------------------------------------------------------------------------------
695,000
-------------------------------------------------------------------------------------------
UTILITIES-0.38%
4,000 Philippine Long Distance Telephone Co., $3.50 Conv. Pfd. 216,500
-------------------------------------------------------------------------------------------
Total Preferred Stocks 3,293,676
-------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-15.48%
U.S. Treasury Notes
$5,000,000 7.50%, 12/31/96 4,982,050
-------------------------------------------------------------------------------------------
1,800,000 5.75%, 08/15/03 1,565,676
-------------------------------------------------------------------------------------------
2,500,000 7.25%, 08/15/04 2,399,600
-------------------------------------------------------------------------------------------
3,965,276
-------------------------------------------------------------------------------------------
Total U.S. Treasury Securities 8,947,326
-------------------------------------------------------------------------------------------
Total Investments (excluding Repurchase Agreement) 52,497,231
-------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT-16.92%(d)
9,780,425 Daiwa Securities America Inc., 3.50%, 01/03/95(e) 9,780,425
-------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES-107.72% 62,277,656
-------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(7.72%) (4,460,240)
-------------------------------------------------------------------------------------------
NET ASSETS-100.00% $57,817,416
===========================================================================================
</TABLE>
Notes to Schedule of Investments:
(a) Restricted security. May be resold to
qualified institutional buyers in
accordance with the provisions of Rule 144A
under the Securities Act of 1933, as
amended. The valuation of these securities
has been determined in accordance with
procedures established by the Board of
Trustees. The aggregate market value of
these securities at December 31, 1994, was
$1,442,675, which represented 2.50% of the
net assets.
(b) Zero coupon bonds. The interest rate shown
represents the rate of original issue
discount.
(c) Non-income producing security.
(d) Collateral on repurchase agreements,
including the Fund's pro-rata interest
in joint repurchase agreements, is taken
into possession by the Fund upon entering
into the repurchase agreement. The
collateral is marked to market daily to
ensure its market value as being 102 percent
of the sales price of the repurchase
agreement.
(e) Joint repurchase agreement entered into
12/30/94 with a maturing value of
$391,353,115. Collateralized by
$426,987,000 U.S. Treasury obligations,
4.75% to 9.25% due 01/15/96 to 11/15/24. The
aggregate market value of the collateral at
12/30/94 was $399,025,510. The Fund's
pro-rata interest in the collateral at
12/31/94 was $9,976,046.
Abbreviations:
ADR-American Depositary Receipt
CAD-Canadian dollars
Conv.-Convertible
Deb.-Debenture
DECS-Debt Exchangeable for Common Stock
Dep.-Depository
Pfd.-Preferred
SAILS-Stock Appreciation Income Linked
Securities
Sr.-Senior
Sub.-Subordinated
See Notes to Financial Statements.
F-10
<PAGE> 229
FINANCIALS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $53,385,344) $52,497,231
- ---------------------------------------------------------------------------------------
Repurchase agreements (cost $9,780,425) 9,780,425
- ---------------------------------------------------------------------------------------
Foreign currencies, at market value (cost $344) 342
- ---------------------------------------------------------------------------------------
Receivables for:
Investments sold 128,537
- ---------------------------------------------------------------------------------------
Fund shares sold 387,818
- ---------------------------------------------------------------------------------------
Interest and dividends 470,519
- ---------------------------------------------------------------------------------------
Investment for deferred compensation plan 3,542
- ---------------------------------------------------------------------------------------
Other assets 14,767
- ---------------------------------------------------------------------------------------
Total assets 63,283,181
- ---------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 5,102,147
- ---------------------------------------------------------------------------------------
Fund shares reacquired 244,924
- ---------------------------------------------------------------------------------------
Deferred compensation plan 3,542
- ---------------------------------------------------------------------------------------
Accrued advisory fees 36,168
- ---------------------------------------------------------------------------------------
Accrued administrative service fees 4,667
- ---------------------------------------------------------------------------------------
Accrued distribution fees 35,483
- ---------------------------------------------------------------------------------------
Accrued trustees' fees 1,101
- ---------------------------------------------------------------------------------------
Accrued operating expenses 37,733
- ---------------------------------------------------------------------------------------
Total liabilities 5,465,765
- ---------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $57,817,416
=======================================================================================
NET ASSETS:
Class A $37,572,016
=======================================================================================
Class B $20,245,400
=======================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 2,570,636
=======================================================================================
Class B 1,384,910
=======================================================================================
Class A:
Net asset value and redemption price per share $ 14.62
=======================================================================================
Offering price per share:
(Net asset value of $14.62 / 95.25%) $ 15.35
=======================================================================================
Class B:
Net asset value and offering price per share $ 14.62
=======================================================================================
</TABLE>
See Notes to Financial Statements.
F-11
<PAGE> 230
FINANCIALS
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 1,261,270
- ---------------------------------------------------------------------------------------
Dividends 692,416
- ---------------------------------------------------------------------------------------
Total investment income 1,953,686
- ---------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 137,235
- ---------------------------------------------------------------------------------------
Custodian fees 32,746
- ---------------------------------------------------------------------------------------
Distribution fees-Class A 79,663
- ---------------------------------------------------------------------------------------
Distribution fees-Class B 127,368
- ---------------------------------------------------------------------------------------
Administrative service fees 81,734
- ---------------------------------------------------------------------------------------
Trustees' fees 5,251
- ---------------------------------------------------------------------------------------
Transfer agent fees-Class A 58,429
- ---------------------------------------------------------------------------------------
Transfer agent fees-Class B 31,941
- ---------------------------------------------------------------------------------------
Printing expenses 33,149
- ---------------------------------------------------------------------------------------
Other 73,421
- ---------------------------------------------------------------------------------------
Total expenses 660,937
- ---------------------------------------------------------------------------------------
Net investment income 1,292,749
- ---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) on sales of:
- ---------------------------------------------------------------------------------------
Investment securities (1,545,230)
- ---------------------------------------------------------------------------------------
Foreign currencies (1,732)
- ---------------------------------------------------------------------------------------
(1,546,962)
- ---------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of:
- ---------------------------------------------------------------------------------------
Investment securities (2,365,355)
- ---------------------------------------------------------------------------------------
Foreign currencies (132)
- ---------------------------------------------------------------------------------------
(2,365,487)
- ---------------------------------------------------------------------------------------
Net gain (loss) on investment securities and foreign currencies (3,912,449)
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(2,619,700)
=======================================================================================
</TABLE>
See Notes to Financial Statements.
F-12
<PAGE> 231
FINANCIALS
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1994 and the four months ended December 31, 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,292,749 $ 129,784
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities
and foreign currencies (1,546,962) 1,763,877
- -----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (2,365,487) (1,568,080)
- -----------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (2,619,700) 325,581
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (841,828) (191,513)
- -----------------------------------------------------------------------------------------
Class B (264,264) (5,226)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (542,894) --
- -----------------------------------------------------------------------------------------
Class B (294,134) --
- -----------------------------------------------------------------------------------------
Distributions to shareholders in excess of net realized
capital gains:
Class A (8,772) --
- -----------------------------------------------------------------------------------------
Class B (4,752) --
- -----------------------------------------------------------------------------------------
Net equalization credits 516,289 92,746
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 17,028,360 3,824,848
- -----------------------------------------------------------------------------------------
Class B 18,575,216 2,730,566
- -----------------------------------------------------------------------------------------
Net increase in net assets 31,543,521 6,777,002
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 26,273,895 19,496,893
- -----------------------------------------------------------------------------------------
End of period $57,817,416 $26,273,895
=========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $59,203,842 $23,600,266
- -----------------------------------------------------------------------------------------
Undistributed net investment income 1,062,305 359,359
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities and foreign currencies (1,560,486) 837,028
- -----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (888,245) 1,477,242
- -----------------------------------------------------------------------------------------
$57,817,416 $26,273,895
=========================================================================================
</TABLE>
See Notes to Financial Statements.
F-13
<PAGE> 232
FINANCIALS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Balanced Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of nine separate series portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers two different classes of shares: the Class A shares and the
Class B shares. Class A shares are sold with a front-end sales charge. Class B
shares are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. Security Valuations-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. 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. Non-convertible bonds
and notes are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as institution-size trading in similar groups of securities,
developments related to special securities, yield, quality, coupon, rate,
maturity, type of issue, individual trading characteristics and other market
data. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision
of the Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
C. Bond Premiums and Discounts-It is the policy of the Fund not to amortize
market discounts and premiums on bonds for financial reporting purposes.
D. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements. The Fund has a capital loss carryforward of
$1,337,796 (which may be carried forward to offset future taxable capital
gains, if any) which expires, if not previously utilized, in the year 2002.
E. Equalization-The Fund follows the accounting practice known as equalization
by which a portion of the proceeds from sales and the costs of repurchases of
Fund shares, equivalent on a per share basis to the amount of undistributed
net investment income, is credited or charged to undistributed income when
the transaction is recorded so the undistributed net investment income per
share is unaffected by sales or redemptions of Fund shares.
F. Expenses-Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g. advisory fees, are allocated between them. Expenses of the
Trust which are not directly attributable to the operations of any class of
shares or portfolio of the Trust are prorated among the classes to which the
expense relates based upon the relative net assets of each class.
G. Foreign Currency Translation-Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
H. Foreign Currency Contracts-A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward contract to attempt to minimize the
risk to the Fund from adverse changes in the relationship between securities.
The Fund may also enter into a forward contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of that security. The Fund could be exposed to risk if
counterparties
F-14
<PAGE> 233
FINANCIALS
to the contracts are unable to meet the terms of their contracts or if the
value of the foreign currency changes unfavorably.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays AIM an advisory fee at an annual rate of 0.75% of the
first $150 million of the Fund's average daily net assets plus 0.50% of the
Fund's average daily net assets in excess of $150 million. This agreement
requires AIM to reduce its fees or, if necessary, make payments to the Fund to
the extent required to satisfy any expense limitations imposed by the securities
laws or regulations thereunder of any state in which the Fund's shares are
qualified for sale. AIM agreed to voluntarily waive advisory fees of 0.50% of
the Fund's average daily net assets during 1994. During the year ended December
31, 1994, AIM waived advisory fees of $201,586. Effective January 1995, AIM has
agreed to voluntarily waive advisory fees of 0.25% of the Fund's average daily
net assets. The waiver is voluntary and can be discontinued at any time.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting and shareholder services to the Fund. During the year ended December
31, 1994, AIM was reimbursed $81,734 for such services. Effective November 1,
1994, A I M Fund Services, Inc. ("AFS") became the transfer agent for the Fund
and was paid $10,700 for such services during the two months ended December 31,
1994.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares (the
"Class B Plan")(collectively, the "Plans"). The Fund, pursuant to the Class A
Plan, pays AIM Distributors compensation at an annual rate of 0.25% of the
average daily net assets attributable to the Class A shares. The Class A Plan is
designed to compensate AIM Distributors for certain promotional and other sales
related costs, and to implement a program which provides periodic payments to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class A shares of
the Fund. The Fund, pursuant to the Class B Plan, pays AIM Distributors
compensation at an annual rate of 1.00% of the average daily net assets
attributable to the Class B shares. Of this amount, the Fund may pay a service
fee of 0.25% of the average daily net assets of the Class B shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own Class B shares of the Fund. Any
amounts not paid as a service fee under such Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the year ended December 31, 1994, the Class A shares and the
Class B shares paid AIM Distributors $79,663 and $127,368, respectively, as
compensation under the Plans.
AIM Distributors received commissions of $63,481 from sales of the Class A
shares of the Fund during the year ended December 31, 1994. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 1994,
AIM Distributors received $28,532 in contingent deferred sales charges imposed
on redemptions of Class B shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1994, the Fund paid legal fees of $3,018
for services rendered by Reid & Priest as counsel to the Board of Trustees.
Effective September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was
appointed as counsel to the Board of Trustees. The Fund paid legal fees of $194
for services rendered by that firm as counsel. A member of that firm is a
trustee of the Trust.
NOTE 3-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of the Trust. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1994 was
$61,228,478 and $29,484,378, respectively.
F-15
<PAGE> 234
FINANCIALS
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1994 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 2,389,863
- ----------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,337,732)
- ----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities $ (947,869)
==================================================================================
</TABLE>
Cost of investments for tax purposes is $53,445,100.
NOTE 5-SHARE INFORMATION
Changes in shares outstanding during the year ended December 31, 1994 and the
four months ended December 31, 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ -----------------------
SHARES VALUE SHARES VALUE
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 1,622,265 $24,865,959 341,507 $ 5,454,065
- -----------------------------------------------------------------------------------------
Class B* 1,362,158 20,837,893 175,555 2,804,614
- -----------------------------------------------------------------------------------------
Issued as reinvestment of
dividends:
Class A 76,775 1,081,610 8,104 127,654
- -----------------------------------------------------------------------------------------
Class B* 33,584 459,716 293 4,612
- -----------------------------------------------------------------------------------------
Reacquired:
Class A (589,475) (8,919,209) (109,571) (1,756,871)
- -----------------------------------------------------------------------------------------
Class B* (181,713) (2,722,393) (4,968) (78,660)
- -----------------------------------------------------------------------------------------
2,323,594 $35,603,576 410,920 $ 6,555,414
=========================================================================================
</TABLE>
* Sales of Class B shares commenced on October 18, 1993.
F-16
<PAGE> 235
FINANCIALS
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a Class A share
outstanding during the year ended December 31, 1994, the four months ended
December 31, 1993 and each of the years in the eight-year period ended August
31, 1993 and for a Class B share outstanding during the year ended December 31,
1994, and the period October 18, 1993 (date sales commenced) through December
31, 1993. Prior to October 15, 1993, the Fund was known as AIM Convertible
Securities, Inc. and had a different investment objective.
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
----------------------- --------------------------------------------------------------------------
CLASS A: 1994 1993 1993 1992 1991 1990 1989 1988 1987 1986
- ---------------------- ------- ------- ------- ------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 16.10 $ 15.97 $ 12.77 $ 12.04 $ 9.73 $ 10.67 $ 9.08 $ 11.89 $ 12.89 $ 11.82
- ---------------------- ------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.44 0.10 0.32 0.29 0.28 0.32 0.39 0.42 0.55 0.67
- ---------------------- ------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Net gains (losses)
on securities
(both realized
and unrealized) (1.31) 0.18 3.18 0.74 2.33 (0.91) 1.63 (2.65) 0.15 1.65
- ---------------------- ------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Total from
investment
operations (0.87) 0.28 3.50 1.03 2.61 (0.59) 2.02 (2.23) 0.70 2.32
- ---------------------- ------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.39) (0.15) (0.30) (0.30) (0.30) (0.35) (0.43) (0.50) (0.66) (0.72)
- ---------------------- ------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Distributions from
net realized
capital gains (0.22) -- -- -- -- -- -- (0.08) (1.04) (0.53)
- ---------------------- ------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Total distributions (0.61) (0.15) (0.30) (0.30) (0.30) (0.35) (0.43) (0.58) (1.70) (1.25)
- ---------------------- ------- ------- ------- ------- -------- -------- ------- ------- ------- -------
Net asset value,
end of period $ 14.62 $ 16.10 $ 15.97 $ 12.77 $ 12.04 $ 9.73 $ 10.67 $ 9.08 $ 11.89 $ 12.89
====================== ======= ======= ======= ======= ======== ======== ======= ======= ======= =======
Total return(a) (5.44)% 1.76% 27.75% 8.66% 27.41% (5.67)% 22.96% (18.57)% 5.78% 20.33%
====================== ======= ======= ======= ======= ======== ======== ======= ======= ======= =======
Ratios/supplemental
data:
Net assets, end of
period (000s
omitted) $37,572 $23,520 $19,497 $11,796 $ 11,750 $ 10,965 $14,405 $16,789 $27,973 $20,376
====================== ======= ======= ======= ======= ======== ======== ======= ======= ======= =======
Ratio of expenses to
average net assets 1.25%(b)(c) 2.17%(d) 2.07% 2.12% 2.39% 2.15% 1.94% 2.31% 1.87% 1.50%
====================== ======= ======= ======= ======= ======== ======== ======= ======= ======= =======
Ratio of net
investment income
to average net
assets 3.07%(b)(c) 1.81%(d) 2.23% 2.32% 2.74% 3.18% 3.99% 4.50% 4.54% 5.43%
====================== ======= ======= ======= ======= ======== ======== ======= ======= ======= =======
Portfolio
turnover rate 76.18% 233.10% 154.47% 165.53% 208.11% 307.08% 149.42% 117.73% 249.93% 192.35%
====================== ======= ======= ======= ======= ======== ======== ======= ======= ======= =======
Borrowings for
the period:
Amount of debt
outstanding at
end of period -- -- -- -- -- -- $260,000 -- -- --
- ---------------------- ------- ------- ------- ------- -------- -------- -------- ------ ------- -------
Average amount of
debt outstanding
during the period(e) -- -- -- -- -- $138,181 $ 83,195 -- -- --
- ---------------------- ------- ------- ------- ------- -------- -------- -------- ------ ------- -------
Average number of
shares outstanding
during the period
(000s omitted)(e) 2,061 1,305 1,046 939 1,051 1,238 1,589 2,131 2,010 1,709
- ---------------------- ------- ------- ------- ------- -------- -------- -------- ------ ------- -------
Average amount of
debt per share
during the period -- -- -- -- -- $ 0.110 $ 0.052 -- -- --
- ---------------------- ------- ------- ------- ------- -------- -------- -------- ------ ------- -------
</TABLE>
(a) Total returns do not deduct sales charges and are not annualized for periods
less than one year.
(b) Ratios are based on average net assets of $31,893,214.
(c) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 1.68% and 2.64%,
respectively.
(d) Annualized.
(e) Averages computed on a daily basis.
<TABLE>
<CAPTION>
CLASS B: 1994 1993
- ----------------------------------------------------------------------------------------------- ------- -------
<S> <C> <C>
Net asset value, beginning of period $ 16.11 $ 16.69
- ----------------------------------------------------------------------------------------------- ------- -------
Income from investment operations:
- ----------------------------------------------------------------------------------------------- ------- -------
Net investment income 0.31 0.04
- ----------------------------------------------------------------------------------------------- ------- -------
Net gains (losses) on securities (both realized and unrealized) (1.31) (0.58)
- ----------------------------------------------------------------------------------------------- ------- -------
Total from investment operations (1.00) (0.54)
- ----------------------------------------------------------------------------------------------- ------- -------
Less distributions:
Dividends from net investment income (0.27) (0.04)
- ----------------------------------------------------------------------------------------------- ------- -------
Distributions from net realized capital gains (0.22) --
- ----------------------------------------------------------------------------------------------- ------- -------
Total distributions (0.49) (0.04)
- ----------------------------------------------------------------------------------------------- ------- -------
Net asset value, end of period $ 14.62 $ 16.11
=============================================================================================== ====== =======
Total return(a) (6.23)% (3.23)%(b)
=============================================================================================== ====== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $20,245 $ 2,754
=============================================================================================== ====== =======
Ratio of expenses to average net assets 1.98%(c)(d) 2.83%(e)
=============================================================================================== ====== =======
Ratio of net investment income to average net assets 2.34%(c)(d) 1.15%(e)
=============================================================================================== ====== =======
Portfolio turnover rate 76.18% 233.10%
=============================================================================================== ====== =======
</TABLE>
(a) Does not deduct contingent deferred sales charge.
(b) Total return is not annualized.
(c) Ratios are based on average net assets of $13,282,960.
(d) After waiver of advisory fees. Ratios of expenses and net investment income
prior to waiver of advisory fees are 2.45% and 1.87%, respectively.
(e) Annualized.
F-17
<PAGE> 236
AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Government Securities Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Government Securities Fund (a portfolio of AIM Funds Group), including the
schedule of investments, as of December 31, 1994, and the related statements of
operations for the year then ended, the changes in its net assets and the
financial highlights for each of the years in the two-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of AIM Government Securities Fund as of December 31, 1994, the results
of its operations for the year then ended, the changes in its net assets and
the financial highlights for each of the years in the two-year period then
ended, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
February 3, 1995
F-18
<PAGE> 237
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCIES-83.77%
FEDERAL HOME LOAN BANK BOARD-5.61%
Medium term notes
$ 3,000,000 7.69%, 12/16/96 $ 2,994,060
- ------------------------------------------------------------------------------------------------
4,000,000 7.15%, 07/22/99 3,851,840
- ------------------------------------------------------------------------------------------------
3,300,000 8.375%, 10/25/99 3,343,593
- ------------------------------------------------------------------------------------------------
10,189,493
- ------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION-15.38%
Debentures
1,000,000 7.125%, 11/18/02 945,360
- ------------------------------------------------------------------------------------------------
4,500,000 10.50%, 06/01/17 4,755,870
- ------------------------------------------------------------------------------------------------
Pass through certificates
5,109,899 8.00%, 07/01/06 to 11/01/09 5,002,278
- ------------------------------------------------------------------------------------------------
45,436 12.00%, 02/01/13 49,525
- ------------------------------------------------------------------------------------------------
89,068 10.00%, 11/01/11 to 02/01/16 92,964
- ------------------------------------------------------------------------------------------------
11,752,685 9.00%, 12/01/05 to 09/01/20 11,936,327
- ------------------------------------------------------------------------------------------------
5,229,065 8.50%, 12/01/05 to 08/01/24 5,165,477
- ------------------------------------------------------------------------------------------------
27,947,801
- ------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION-35.14%
Debentures
4,100,000 11.50%, 02/10/95 4,124,108
- ------------------------------------------------------------------------------------------------
4,000,000 8.20%, 03/10/98 4,017,080
- ------------------------------------------------------------------------------------------------
2,000,000 7.05%, 12/10/98 1,933,960
- ------------------------------------------------------------------------------------------------
5,500,000 8.625%, 11/10/04 5,569,795
- ------------------------------------------------------------------------------------------------
Medium term notes
3,500,000 7.68%, 12/01/97 3,462,690
- ------------------------------------------------------------------------------------------------
2,500,000 7.24%, 09/02/99 2,409,400
- ------------------------------------------------------------------------------------------------
2,000,000 7.65%, 10/20/99 1,957,220
- ------------------------------------------------------------------------------------------------
Pass through certificates
1,511,270 9.00%, 11/01/06 1,535,328
- ------------------------------------------------------------------------------------------------
1,914,811 7.50%, 07/01/09 1,833,413
- ------------------------------------------------------------------------------------------------
20,000,000 8.00%, 01/18/10 TBA(a) 19,637,500
- ------------------------------------------------------------------------------------------------
1,049,643 10.50%, 03/01/14 1,118,510
- ------------------------------------------------------------------------------------------------
5,711,286 9.50%, 07/01/16 to 12/01/23 5,896,788
- ------------------------------------------------------------------------------------------------
10,419,795 8.50%, 03/01/06 TO 05/01/24 10,383,824
- ------------------------------------------------------------------------------------------------
63,879,616
- ------------------------------------------------------------------------------------------------
</TABLE>
F-19
<PAGE> 238
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-26.24%
Pass through certificates
$ 402,357 12.50%, 11/15/10 $ 453,021
- ------------------------------------------------------------------------------------------------
791,997 13.50%, 07/15/10 to 04/15/15 902,615
- ------------------------------------------------------------------------------------------------
782,886 13.00%, 01/15/11 to 05/15/15 889,295
- ------------------------------------------------------------------------------------------------
1,216,585 12.00%, 01/15/13 to 07/15/15 1,357,234
- ------------------------------------------------------------------------------------------------
405,503 11.00%, 12/15/09 to 12/15/15 441,865
- ------------------------------------------------------------------------------------------------
347,648 10.50%, 07/15/13 to 02/15/16 371,654
- ------------------------------------------------------------------------------------------------
12,114,404 9.50%, 06/15/09 to 02/15/21 12,530,945
- ------------------------------------------------------------------------------------------------
10,142,813 9.00%, 10/15/08 to 11/15/21 10,262,563
- ------------------------------------------------------------------------------------------------
3,812,987 8.00%, 04/15/17 to 07/15/22 3,675,607
- ------------------------------------------------------------------------------------------------
10,206,491 10.00%, 11/15/09 to 12/01/24 10,743,056
- ------------------------------------------------------------------------------------------------
6,000,000 9.00%, 01/19/25 TBA(a) 6,067,500
- ------------------------------------------------------------------------------------------------
47,695,355
- ------------------------------------------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY-1.40%
Debentures
2,500,000 8.40%, 07/31/01 2,545,825
- ------------------------------------------------------------------------------------------------
2,545,825
- ------------------------------------------------------------------------------------------------
Total U.S. Government Agencies 152,258,090
- ------------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES-18.04%
U.S. TREASURY BONDS AND NOTES-17.32%
5,000,000 12.625%, 05/15/95 5,116,300
- ------------------------------------------------------------------------------------------------
3,000,000 7.50%, 01/31/96 3,005,910
- ------------------------------------------------------------------------------------------------
3,000,000 9.375%, 04/15/96 3,067,680
- ------------------------------------------------------------------------------------------------
4,000,000 7.25%, 11/15/96 3,970,480
- ------------------------------------------------------------------------------------------------
2,000,000 8.875%, 11/15/97 2,053,140
- ------------------------------------------------------------------------------------------------
3,000,000 7.875%, 04/15/98 3,003,450
- ------------------------------------------------------------------------------------------------
5,000,000 9.25%, 01/15/96 to 08/15/98 5,192,480
- ------------------------------------------------------------------------------------------------
3,000,000 7.75%, 11/30/99 2,989,260
- ------------------------------------------------------------------------------------------------
3,000,000 8.50%, 02/15/00 3,081,840
- ------------------------------------------------------------------------------------------------
31,480,540
- ------------------------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE> 239
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY STRIPS-0.72%(b)
$ 1,000,000 8.06% 02/15/12 $ 258,600
- ------------------------------------------------------------------------------------------------
7,000,000 8.04% 02/15/19 1,045,800
- ------------------------------------------------------------------------------------------------
1,304,400
- ------------------------------------------------------------------------------------------------
Total U.S. Treasury Securities 32,784,940
- ------------------------------------------------------------------------------------------------
Total Investments (excluding repurchase agreements) 185,043,030
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT 11.15%(c)
Goldman, Sachs & Co.
20,265,342 5.75%, 01/03/95(d) 20,265,342
- ------------------------------------------------------------------------------------------------
Total Repurchase Agreements 20,265,342
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-112.96% 205,308,372
- ------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITES-(12.96%) (23,552,524)
- ------------------------------------------------------------------------------------------------
NET ASSETS-100.00% $181,755,848
================================================================================================
</TABLE>
F-21
<PAGE> 240
FINANCIALS
NOTES TO SCHEDULE OF INVESTMENTS:
(a) At 12/31/94, cost of securities purchased on a when-issued basis
totaled $25,758,438.
(b) U.S. Treasury STRIPS are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received
at the time of purchase by the Fund.
(c) Collateral on repurchase agreements, including the Fund's pro rata
interest in joint repurchase agreements, is taken into possession by
the Fund upon entering into the repurchase agreement. The collateral
is marked to market daily to ensure its market value as being 102% of
the sales price of the repurchase agreement.
(d) Joint repurchase agreement entered into 12/30/94 with a maturing value
of $52,570,761. Collateralized by $53,268,000 U.S. Treasury
obligations, 0.00% to 11.25% due 02/15/95 to 05/15/97. The aggregate
market value of collateral at 12/31/94 was $53,647,034. The Fund's
pro-rata interest in the collateral was $20,693,444.
See Notes to Financial Statements.
F-22
<PAGE> 241
FINANCIALS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at market value
(cost $190,790,188) $185,043,030
- ----------------------------------------------------------------------------------------
Repurchase agreements (cost $20,265,342) 20,265,342
- ----------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 1,055,894
- ----------------------------------------------------------------------------------------
Interest 2,092,544
- ----------------------------------------------------------------------------------------
Investment for deferred compensation plan 10,378
- ----------------------------------------------------------------------------------------
Other assets 192,420
- ----------------------------------------------------------------------------------------
Total assets 208,659,608
- ----------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 25,758,438
- ----------------------------------------------------------------------------------------
Fund shares redeemed 533,259
- ----------------------------------------------------------------------------------------
Dividends 334,355
- ----------------------------------------------------------------------------------------
Deferred compensation plan 10,378
- ----------------------------------------------------------------------------------------
Accrued advisory fees 77,211
- ----------------------------------------------------------------------------------------
Accrued administrative service fees 254
- ----------------------------------------------------------------------------------------
Accrued distribution fees 105,534
- ----------------------------------------------------------------------------------------
Accrued printing fees 40,520
- ----------------------------------------------------------------------------------------
Accrued professional fees 14,421
- ----------------------------------------------------------------------------------------
Accrued operating expenses 29,390
- ----------------------------------------------------------------------------------------
Total liabilities 26,903,760
- ----------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $181,755,848
========================================================================================
NET ASSETS:
Class A $158,341,194
========================================================================================
Class B $ 23,414,654
========================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 17,603,509
========================================================================================
Class B 2,605,423
========================================================================================
CLASS A:
Net asset value and redemption price per share $ 8.99
========================================================================================
Offering price per share (Net asset value of $8.99/95.25%) $ 9.44
========================================================================================
CLASS B:
Net asset value and offering price per share $ 8.99
========================================================================================
</TABLE>
See Notes to Financial Statements.
F-23
<PAGE> 242
FINANCIALS
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 12,296,175
- ---------------------------------------------------------------------------------------------------------
Total investment income 12,296,175
- ---------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 734,086
- ---------------------------------------------------------------------------------------------------------
Custodian fees 44,788
- ---------------------------------------------------------------------------------------------------------
Distribution fees-Class A 327,060
- ---------------------------------------------------------------------------------------------------------
Distribution fees-Class B 159,848
- ---------------------------------------------------------------------------------------------------------
Administrative service fees 92,487
- ---------------------------------------------------------------------------------------------------------
Filing fees 36,557
- ---------------------------------------------------------------------------------------------------------
Printing fees 92,523
- ---------------------------------------------------------------------------------------------------------
Professional fees 40,079
- ---------------------------------------------------------------------------------------------------------
Transfer agent fees-Class A 97,063
- ---------------------------------------------------------------------------------------------------------
Transfer agent fees-Class B 16,276
- ---------------------------------------------------------------------------------------------------------
Trustees' fees 5,416
- ---------------------------------------------------------------------------------------------------------
Other 31,846
- ---------------------------------------------------------------------------------------------------------
Total expenses 1,678,029
- ---------------------------------------------------------------------------------------------------------
Less expenses assumed by advisor (31,200)
- ---------------------------------------------------------------------------------------------------------
Net expenses 1,646,829
- ---------------------------------------------------------------------------------------------------------
Net investment income 10,649,346
- ---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES:
Net realized gain (loss) on sales of investment securities (10,486,627)
- ---------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (5,639,126)
- ---------------------------------------------------------------------------------------------------------
Net gain (loss) on investment securities (16,125,753)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (5,476,407)
=========================================================================================================
</TABLE>
See Notes to Financial Statements.
F-24
<PAGE> 243
FINANCIALS
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
OPERATIONS:
Net investment income $ 10,649,346 $ 9,721,880
- ---------------------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (10,486,627) 2,029,819
- ---------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (5,639,126) (2,637,549)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (5,476,407) 9,114,150
- ---------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (7,962,122) (9,266,777)
- ---------------------------------------------------------------------------------------------------------
Class B (834,681) (48,922)
- ---------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (652,519) (1,937,810)
- ---------------------------------------------------------------------------------------------------------
Class B (80,521) (73,815)
- ---------------------------------------------------------------------------------------------------------
Return of capital:
Class A (1,369,875) --
- ---------------------------------------------------------------------------------------------------------
Class B (165,673) --
- ---------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 33,619,200 18,180,881
- ---------------------------------------------------------------------------------------------------------
Class B 18,932,857 6,294,249
- ---------------------------------------------------------------------------------------------------------
Net increase in net assets 36,010,259 22,261,956
- ---------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 145,745,589 123,483,633
- ---------------------------------------------------------------------------------------------------------
End of period $181,755,848 $145,745,589
=========================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $196,716,205 $145,699,696
- ---------------------------------------------------------------------------------------------------------
Undistributed net investment income 159,155 (684,640)
- ---------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities (9,372,354) 838,565
- ---------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (5,747,158) (108,032)
- ---------------------------------------------------------------------------------------------------------
$181,755,848 $145,745,589
=========================================================================================================
</TABLE>
See Notes to Financial Statements.
F-25
<PAGE> 244
FINANCIALS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Government Securities Fund (the "Fund") is a series portfolio of AIM Funds
Group (the "Trust"). The Trust is a Delaware business trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate series
portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers two different classes of shares: the Class A
shares and the Class B shares. Class A shares are sold with a front-end sales
charge. Class B shares are sold with a contingent deferred sales charge. Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. Security Valuations - Debt obligations that are issued or guaranteed by
the U.S. Government, its agencies, authorities, and instrumentalities are
valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate, maturity and seasoning differential.
Securities for which market prices are not provided by the
pricing service are valued at the mean between last bid and asked prices
based upon quotes furnished by independent sources. 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 Trust's
officers in a manner specifically authorized by the Board of Trustees.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of
the securities sold. Interest income is recorded as earned from settlement
date and is recorded on the accrual basis. Dividends to shareholders are
declared daily and are paid monthly. On December 31, 1994 $1,008,748, was
reclassified from undistributed net realized gain (loss) to undistributed
net investment income as a result of permanent book/tax differences due to
the differing book/tax treatment for principal paydown losses on mortgage-
backed securities. In addition, $1,535,548 was reclassified from
undistributed net investment income to paid-in-capital, consisting of
$1,008,748 mentioned above and $526,800 of distributions in excess of net
investment income. Net assets of the Fund were unaffected by the
reclassifications discussed above. As of the close of business on November
18, 1994, all of the assets and liabilities ($48,718,113) of AIM
Adjustable Rate Government Fund ("AIM Adjustable") were transferred to the
Fund under an Agreement and Plan of Reorganization. As a result of this
transfer, the Fund will be entitled to utilize the capital loss
carryforward of AIM Adjustable subject to certain limitations. Paid-in
capital has been decreased $2,667,651 with an offset to undistributed net
realized gain (loss) on investment securities to reflect this capital loss
carryforward.
C. Reverse Repurchase Agreements and Dollar Roll Transactions - A reverse
repurchase agreement involves the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an
agreed-upon price and date. Proceeds from reverse repurchase agreements
are treated as borrowings. The agreements are collateralized by the
underlying securities and are carried at the amount at which the
securities will subsequently be repurchased as specified in the
agreements.
The Fund may also engage in dollar roll transactions with respect
to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar
roll transaction, the Fund sells a mortgage security held in the portfolio
to a financial institution such as a bank or broker-dealer, and
simultaneously agrees to repurchase a substantially similar security (same
type, coupon and maturity) from the institution at a later date at an
agreed upon price. The mortgage securities that are repurchased will bear
the same interest rate as those sold, but generally will be collateralized
by different pools of mortgages with different prepayment histories.
During the period between the sale and repurchase, the Fund will not be
entitled to receive interest and principal payments on the securities
sold. Proceeds of the sale will be invested in short-term instruments, and
the income from these investments, together with any additional fee income
received on the sale, could generate income for the Fund exceeding the
yield on the security sold.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to repurchase under the
agreement. In the event the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. The Fund will
limit its borrowings from banks, reverse repurchase agreements and
F-26
<PAGE> 245
FINANCIALS
NOTE 1 - CONTINUED
dollar roll transactions to an aggregate of 33 1/3% of its total assets at
the time of investment. The Fund will not purchase additional securities
when any borrowings from banks exceed 5% of the Fund's total assets.
D. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward of $6,617,343 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2001. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
E. Expenses - Operating expenses directly attributable to a class of shares
are charged to that class' operations. Expenses which are applicable to
both classes, e.g. advisory fees, are allocated between them. Expenses of
the Trust which are not directly attributable to the operations of any
class of shares or portfolio of the Trust are prorated among the classes
to which the expense relates based upon the relative net assets of each
class.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays AIM an advisory fee at an annual rate of 0.50% of the
first $200 million of the Fund's average daily net assets, plus 0.40% of the
Fund's average daily net assets in excess of $200 million to and including $500
million, plus 0.35% of the Fund's average daily net assets in excess of $500
million to and including $1 billion, plus 0.30% of the Fund's average daily net
assets in excess of $1 billion. The advisory agreement requires AIM to reduce
its fees or, if necessary, make payments to the Fund to the extent required to
satisfy any expense limitations imposed by the securities laws or regulations
thereunder of any state in which the Fund's shares are qualified for sale. AIM
voluntarily reimbursed expenses of $23,000 with respect to Class A Shares of
the Fund and $8,200 with respect to Class B Shares of the Fund during the year
ended December 31, 1994.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to reimburse AIM for certain administrative costs incurred in
providing accounting and shareholder services to the Fund. During the year
ended December 31, 1994, AIM was reimbursed $92,487 for such services.
Effective November 1,1994, AIM Fund Services, Inc. ("AFS") became the transfer
agent for the Fund and was paid $20,734 for such services during the two months
ended December 31,1994.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares
(the "Class B Plan") (collectively, the "Plans"). The Fund, pursuant to the
Class A Plan, pays AIM Distributors compensation at an annual rate of 0.25% of
the average daily net assets attributable to the Class A shares. The Class A
Plan is designed to compensate AIM Distributors for certain promotional and
other sales related costs, and to implement a program which provides periodic
payments to selected dealers and other financial institutions who furnish
continuing personal shareholder services to their customers who purchase and
own Class A shares of the Fund. The Fund, pursuant to the Class B Plan, pays
AIM Distributors compensation at an annual rate of 1.00% of the average daily
net assets attributable to the Class B shares. Of this amount, the Fund may pay
a service fee of 0.25% of the average daily net assets of the Class B shares to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class B shares of
the Fund. Any amounts not paid as a service fee under such Plans would
constitute an asset-based sales charge. The Plans also impose a cap on the
total sales charges, including asset-based sales charges, that may be paid by
the respective classes. During the year ended December 31, 1994, the Class A
shares and the Class B shares paid AIM Distributors $327,060 and $159,848,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $108,048 from sales of the Class
A shares of the Fund during the year ended December 31, 1994. Such commissions
are not an expense of the Fund. They are deducted from, and are not included
in, the proceeds from sales of Class A shares. During the year ended December
31, 1994, AIM Distributors received $70,431 in contingent deferred sales
charges imposed on redemptions of Class B shares. Certain officers and trustees
of the Trust are officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1994, the Fund paid legal fees of
$3,146 for services rendered by Reid & Priest as counsel to the Board of
Trustees. Effective September 1994, Kramer, Levin, Naftalis, Nessen, Kamin &
Frankel was appointed as counsel to the Board of Trustees. The Fund paid legal
fees of $223 for services rendered by that firm as counsel. A member of that
firm is a trustee of the Trust.
F-27
<PAGE> 246
FINANCIALS
NOTE 3 - TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is
not an "interested person" of the Trust. The Trust may invest trustees' fees,
if so elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December
31, 1994 was $202,407,796 and $149,381,138, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1994 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 295,649
- -----------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (6,042,807)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities $ (5,747,158)
===============================================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 5 - SHARE INFORMATION
Changes in shares outstanding during the years ended December 31,1994 and 1993
were as follows:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES VALUE SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold:
Class A 9,095,532 $ 84,555,557 4,740,102 $48,869,160
- ---------------------------------------------------------------------------------------------------------------------------------
Class B* 2,442,865 23,125,558 624,925 6,408,966
- ---------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 815,446 7,649,630 811,506 8,318,804
- ---------------------------------------------------------------------------------------------------------------------------------
Class B* 72,145 670,468 933 9,576
- ---------------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (6,202,526) (58,585,987) (3,777,211) (39,007,083)
- ---------------------------------------------------------------------------------------------------------------------------------
Class B* (523,327) (4,863,169) (12,118) (124,293)
- ---------------------------------------------------------------------------------------------------------------------------------
5,700,135 $ 52,552,057 2,388,137 $ 24,475,130
=================================================================================================================================
</TABLE>
*Sales of Class B shares commenced on September 7, 1993.
F-28
<PAGE> 247
FINANCIALS
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a Class A share
outstanding during the seven-year period ended December 31, 1994 and the period
April 28, 1987 (date operations commenced) through December 31, 1987 and for a
Class B share outstanding during the year ended December 31, 1994 and the
period September 7, 1993 (date sales commenced) through December 31, 1993.
<TABLE>
<CAPTION>
1994 1993 1992(a) 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $10.05 $10.19 $10.34 $9.95 $9.91 $9.70 $9.92 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.68 0.74 0.77 0.82 0.87 0.90 0.89 0.55
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (1.02) (0.04) (0.15) 0.41 0.01 0.15 (0.27) (0.14)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.34) 0.70 0.62 1.23 0.88 1.05 0.62 0.41
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.58) (0.70) (0.74) (0.84) (0.84) (0.84) (0.84) (0.49)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains (0.04) (0.14) (0.03) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from capital (0.10) -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.72) (0.84) (0.77) (0.84) (0.84) (0.84) (0.84) (0.49)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.99 $10.05 $10.19 $10.34 $9.95 $9.91 $9.70 $9.92
=================================================================================================================================
Total return(b) (3.44)% 7.07% 6.26% 12.98% 9.39% 11.28% 6.43% 4.18%
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $158,341 $139,586 $123,484 $101,409 $61,463 $57,077 $48,372 $28,052
=================================================================================================================================
Ratio of expenses to average net assets(d) 1.04%(c) 1.00% 0.98% 1.00% 1.00% 1.00% 1.00% 1.20%(f)
=================================================================================================================================
Ratio of net investment income to average
net assets(e) 7.34%(c) 7.08% 7.53% 8.15% 8.85% 9.10% 9.11% 8.64%(f)
=================================================================================================================================
Portfolio turnover rate 109% 110% 42% 26% 16% 15% 15% 35%
=================================================================================================================================
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charge and is not annualized for periods less than
one year.
(c) Ratios are annualized and based on average net assets
of $130,824,143.
(d) Ratios of expenses to average net assets prior to reduction of advisory
fee and expense reimbursement were 1.05%, 1.04%, 1.04%, 1.10%, 1.13%,
1.08% and 1.08% for 1994-88, respectively.
(e) Ratios of net investment income to average net assets prior to reduction
of advisory fee and expense reimbursement were 7.32%, 7.04%, 7.48%, 8.05%,
8.72%, 9.03% and 9.03% for 1994-88, respectively.
(f) Annualized.
F-29
<PAGE> 248
FINANCIALS
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
CLASS B
Net asset value, beginning of period $10.04 $10.44
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.61 0.21
- -------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (1.02) (0.27)
- -------------------------------------------------------------------------------------------------
Total from investment operations (0.41) (0.06)
- -------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.50) (0.20)
- -------------------------------------------------------------------------------------------------
Distributions from net realized capital gains (0.04) (0.14)
- -------------------------------------------------------------------------------------------------
Distributions from capital (0.10) -
- -------------------------------------------------------------------------------------------------
Total distributions (0.64) (0.34)
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $8.99 $10.04
=================================================================================================
Total return(a) (4.13)% (0.52)%
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) 23,415 $6,160
=================================================================================================
Ratio of expenses to average net assets(c) 1.82%(b) 1.71%(e)
=================================================================================================
Ratio of net investment income to average net assets(d) 6.56%(b) 6.37%(e)
=================================================================================================
Portfolio turnover rate 109% 110%
=================================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year and do not
deduct contingent deferred sales charges.
(b) Ratios are annualized and based on average net assets of $15,993,012.
(c) Ratio of expenses to average net assets prior to reduction of advisory fee
and expense reimbursement for the year ended December 31,1994 and the
period ended December 31, 1993 were 1.87% and 2.18% (annualized),
respectively.
(d) Ratio of net investment income to average net assets prior to reduction of
advisory fee and expense reimbursement for the year ended December 31,
1994 and the period ended December 31, 1993 were 6.50% and 5.90%
(annualized), respectively.
(e) Annualized.
F-30
<PAGE> 249
AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Growth Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Growth Fund (a portfolio of AIM Funds Group), including the schedule of
investments, as of December 31, 1994, and the related statements of operations
for the year then ended, and the changes in its net assets and the financial
highlights for each of the years in the two-year period then ended. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of AIM Growth Fund as of December 31, 1994, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for each of the years in the two-year period then ended,
in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
February 3, 1995
F-31
<PAGE> 250
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-79.95%
ADVERTISING/BROADCASTING-0.42%
400 Belo (A.H.) Corp. $ 22,600
- -------------------------------------------------------------------
8,400 British Sky Broadcasting-ADR(a) 201,600
- -------------------------------------------------------------------
2,500 Capital Cities/ABC, Inc. 213,125
- -------------------------------------------------------------------
7,600 Infinity Broadcasting Corp.-Class A(a) 239,400
- -------------------------------------------------------------------
676,725
- -------------------------------------------------------------------
AIRLINES-0.19%
19,200 Northwest Airlines Corp.(a) 302,400
- -------------------------------------------------------------------
APPLIANCES-1.09%
26,000 Newell Co. 546,000
- -------------------------------------------------------------------
20,000 Premark International Inc. 875,000
- -------------------------------------------------------------------
13,000 Sunbeam-Oster Co., Inc. 334,750
- -------------------------------------------------------------------
1,755,750
- -------------------------------------------------------------------
AUTOMOBILE MANUFACTURERS-0.26%
8,400 Ford Motor Co. 235,200
- -------------------------------------------------------------------
10,000 Volvo AB-ADR 187,500
- -------------------------------------------------------------------
422,700
- -------------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS & TIRES-0.42%
3,900 Eaton Corp. 193,050
- -------------------------------------------------------------------
700 Echlin Inc. 21,000
- -------------------------------------------------------------------
6,000 Superior Industries International, Inc. 158,250
- -------------------------------------------------------------------
8,600 Varity Corp.(a) 311,750
- -------------------------------------------------------------------
684,050
- -------------------------------------------------------------------
BANKING-0.72%
14,700 Bank of Boston Corp. 380,362
- -------------------------------------------------------------------
14,100 Bank of New York Co., Inc. 408,900
- -------------------------------------------------------------------
5,600 First Interstate Bancorp 378,700
- -------------------------------------------------------------------
1,167,962
- -------------------------------------------------------------------
BANKING (MONEY CENTER)-0.48%
6,500 Chase Manhattan Corp. 223,437
- -------------------------------------------------------------------
13,400 Citicorp 554,425
- -------------------------------------------------------------------
777,862
- -------------------------------------------------------------------
</TABLE>
F-32
<PAGE> 251
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BEVERAGES-0.26%
4,000 Coca-Cola Co. (The) $ 206,000
- ---------------------------------------------------------
5,900 PepsiCo Inc. 213,875
- ---------------------------------------------------------
419,875
- ---------------------------------------------------------
BIOTECHNOLOGY-0.52%
14,000 Amgen Inc.(a) 826,000
- ---------------------------------------------------------
BUILDING MATERIALS-0.44%
30,200 Black & Decker Corp. 717,250
- ---------------------------------------------------------
BUSINESS SERVICES-2.16%
4,400 Diebold, Inc. 180,950
- ---------------------------------------------------------
9,100 Equifax Inc. 240,012
- ---------------------------------------------------------
24,700 Healthcare Compare Corp.(a) 842,887
- ---------------------------------------------------------
14,800 Manpower Inc. 416,250
- ---------------------------------------------------------
27,800 Olsten Corp. 882,650
- ---------------------------------------------------------
7,600 Pittston Co. (The) 201,400
- ---------------------------------------------------------
11,000 Sensormatic Electronics Corp. 396,000
- ---------------------------------------------------------
9,000 Value Health, Inc.(a) 335,250
- ---------------------------------------------------------
3,495,399
- ---------------------------------------------------------
CHEMICALS-1.23%
4,700 Dow Chemical Co. 316,075
- ---------------------------------------------------------
7,100 Geon Co. 194,362
- ---------------------------------------------------------
2,700 Goodrich (B.F.) Co. 117,112
- ---------------------------------------------------------
6,000 Hanna (M.A.) Co. 142,500
- ---------------------------------------------------------
5,700 PPG Industries, Inc. 211,612
- ---------------------------------------------------------
10,200 Rohm & Haas Co. 582,675
- ---------------------------------------------------------
5,600 Union Carbide Corp. 164,500
- ---------------------------------------------------------
9,000 Wellman Inc. 254,250
- ---------------------------------------------------------
1,983,086
- ---------------------------------------------------------
CHEMICALS (SPECIALTY)-0.78%
8,400 Airgas Inc.(a) 178,500
- ---------------------------------------------------------
7,800 Georgia Gulf Corp.(a) 303,225
- ---------------------------------------------------------
7,800 IMC Global Inc. 337,350
- ---------------------------------------------------------
4,500 Loctite Corp. 209,250
- ---------------------------------------------------------
11,300 Praxair, Inc. 231,650
- ---------------------------------------------------------
1,259,975
- ---------------------------------------------------------
</TABLE>
F-33
<PAGE> 252
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER MAINFRAMES-0.75%
30,100 Amdahl Corp.(a) $ 331,100
- -------------------------------------------------------------------
8,700 International Business Machines Corp. 639,450
- -------------------------------------------------------------------
12,500 Sequent Computer Systems, Inc.(a) 246,875
- -------------------------------------------------------------------
1,217,425
- -------------------------------------------------------------------
COMPUTER MINI/PCS-3.25%
23,300 Apple Computer, Inc. 908,700
- -------------------------------------------------------------------
39,700 COMPAQ Computer Corp.(a) 1,568,150
- -------------------------------------------------------------------
5,000 Dell Computer Corp.(a) 205,000
- -------------------------------------------------------------------
4,900 Hewlett-Packard Co. 489,387
- -------------------------------------------------------------------
10,500 Stratus Computer, Inc.(a) 399,000
- -------------------------------------------------------------------
40,300 Sun Microsystems, Inc.(a) 1,430,650
- -------------------------------------------------------------------
15,000 Tandem Computers Inc.(a) 256,875
- -------------------------------------------------------------------
5,257,762
- -------------------------------------------------------------------
COMPUTER NETWORKING-6.35%
5,000 ADC Telecommunications, Inc.(a) 250,000
- -------------------------------------------------------------------
8,400 Allen Group Inc. 200,550
- -------------------------------------------------------------------
5,000 Andrew Corp.(a) 261,250
- -------------------------------------------------------------------
6,500 Aspect Telecommunications Corp.(a) 217,750
- -------------------------------------------------------------------
22,700 Cabletron Systems, Inc.(a) 1,055,550
- -------------------------------------------------------------------
6,000 California Microwave, Inc.(a) 219,000
- -------------------------------------------------------------------
15,000 Chipcom Corp.(a) 750,000
- -------------------------------------------------------------------
25,000 Cisco Systems, Inc.(a) 878,125
- -------------------------------------------------------------------
44,000 DSC Communications Corp.(a) 1,578,500
- -------------------------------------------------------------------
27,000 General Instrument Corp.(a) 810,000
- -------------------------------------------------------------------
900 Madge N.V.(a) 10,631
- -------------------------------------------------------------------
4,500 Network Equipment Technologies, Inc.(a) 108,000
- -------------------------------------------------------------------
12,000 Northern Telecom Ltd. 400,500
- -------------------------------------------------------------------
38,000 Scientific-Atlantic Inc. 798,000
- -------------------------------------------------------------------
19,000 Tellabs, Inc.(a) 1,059,250
- -------------------------------------------------------------------
32,400 3Com Corp.(a) 1,670,647
- -------------------------------------------------------------------
10,267,753
- -------------------------------------------------------------------
</TABLE>
F-34
<PAGE> 253
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER PERIPHERALS-3.67%
24,700 Adaptec Inc.(a) $ 583,537
- -------------------------------------------------------------------
6,400 Alliance Semiconductor Corp.(a) 200,000
- -------------------------------------------------------------------
28,000 American Power Conversion Corp.(a) 458,500
- -------------------------------------------------------------------
68,600 EMC Corp.(a) 1,483,475
- -------------------------------------------------------------------
10,000 Exabyte Corp.(a) 213,750
- -------------------------------------------------------------------
11,000 Komag, Inc.(a) 287,375
- -------------------------------------------------------------------
11,000 Microchip Technology, Corp.(a) 302,500
- -------------------------------------------------------------------
34,800 Oracle Systems Corp.(a) 1,535,550
- -------------------------------------------------------------------
16,000 Read Rite Corp.(a) 297,000
- -------------------------------------------------------------------
4,100 Storage Technology Corp.(a) 118,900
- -------------------------------------------------------------------
8,000 U.S. Robotics, Inc.(a) 346,000
- -------------------------------------------------------------------
6,600 Western Digital Corp.(a) 110,550
- -------------------------------------------------------------------
5,937,137
- -------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES-6.37%
39,300 Adobe System, Inc. 1,169,175
- -------------------------------------------------------------------
7,500 American Management Systems, Inc.(a) 144,375
- -------------------------------------------------------------------
21,100 Autodesk Inc. 836,087
- -------------------------------------------------------------------
11,200 Bay Networks, Inc. 330,400
- -------------------------------------------------------------------
5,200 BMC Software, Inc.(a) 295,750
- -------------------------------------------------------------------
31,200 Cadence Design Systems, Inc.(a) 643,500
- -------------------------------------------------------------------
3,000 Ceridian Corp.(a) 80,625
- -------------------------------------------------------------------
29,800 Computer Associates International, Inc. 1,445,300
- -------------------------------------------------------------------
4,000 Computer Sciences Corp.(a) 204,000
- -------------------------------------------------------------------
11,400 Corel Corp.(a) 157,462
- -------------------------------------------------------------------
12,000 Fiserv, Inc.(a) 258,000
- -------------------------------------------------------------------
13,400 HBO & Co. 462,300
- -------------------------------------------------------------------
6,200 Microsoft Corp.(a) 378,975
- -------------------------------------------------------------------
8,400 Network General Corp.(a) 215,775
- -------------------------------------------------------------------
16,000 Parametric Technology Corp.(a) 552,000
- -------------------------------------------------------------------
30,000 Silicon Graphics, Inc.(a) 926,250
- -------------------------------------------------------------------
7,000 Sterling Software, Inc.(a) 257,250
- -------------------------------------------------------------------
28,000 Sybase, Inc.(a) 1,456,000
- -------------------------------------------------------------------
11,200 Synopsys, Inc.(a) 490,000
- -------------------------------------------------------------------
10,303,224
- -------------------------------------------------------------------
</TABLE>
F-35
<PAGE> 254
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONGLOMERATES-0.26%
4,000 Johnson Controls, Inc. $ 196,000
- ----------------------------------------------------------------------------
3,300 TRW Inc. 217,800
- ----------------------------------------------------------------------------
413,800
- ----------------------------------------------------------------------------
CONTAINERS-0.32%
4,700 Ball Corp. 148,050
- ----------------------------------------------------------------------------
9,700 Crown Cork & Seal Co., Inc.(a) 366,175
- ----------------------------------------------------------------------------
514,225
- ----------------------------------------------------------------------------
COSMETICS & TOILETRIES-0.28%
2,100 Colgate-Palmolive Co. 133,087
- ----------------------------------------------------------------------------
4,200 Gillette Co. (The) 313,950
- ----------------------------------------------------------------------------
447,037
- ----------------------------------------------------------------------------
ELECTRONIC COMPONENTS-2.47%
7,000 Amphenol Corp.(a) 168,000
- ----------------------------------------------------------------------------
9,100 Augat Inc. 171,762
- ----------------------------------------------------------------------------
15,200 KLA Instruments Corp.(a) 744,800
- ----------------------------------------------------------------------------
3,750 Molex, Inc. 129,375
- ----------------------------------------------------------------------------
5,500 Parker-Hannifin Corp. 250,250
- ----------------------------------------------------------------------------
47,000 Phillips Electronics N.V.-New York Shares-ADR(a) 1,380,625
- ----------------------------------------------------------------------------
8,800 Tektronix, Inc. 301,400
- ----------------------------------------------------------------------------
25,000 Teradyne, Inc.(a) 846,875
- ----------------------------------------------------------------------------
3,993,087
- ----------------------------------------------------------------------------
ELECTRONIC/PC DISTRIBUTORS-0.38%
17,100 Arrow Electronics, Inc.(a) 613,462
- ----------------------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.25%
7,700 Charles Schwab Corp. 268,537
- ----------------------------------------------------------------------------
3,000 XTRA Corp. 135,000
- ----------------------------------------------------------------------------
403,537
- ----------------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-2.16%
3,000 ADVANTA Corp.-Class A 75,750
- ----------------------------------------------------------------------------
4,800 ADVANTA Corp.-Class B 126,000
- ----------------------------------------------------------------------------
16,000 Federal National Mortgage Association 1,166,000
- ----------------------------------------------------------------------------
14,400 First USA, Inc. 473,400
- ----------------------------------------------------------------------------
26,300 Green Tree Acceptance, Inc. 798,862
- ----------------------------------------------------------------------------
26,400 MBNA Corp. 617,100
- ----------------------------------------------------------------------------
6,700 SunAmerica, Inc. 242,875
- ----------------------------------------------------------------------------
3,499,987
- ----------------------------------------------------------------------------
</TABLE>
F-36
<PAGE> 255
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCE (SAVINGS & LOAN)-0.12%
9,300 G. P. Financial Corp. $ 191,812
- -----------------------------------------------------------------
FOOD PROCESSING-0.66%
13,650 Archer Daniels Midland Co. 281,531
- -----------------------------------------------------------------
8,000 ConAgra, Inc. 250,000
- -----------------------------------------------------------------
13,500 Lancaster Colony Corp. 396,562
- -----------------------------------------------------------------
6,000 Ralcorp Holdings Inc.(a) 133,500
- -----------------------------------------------------------------
1,061,593
- -----------------------------------------------------------------
GAMING-0.27%
7,000 Autotote Corp.(a) 79,625
- -----------------------------------------------------------------
6,500 MGM Grand, Inc.(a) 156,812
- -----------------------------------------------------------------
10,000 Mirage Resorts, Inc.(a) 205,000
- -----------------------------------------------------------------
441,437
- -----------------------------------------------------------------
HOME BUILDING-0.19%
50 Clayton Homes Inc.(a) 787
- -----------------------------------------------------------------
10,500 Fleetwood Enterprises, Inc. 196,875
- -----------------------------------------------------------------
4,500 Oakwood Homes Corp. 109,687
- -----------------------------------------------------------------
307,349
- -----------------------------------------------------------------
HOTELS/MOTELS-0.66%
24,000 Hospitality Franchise Systems Inc.(a) 636,000
- -----------------------------------------------------------------
20,200 La Quinta Motor Inns Inc. 431,775
- -----------------------------------------------------------------
1,067,775
- -----------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.26%
6,400 AFLAC Inc. 204,800
- -----------------------------------------------------------------
11,000 Bankers Life Holding Corp. 209,000
- -----------------------------------------------------------------
413,800
- -----------------------------------------------------------------
LEISURE & RECREATION-2.19%
12,000 Aldila, Inc.(a) 138,000
- -----------------------------------------------------------------
26,000 Brunswick Corp. 490,750
- -----------------------------------------------------------------
26,200 Callaway Golf Co. 867,875
- -----------------------------------------------------------------
24,000 Carnival Cruise Lines, Inc.-Class A 510,000
- -----------------------------------------------------------------
15,300 Harley-Davidson Inc. 428,400
- -----------------------------------------------------------------
27,000 Mattel, Inc. 678,375
- -----------------------------------------------------------------
5,600 Royal Caribbean Cruises Ltd. 159,600
- -----------------------------------------------------------------
5,900 Walt Disney Co. (The) 272,137
- -----------------------------------------------------------------
3,545,137
- -----------------------------------------------------------------
</TABLE>
F-37
<PAGE> 256
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MACHINE TOOLS-0.20%
8,700 Cincinnati Milacron, Inc. $ 205,537
- --------------------------------------------------------------
4,500 Kennametal Inc. 110,250
- --------------------------------------------------------------
315,787
- --------------------------------------------------------------
MACHINERY (HEAVY)-0.93%
6,000 AGCO Corp. 182,250
- --------------------------------------------------------------
24,200 Case Corp. 520,300
- --------------------------------------------------------------
6,800 Caterpillar Inc. 374,850
- --------------------------------------------------------------
5,000 Clark Equipment Co.(a) 271,250
- --------------------------------------------------------------
5,500 Trinova Corp. 161,562
- --------------------------------------------------------------
1,510,212
- --------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.74%
26,800 Thermo Electron Corp.(a) 1,202,650
- --------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-1.74%
4,100 Becton, Dickinson and Co. 196,800
- --------------------------------------------------------------
32,000 Biomet, Inc.(a) 448,000
- --------------------------------------------------------------
8,000 Cordis Corp.(a) 484,000
- --------------------------------------------------------------
5,300 Medtronic, Inc. 294,812
- --------------------------------------------------------------
4,000 Nellcor Inc.(a) 132,000
- --------------------------------------------------------------
12,200 St. Jude Medical, Inc. 484,950
- --------------------------------------------------------------
10,000 Stryker Corp. 367,500
- --------------------------------------------------------------
15,000 Ventritex, Inc.(a) 405,000
- --------------------------------------------------------------
2,813,062
- --------------------------------------------------------------
MEDICAL (DRUGS)-2.18%
200 Bergen Brunswig Corp. 4,175
- --------------------------------------------------------------
10,000 Cardinal Health Inc. 463,750
- --------------------------------------------------------------
11,000 Elan Corp. PLC(a) 391,875
- --------------------------------------------------------------
18,500 Forest Laboratories, Inc.(a) 862,562
- --------------------------------------------------------------
4,000 Johnson & Johnson 219,000
- --------------------------------------------------------------
14,000 Mylan Laboratories, Inc. 378,000
- --------------------------------------------------------------
5,100 Pfizer Inc. 393,975
- --------------------------------------------------------------
10,900 Schering-Plough Corp. 806,600
- --------------------------------------------------------------
3,519,937
- --------------------------------------------------------------
MEDICAL (SERVICES)-7.20%
5,000 Charter Medical Corp.(a) 107,500
- --------------------------------------------------------------
25,000 Columbia Healthcare Corp. 912,500
- --------------------------------------------------------------
</TABLE>
F-38
<PAGE> 257
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
Medical (Services) (continued)
5,700 Coventry Corp.(a) $ 139,650
- ----------------------------------------------------------------------
15,500 Foundation Health Corp.(a) 480,500
- ----------------------------------------------------------------------
13,000 Health Care & Retirement Corp.(a) 391,625
- ----------------------------------------------------------------------
14,000 Health Management Associates, Inc.(a) 350,000
- ----------------------------------------------------------------------
10,000 Health Systems International Inc.(a) 303,750
- ----------------------------------------------------------------------
14,000 Health Trust, Inc.-The Hospital Co.(a) 444,500
- ----------------------------------------------------------------------
12,500 Healthsource, Inc.(a) 510,937
- ----------------------------------------------------------------------
19,500 Healthsouth Rehabilitation Corp.(a) 721,500
- ----------------------------------------------------------------------
6,700 Homedco Group Inc.(a) 252,087
- ----------------------------------------------------------------------
14,000 Horizon Healthcare Corp.(a) 392,000
- ----------------------------------------------------------------------
68,400 Humana Inc.(a) 1,547,550
- ----------------------------------------------------------------------
6,300 Integrated Health Services, Inc. 248,850
- ----------------------------------------------------------------------
6,000 Mariner Health Group Inc.(a) 129,750
- ----------------------------------------------------------------------
36,900 Mid Atlantic Medical Services, Inc.(a) 844,087
- ----------------------------------------------------------------------
4,200 Oxford Health Plans, Inc.(a) 332,850
- ----------------------------------------------------------------------
3,700 Pacificare Health Systems, Inc.-Class A(a) 240,962
- ----------------------------------------------------------------------
3,400 Pacificare Health Systems, Inc.-Class B(a) 224,400
- ----------------------------------------------------------------------
11,200 Sun Healthcare Group Inc.(a) 284,200
- ----------------------------------------------------------------------
22,000 United Healthcare Corp. 992,750
- ----------------------------------------------------------------------
33,400 U.S. Healthcare, Inc. 1,377,750
- ----------------------------------------------------------------------
15,000 Vencor, Inc.(a) 418,125
- ----------------------------------------------------------------------
11,647,823
- ----------------------------------------------------------------------
METALS-0.72%
15,400 Alcan Aluminum Ltd. 390,775
- ----------------------------------------------------------------------
9,100 Alumax, Inc.(a) 258,212
- ----------------------------------------------------------------------
2,300 Aluminum Company of America 199,237
- ----------------------------------------------------------------------
9,200 ASARCO Inc. 262,200
- ----------------------------------------------------------------------
1,300 Illinois Tool Works, Inc. 56,875
- ----------------------------------------------------------------------
1,167,299
- ----------------------------------------------------------------------
OFFICE AUTOMATION-0.30%
9,600 Danka Business Systems-PLC 207,600
- ----------------------------------------------------------------------
2,800 Xerox Corp. 277,200
- ----------------------------------------------------------------------
484,800
- ----------------------------------------------------------------------
</TABLE>
F-39
<PAGE> 258
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OFFICE PRODUCTS-0.62%
12,600 Avery Dennison Corp. $ 447,300
- -----------------------------------------------------------
22,400 Reynolds & Reynolds Co.-Class A 560,000
- -----------------------------------------------------------
1,007,300
- -----------------------------------------------------------
OIL & GAS-0.10%
6,100 Lyondell Petrochemical Co. 157,837
- -----------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-0.38%
14,300 Halliburton Co. 473,687
- -----------------------------------------------------------
11,500 Smith International, Inc.(a) 143,750
- -----------------------------------------------------------
617,437
- -----------------------------------------------------------
PAPER & FOREST PRODUCTS-0.57%
5,100 Boise Cascade Corp. 136,425
- -----------------------------------------------------------
5,100 Champion International Corp. 186,150
- -----------------------------------------------------------
7,600 Federal Paper Board Co., Inc. 220,400
- -----------------------------------------------------------
3,000 Georgia-Pacific Corp. 214,500
- -----------------------------------------------------------
3,600 Union Camp Corp. 169,650
- -----------------------------------------------------------
927,125
- -----------------------------------------------------------
PUBLISHING-0.09%
600 Washington Post Co. 145,500
- -----------------------------------------------------------
RESTAURANTS-0.32%
4,500 McDonald's Corp. 131,625
- -----------------------------------------------------------
6,000 Outback Steakhouse, Inc.(a) 141,000
- -----------------------------------------------------------
17,000 Wendy's International, Inc. 244,375
- -----------------------------------------------------------
517,000
- -----------------------------------------------------------
RETAIL (FOOD & DRUGS)-2.78%
8,400 Albertson's Inc. 243,600
- -----------------------------------------------------------
10,000 American Stores Co. 268,750
- -----------------------------------------------------------
6,000 Casey's General Stores, Inc. 90,000
- -----------------------------------------------------------
13,800 Hannaford Bros. Co. 350,175
- -----------------------------------------------------------
19,500 Jack Eckerd Corp.(a) 582,562
- -----------------------------------------------------------
21,300 Kroger Co.(a) 513,862
- -----------------------------------------------------------
14,000 Revco D.S., Inc.(a) 330,750
- -----------------------------------------------------------
18,000 Rite Aid Corp. 420,750
- -----------------------------------------------------------
</TABLE>
F-40
<PAGE> 259
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
Retail (Food & Drugs) (continued)
32,400 Safeway Inc.(a) $ 1,032,750
- ----------------------------------------------------------------
16,600 Stop & Shop Cos.(a) 423,300
- ----------------------------------------------------------------
9,100 Sysco Corp. 234,325
- ----------------------------------------------------------------
4,490,824
- ----------------------------------------------------------------
RETAIL (STORES)-6.56%
9,700 Ann Taylor Stores Corp.(a) 333,437
- ----------------------------------------------------------------
6,000 Bed Bath & Beyond, Inc.(a) 181,500
- ----------------------------------------------------------------
6,800 Caldor Corp. (The)(a) 151,300
- ----------------------------------------------------------------
37,000 Circuit City Stores, Inc. 823,250
- ----------------------------------------------------------------
5,900 Dayton-Hudson Corp. 417,425
- ----------------------------------------------------------------
11,500 Dillard Department Stores, Inc. 307,625
- ----------------------------------------------------------------
19,000 Dollar General Corp. 570,000
- ----------------------------------------------------------------
13,300 Federated Department Stores, Inc.(a) 256,025
- ----------------------------------------------------------------
20,000 Gateway 2000 Inc.(a) 432,500
- ----------------------------------------------------------------
11,300 General Nutrition, Inc.(a) 327,700
- ----------------------------------------------------------------
10,000 Gymboree Corp.(a) 287,500
- ----------------------------------------------------------------
8,800 Hechinger Co. 102,300
- ----------------------------------------------------------------
11,000 Home Depot, Inc. 506,000
- ----------------------------------------------------------------
41,000 Lowe's Companies, Inc. 1,424,750
- ----------------------------------------------------------------
22,700 Michaels Stores, Inc.(a) 788,825
- ----------------------------------------------------------------
31,000 Office Depot, Inc.(a) 744,000
- ----------------------------------------------------------------
15,700 Pep Boys-Manny, Moe & Jack 486,700
- ----------------------------------------------------------------
11,000 Pier 1 Imports Inc. 103,125
- ----------------------------------------------------------------
34,500 Staples, Inc.(a) 853,875
- ----------------------------------------------------------------
3,000 Sunglass Hut International(a) 69,000
- ----------------------------------------------------------------
18,200 Tech Data Corp.(a) 309,400
- ----------------------------------------------------------------
2,000 Tiffany & Co. 78,000
- ----------------------------------------------------------------
14,600 Toys "R" Us, Inc.(a) 445,300
- ----------------------------------------------------------------
16,000 Viking Office Products Inc.(a) 490,000
- ----------------------------------------------------------------
7,000 Waban Inc.(a) 124,250
- ----------------------------------------------------------------
10,613,787
- ----------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.52%
24,000 Varian Associates, Inc. 840,000
- ----------------------------------------------------------------
</TABLE>
F-41
<PAGE> 260
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SEMICONDUCTORS-10.27%
16,400 Altera Corp.(a) $ 686,750
- -----------------------------------------------------------------
30,000 Analog Devices, Inc.(a) 1,053,750
- -----------------------------------------------------------------
34,000 Applied Materials, Inc.(a) 1,436,500
- -----------------------------------------------------------------
32,900 Atmel Corp.(a) 1,102,150
- -----------------------------------------------------------------
31,100 Cypress Semiconductor Corp.(a) 719,187
- -----------------------------------------------------------------
6,000 Electroglas Inc.(a) 200,250
- -----------------------------------------------------------------
17,000 Integrated Device Technology, Inc.(a) 501,500
- -----------------------------------------------------------------
15,800 Intel Corp. 1,009,225
- -----------------------------------------------------------------
30,900 Lam Research Corp.(a) 1,151,025
- -----------------------------------------------------------------
7,900 Lattice Semiconductor Corp.(a) 132,325
- -----------------------------------------------------------------
13,300 Linear Technology Corp. 658,350
- -----------------------------------------------------------------
27,000 LSI Logic Corp.(a) 1,090,125
- -----------------------------------------------------------------
29,500 Micron Technology Inc. 1,301,687
- -----------------------------------------------------------------
26,400 Motorola, Inc. 1,527,900
- -----------------------------------------------------------------
16,600 National Semiconductor Corp.(a) 323,700
- -----------------------------------------------------------------
21,500 Novellus Systems, Inc.(a) 1,075,000
- -----------------------------------------------------------------
7,000 SCI Systems, Inc.(a) 126,000
- -----------------------------------------------------------------
27,100 Texas Instruments Inc. 2,029,112
- -----------------------------------------------------------------
10,000 Vishay Intertechnology, Inc.(a) 490,000
- -----------------------------------------------------------------
16,614,536
- -----------------------------------------------------------------
SHOES & RELATED APPAREL-0.48%
16,500 Reebok International, Ltd. 651,750
- -----------------------------------------------------------------
5,000 Wolverine World Wide, Inc. 128,750
- -----------------------------------------------------------------
780,500
- -----------------------------------------------------------------
STEEL-0.10%
9,900 LTV Corp.(a) 160,875
- -----------------------------------------------------------------
TELECOMMUNICATIONS-2.23%
24,800 ALC Communications Corp.(a) 771,900
- -----------------------------------------------------------------
17,400 Nokia Corp.-ADR(a) 1,305,000
- -----------------------------------------------------------------
27,600 Telefonaktiebolaget L.M. Ericsson-ADR 1,521,450
- -----------------------------------------------------------------
3,598,350
- -----------------------------------------------------------------
</TABLE>
F-42
<PAGE> 261
FINANCIALS
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TOBACCO-0.57%
7,000 Philip Morris Companies, Inc. $ 402,500
- -----------------------------------------------------------------------------
19,000 UST, Inc. 527,250
- -----------------------------------------------------------------------------
929,750
- -----------------------------------------------------------------------------
TRUCKERS-0.15%
9,500 TNT Freightways Corp. 243,437
- -----------------------------------------------------------------------------
UTILITIES-0.37%
12,500 Century Telephone Enterprises, Inc. 368,750
- -----------------------------------------------------------------------------
5,000 Telephone and Data Systems, Inc. 230,625
- -----------------------------------------------------------------------------
599,375
- -----------------------------------------------------------------------------
Total Common Stocks 129,291,576
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-9.84%
$ 7,118,000 U.S. Treasury Bill, 4.68%(b), 1/05/95 7,116,718
- -----------------------------------------------------------------------------
8,815,000 U.S. Treasury Bill, 4.94%(b), 1/12/95 8,806,185
- -----------------------------------------------------------------------------
Total U.S. Treasury Securities 15,922,903
- -----------------------------------------------------------------------------
REPURCHASE AGREEMENT-8.46%(c)
13,678,281 Daiwa Securities America Inc., 3.50%, 01/03/95(d) 13,678,281
- -----------------------------------------------------------------------------
Total Repurchase Agreement 13,678,281
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS-98.25% 158,892,760
- -----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.75% 2,826,565
- -----------------------------------------------------------------------------
NET ASSETS - 100.00% $161,719,325
=============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) U.S. Treasury Bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102 percent of the sales price of
the repurchase agreement.
(d) Joint repurchase agreement entered into on 12/30/94 with a maturing value
of $391,353,115. Collateralized by $426,987,000 U.S. Treasury obligations,
4.75% to 9.25% due 01/15/96 to 11/15/24. The aggregate market value of the
collateral at 12/31/94 was $399,025,510. The Fund's pro-rata interest in
the collateral at 12/31/94 was $13,951,894.
See Notes to Financial Statements.
F-43
<PAGE> 262
FINANCIALS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $148,077,864) $158,892,760
- --------------------------------------------------------------
Receivables for:
Investments sold 4,382,952
- --------------------------------------------------------------
Fund shares sold 1,102,478
- --------------------------------------------------------------
Dividends and interest 78,579
- --------------------------------------------------------------
Options written 1,660
- --------------------------------------------------------------
Investment for deferred compensation plan 58,651
- --------------------------------------------------------------
Other assets 8,120
- --------------------------------------------------------------
Total assets 164,525,200
- --------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,657,888
- --------------------------------------------------------------
Fund shares reacquired 657,443
- --------------------------------------------------------------
Deferred compensation plan 58,651
- --------------------------------------------------------------
Variation margin 58,500
- --------------------------------------------------------------
Options written 69,313
- --------------------------------------------------------------
Accrued advisory fees 105,871
- --------------------------------------------------------------
Accrued administrative service fees 4,774
- --------------------------------------------------------------
Accrued distribution fees 110,689
- --------------------------------------------------------------
Accrued trustees' fees 1,735
- --------------------------------------------------------------
Accrued operating expenses 81,011
- --------------------------------------------------------------
Total liabilities 2,805,875
- --------------------------------------------------------------
Net assets applicable to shares outstanding $161,719,325
==============================================================
NET ASSETS:
Class A $123,271,214
==============================================================
Class B $ 38,448,111
==============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 11,940,136
- --------------------------------------------------------------
Class B 3,766,821
==============================================================
CLASS A:
Net asset value and redemption price per share $10.32
==============================================================
Offering price per share:
(Net asset value of $10.32/94.50%) $10.92
==============================================================
CLASS B:
Net asset value and offering price per share $10.21
==============================================================
</TABLE>
See Notes to Financial Statements.
F-44
<PAGE> 263
FINANCIALS
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 1,071,798
- -----------------------------------------------------------------------------
Interest 853,551
- -----------------------------------------------------------------------------
Total investment income 1,925,349
- -----------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,012,632
- -----------------------------------------------------------------------------
Custodian fees 59,195
- -----------------------------------------------------------------------------
Transfer agent fees-Class A 136,192
- -----------------------------------------------------------------------------
Transfer agent fees-Class B 48,093
- -----------------------------------------------------------------------------
Administrative service fees 134,789
- -----------------------------------------------------------------------------
Trustees' fees 5,876
- -----------------------------------------------------------------------------
Distribution fees-Class A 327,254
- -----------------------------------------------------------------------------
Distribution fees-Class B 247,715
- -----------------------------------------------------------------------------
Other 165,989
- -----------------------------------------------------------------------------
Total expenses 2,137,735
- -----------------------------------------------------------------------------
Net investment income (loss) (212,386)
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES,
FUTURES AND OPTIONS CONTRACTS:
Net realized gain (loss) on sales of:
- -----------------------------------------------------------------------------
Investment securities 3,141,425
- -----------------------------------------------------------------------------
Futures contracts (371,545)
- -----------------------------------------------------------------------------
Options contracts --
- -----------------------------------------------------------------------------
2,769,880
- -----------------------------------------------------------------------------
Unrealized appreciation (depreciation) of:
- -----------------------------------------------------------------------------
Investment securities (10,579,166)
- -----------------------------------------------------------------------------
Futures contracts 123,500
- -----------------------------------------------------------------------------
Options contracts 57,701
- -----------------------------------------------------------------------------
(10,397,965)
- -----------------------------------------------------------------------------
Net gain (loss) on investment securities, futures and options
contracts (7,628,085)
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(7,840,471)
=============================================================================
</TABLE>
See Notes to Financial Statements.
F-45
<PAGE> 264
FINANCIALS
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (212,386) $ 8,526
- -------------------------------------------------------------------------------
Net realized gain on sales of investment
securities and futures contracts 2,769,880 18,089,738
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investment securities, futures and options
contracts (10,397,965) (13,487,671)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (7,840,471) 4,610,593
- -------------------------------------------------------------------------------
Distributions to shareholders from net investment
income-Class A (1,847) (46,067)
- -------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains on investment securities:
Class A (4,927,563) (15,777,862)
- -------------------------------------------------------------------------------
Class B (1,473,126) (1,023,398)
- -------------------------------------------------------------------------------
Share transactions-net:
Class A (12,166,631) (10,440,662)
- -------------------------------------------------------------------------------
Class B 30,353,095 12,058,687
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets 3,943,457 (10,618,709)
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 157,775,868 168,394,577
- -------------------------------------------------------------------------------
End of period $161,719,325 $157,775,868
===============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $152,816,015 $134,807,576
- -------------------------------------------------------------------------------
Undistributed net investment income (loss) (54,924) (18,716)
- -------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales
of investment securities and futures contracts (2,037,863) 1,592,946
- -------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
futures and options contracts 10,996,097 21,394,062
- -------------------------------------------------------------------------------
$161,719,325 $157,775,868
===============================================================================
</TABLE>
See Notes to Financial Statements.
F-46
<PAGE> 265
FINANCIALS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Growth Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate series
portfolios, each having an unlimited number of shares of beneficial interest.
The Fund currently offers two different classes of shares: the Class A shares
and the Class B shares. Class A shares are sold with a front-end sales charge.
Class B shares are sold with a contingent deferred sales charge. Matters
affecting each portfolio or class are voted on exclusively by the shareholders
of such portfolio or class. The assets, liabilities and operations of each
portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. Security Valuations - 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. 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 Trust's officers
in a manner specifically authorized by the Board of Trustees. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1994,
$178,025 was reclassified from undistributed net investment income (loss) to
paid-in capital as result of a permanent book/tax differences.
C. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Expenses - Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g. advisory fees, are allocated between them. Expenses of the
Trust which are not directly attributable to the operations of any class of
shares or portfolio of the Trust are prorated among the classes to which the
expense relates based upon the relative net assets of each class.
E. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the contracts
are recognized as unrealized gains or losses by "marking to market" on a
daily basis to reflect the market value of the contracts at the end of each
day's trading. Variation margin payments are made or received depending upon
whether unrealized gains or losses are incurred. When the contracts are
closed, the Fund recognizes a realized gain or loss equal to the difference
between the proceeds from, or cost of, the closing transaction and the
Fund's basis in the contract. Risks include the possibility of an illiquid
market and the change in the value of the contracts may not correlate with
changes in the value of the securities being hedged.
F. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is recorded
as an asset and an equivalent liability. The amount of the liability is
subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the last
sale price, or in the absence of a sale, the mean between the last bid and
asked prices on that day. If a written call option expires on the stipulated
expiration date, or if the Fund enters into a closing purchase transaction,
the Fund realizes a gain (or a loss if the closing purchase transaction
F-47
<PAGE> 266
FINANCIALS
exceeds the premium received when the option was written) without regard to
any unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a written option is exercised,
the Fund realizes a gain or a loss from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally
received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. The purchaser of a call option has the
right to acquire the security which is the subject of the call option at any
time during the option period. During the option period, in return for the
premium paid by the purchaser of the option, the Fund has given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security increase, but has retained the risk of loss
should the price of the underlying security decline. During the option period,
the Fund may be required at any time to deliver the underlying security against
payment of the exercise price. This obligation is terminated upon the
expiration of the option period or at such earlier time at which the Fund
effects a closing purchase transaction by purchasing (at a price which may be
higher than that received when the call option was written) a call option
identical to the one originally written. The Fund will not write a covered call
option if, immediately thereafter, the aggregate value of the securities
underlying all such options, determined as of the dates such options were
written, would exceed 5% of the net assets of the Fund.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $150 million. This agreement
requires AIM to reduce its fees or, if necessary, make payments to the Fund to
the extent required to satisfy any expense limitations imposed by the
securities laws or regulations thereunder of any state in which the Fund's
shares are qualified for sale. The master investment advisory agreement was
amended on September 28, 1994 with respect to the Fund. The amendment to the
master investment advisory agreement was approved by the Fund's shareholders at
a special meeting held on September 28, 1994. Of the 8,621,401 shares voted at
the meeting, 5,930,464 shares voted for the amendment, 2,251,185 shares voted
against the amendment, and 439,752 shares abstained. Under the previous terms,
the Fund paid an advisory fee to AIM at the annual rate of 0.60% of the first
$200 million of the Fund's average daily net assets, plus 0.50% of the Fund's
average daily net assets in excess of $200 million to and including $500
million, plus 0.40% of the Fund's average daily net assets in excess of $500
million to and including $1 billion, plus 0.30% of the Fund's average daily net
assets in excess of $1 billion.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting and shareholder services to the Fund. During the year ended December
31, 1994, AIM was reimbursed $134,789 for such services. Effective November 1,
1994, A I M Fund Services, Inc. ("AFS") became the transfer agent for the Fund
and was paid $26,617 for such services during the two months ended December 31,
1994.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares (the
"Class B Plan")(collectively, the "Plans"). The Fund, pursuant to the Class A
Plan, pays AIM Distributors compensation at an annual rate of 0.25% of the
average daily net assets attributable to the Class A shares. The Class A Plan
is designed to compensate AIM Distributors for certain promotional and other
sales related costs, and to implement a program which provides periodic
payments to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own Class A
shares of the Fund. The Fund, pursuant to the Class B Plan, pays AIM
Distributors compensation at an annual rate of 1.00% of the average daily net
assets attributable to the Class B shares. Of this amount, the Fund may pay a
service fee of 0.25% of the average daily net assets of the Class B shares to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class B shares of
the Fund. Any amounts not paid as a service fee under such Plans would
constitute an asset-based sales charge. The Plans also impose a cap on the
total sales charges, including asset-based sales charges, that may be paid by
the respective classes. During the year ended December 31, 1994, the Class A
shares and the Class B shares paid AIM Distributors $327,254 and $247,715,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $37,866 from sales of the Class A
shares of the Fund during the year ended December 31, 1994. Such commissions
are not an expense of the Fund. They are deducted from, and are not included
in, the proceeds from sales of Class A shares. During the year ended December
31, 1994, AIM Distributors received $51,475 in contingent deferred sales
charges imposed on redemptions of Class B shares. Certain officers and trustees
of the Trust are officers and directors of AIM, AIM Distributors and AFS.
F-48
<PAGE> 267
FINANCIALS
During the year ended December 31, 1994, the Fund paid legal fees of $3,301
for services rendered by Reid & Priest as counsel to the Board of Trustees.
Effective September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was
appointed as counsel to the Board of Trustees. The Fund paid legal fees of $227
for services rendered by that firm as counsel. A member of that firm is a
trustee of the Trust.
NOTE 3 - TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is
not an "interested person" of the Trust. The Trust may invest trustees' fees,
if so elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1994 was $288,727,400 and $305,934,601, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1994 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $13,680,179
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,601,422)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $10,078,757
==========================================================================
</TABLE>
Cost of investments for tax purposes is $148,817,003.
NOTE 5 - SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ -------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 4,669,279 $ 49,954,762 1,224,133 $ 14,715,788
- ------------------------------------------------------------------------------
Class B* 3,113,829 33,848,039 934,224 11,632,389
- ------------------------------------------------------------------------------
Issued as reinvestment of
dividends:
Class A 467,584 4,717,930 1,367,591 15,125,482
- ------------------------------------------------------------------------------
Class B* 135,261 1,349,902 72,754 803,528
- ------------------------------------------------------------------------------
Reacquired:
Class A (6,154,491) (66,839,323) (3,348,833) (40,281,932)
- ------------------------------------------------------------------------------
Class B* (459,392) (4,844,846) (29,855) (377,230)
- ------------------------------------------------------------------------------
1,772,070 $ 18,186,464 220,014 $ 1,618,025
==============================================================================
</TABLE>
* Sales of Class B shares commenced on September 1, 1993.
NOTE 6 - OPEN FUTURES CONTRACTS
On December 31, 1994, $8,181,000 principal amount of U.S. Treasury Bills were
pledged as collateral to cover margin requirements for open futures contracts.
Open futures contracts at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT NO. OF CONTRACTS/MONTH/COMMITMENT APPRECIATION
- -------- --------------------------------- ------------
<S> <C> <C>
S&P 500 Index 36 contracts/March/Buy $123,500
- -------------------------------------------------------------
</TABLE>
F-49
<PAGE> 268
FINANCIALS
NOTE 7 - OPEN OPTION CONTRACTS WRITTEN
Open call option contracts written at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
MARKET
NUMBER VALUE
OF PREMIUM DECEMBER UNREALIZED
ISSUER CONTRACT CONRACTS RECEIVED 31, 1994 APPRECIATION
- ------ ----------------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Applied Materials, Inc. April 50 calls 93 $ 17,103 $16,275 $ 828
- ----------------------- ----------------- --- -------- ------- -------
Cabletron Systems, Inc. April 50 calls 102 36,121 27,413 8,708
- ----------------------- ----------------- --- -------- ------- -------
Cabletron Systems, Inc. April 55 calls 8 1,576 950 626
- ----------------------- ----------------- --- -------- ------- -------
Coca-Cola Co. May 55 calls 40 5,422 4,250 1,172
- ----------------------- ----------------- --- -------- ------- -------
Federal National
Mortgage Association January 75 calls 160 37,466 7,000 30,466
- ----------------------- ----------------- --- -------- ------- -------
Gillette Co. (The) March 75 calls 42 11,287 9,450 1,837
- ----------------------- ----------------- --- -------- ------- -------
Home Depot, Inc. February 50 calls 45 5,048 1,688 3,360
- ----------------------- ----------------- --- -------- ------- -------
Texas Instruments, Inc. January 80 calls 61 12,991 2,287 10,704
- ----------------------- ----------------- --- -------- ------- -------
551 $127,014 $69,313 $57,701
=== ======= ======= =======
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a Class A share
outstanding during each of the years in the ten-year period ended December 31,
1994 and for a Class B share outstanding during the year ended December 31,
1994 and the period September 1, 1993 (date sales commenced) through December
31, 1993.
<TABLE>
<CAPTION>
1994 1993 1992(A) 1991 1990 1989 1988 1987 1986 1985
CLASS A: -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.32 $12.28 $14.73 $12.35 $13.92 $11.93 $11.04 $12.91 $14.95 $12.82
- ----------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income -- -- 0.06 0.11 0.21 0.25 0.23 0.24 0.26 0.39
- ----------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on
securities (both
realized and
unrealized) (0.57) 0.41 (0.04) 4.33 (0.91) 3.16 0.89 0.30 1.57 2.98
- ----------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations (0.57) 0.41 0.02 4.44 (0.70) 3.41 1.12 0.54 1.83 3.37
- ----------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income -- -- (0.06) (0.13) (0.20) (0.27) (0.23) (0.31) (0.35) (0.44)
- ----------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions from
capital gains (0.43) (1.37) (2.41) (1.93) (0.67) (1.15) -- (2.10) (3.52) (0.80)
- ----------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.43) (1.37) (2.47) (2.06) (0.87) (1.42) (0.23) (2.41) (3.87) (1.24)
- ----------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 10.32 $11.32 $12.28 $14.73 $12.35 $13.92 $11.93 $11.04 $12.91 $14.95
======================= ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return(b) (4.99)% 3.64% 0.19% 37.05% (5.04)% 28.87% 10.13% 3.62% 12.85% 27.65%
======================= ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $123,271 $146,723 $168,395 $185,461 $153,245 $187,805 $180,793 $203,329 $213,346 $202,425
======================= ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to
average net assets 1.22%(c) 1.17% 1.17% 1.21% 1.16% 1.00% 0.98% 0.84% 0.85% 0.79%
======================= ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment
income to average net
assets 0.02%(c) 0.02% 0.42% 0.73% 1.41% 1.62% 1.73% 1.51% 1.82% 2.80%
======================= ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 201% 192% 133% 73% 61% 53% 38% 78% 66% 39%
======================= ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Total returns do not deduct sales charges.
(c) Ratios are based on average net assets of $130,884,825.
F-50
<PAGE> 269
FINANCIALS
NOTE 8-CONTINUED
<TABLE>
<CAPTION>
1994 1993
CLASS B: ------- -------
<S> <C> <C>
Net asset value,
beginning of period $11.31 $12.83
- ----------------------- ------- -------
Income from investment
operations:
Net investment income
(loss) (0.06) (0.01)
- ----------------------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) (0.61) (0.14)
- ----------------------- ------- -------
Total from investment
operations (0.67) (0.15)
- ----------------------- ------- -------
Less distributions:
Distributions from
capital gains (0.43) (1.37)
- ----------------------- ------- -------
Total distributions (0.43) (1.37)
- ----------------------- ------- -------
Net asset value, end of
period $10.21 $11.31
======================= ======= =======
Total return(a) (5.88)% (0.92)%(b)
======================= ======= =======
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $38,448 $11,053
======================= ======= =======
Ratio of expenses to
average net assets 2.18 %(c) 1.91 %(d)
======================= ======= =======
Ratio of net investment
income (loss) to
average net assets (0.94)%(c) (0.72)%(d)
======================= ======= =======
Portfolio turnover rate 201% 192%
======================= ======= =======
</TABLE>
(a) Does not deduct contingent deferred sales charges.
(b) Total return is not annualized.
(c) Ratios are based on average net assets of $24,770,061.
(d) Annualized.
F-51
<PAGE> 270
AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM High Yield Fund:
We have audited the accompanying statement of assets and liabilities of AIM
High Yield Fund (a portfolio of AIM Funds Group), including the schedule of
investments, as of December 31, 1994, and the related statements of operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended and the financial highlights for each of the
years in the two-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
High Yield Fund as of December 31, 1994, the results of its operations for the
year then ended, the changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the two-year period then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
February 3, 1995
F-52
<PAGE> 271
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NON-CONVERTIBLE BONDS AND NOTES-93.27%
ADVERTISING/BROADCASTING-2.71%
$ 9,500,000 Ackerley Communication Inc., Sr. Secured Series A
Notes, 10.75%, 10/01/03 $ 9,048,750
- -------------------------------------------------------------------------------
6,750,000 Katz Corp., Sr. Sub. Notes, 12.75%, 11/15/02 7,020,000
- -------------------------------------------------------------------------------
5,000,000 Lamar Advertising Co., Sr. Secured Notes, 11.00%,
05/15/03 4,800,000
- -------------------------------------------------------------------------------
20,868,750
- -------------------------------------------------------------------------------
AEROSPACE/DEFENSE-2.16%
18,525,000 K & F Industries Inc., Sr. Sub. Deb., 13.75%,
08/01/01 16,672,500
- -------------------------------------------------------------------------------
AUTOMOBILE/TRUCKS PARTS & TIRES-3.68%
7,000,000 Aftermarket Technology Corp., Sr. Sub. Notes,
12.00%, 08/01/04(a) (Acquired 07/21/94-08/02/94;
Cost $7,032,500) 7,227,500
- -------------------------------------------------------------------------------
8,700,000 JPS Automotive Products, Sr. Notes, 11.125%,
06/15/01 8,352,000
- -------------------------------------------------------------------------------
5,690,000 SPX Corp., Sr. Sub. Notes, 11.75%, 06/01/02 5,661,550
- -------------------------------------------------------------------------------
6,750,000 Truck Components, Inc., Sr. Series A Notes, 12.25%,
06/30/01 7,087,500
- -------------------------------------------------------------------------------
28,328,550
- -------------------------------------------------------------------------------
BEVERAGES-1.53%
9,500,000 Heileman Acquisition Co., Sr. Sub. Notes, 9.625%,
01/31/04 6,175,000
- -------------------------------------------------------------------------------
6,650,000 Seven Up/RC Bottling Co., Sr. Secured Notes,
11.50%, 08/01/99 5,586,000
- -------------------------------------------------------------------------------
11,761,000
- -------------------------------------------------------------------------------
BUSINESS SERVICES-5.49%
6,500,000 Americold Corp., First Mortgage Series B Deb.,
11.50%, 03/01/05 5,850,000
- -------------------------------------------------------------------------------
11,010,000 Americold Corp., Sr. Sub. Deb., 11.00%, 05/01/97 9,633,750
- -------------------------------------------------------------------------------
1,050,000 Comdata Network, Inc., Gtd. Sr. Notes, 12.50%,
12/15/99 1,123,500
- -------------------------------------------------------------------------------
5,875,000 Comdata Network, Inc., Sr. Sub. Deb., 13.25%,
12/15/02 6,462,500
- -------------------------------------------------------------------------------
15,500,000 Neodata Services Inc., Sr. Deferred Coupon Notes,
12.00%, 05/01/03(b) 12,090,000
- -------------------------------------------------------------------------------
7,500,000 Solon Automated Services, Inc., Sr. Notes, 12.75%,
07/15/01 7,125,000
- -------------------------------------------------------------------------------
42,284,750
- -------------------------------------------------------------------------------
</TABLE>
F-53
<PAGE> 272
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CABLE TV-5.80%
$ 5,000,000 Adelphia Communications Corp., Sr. Deb., 11.875%,
09/15/04 $ 4,450,000
- ------------------------------------------------------------------------------
4,250,000 Adelphia Communications Corp., Sr. Notes, 12.50%,
05/15/02 3,973,750
- ------------------------------------------------------------------------------
8,800,000 American Media Operations, Sr. Sub. Notes,
11.625%, 11/15/04 9,020,000
- ------------------------------------------------------------------------------
10,000,000 Century Communications, Sr. Sub. Deb., 11.875%,
10/15/03 10,425,000
- ------------------------------------------------------------------------------
9,000,000 Continental Cablevision, Inc., Sr. Sub. Deb.,
11.00%, 06/01/07 9,135,000
- ------------------------------------------------------------------------------
8,525,000 Marcus Cable Co., Sr. Deb., 11.875%, 10/01/05 7,672,500
- ------------------------------------------------------------------------------
44,676,250
- ------------------------------------------------------------------------------
CHEMICALS-4.55%
6,500,000 Arcadian Partners, L.P., Sr. Series B Notes,
10.75%, 05/01/05 6,272,500
- ------------------------------------------------------------------------------
9,000,000 Huntsman Corp., First Mortgage Notes, 11.00%,
04/15/04 9,360,000
- ------------------------------------------------------------------------------
10,235,000 Indspec Chemical, Sr. Sub. Disc. Notes, 11.50%,
12/01/03(b) 5,629,250
- ------------------------------------------------------------------------------
4,500,000 Laroche Industries, Inc., Sr. Sub. Notes, 13.00%,
08/15/04 4,162,500
- ------------------------------------------------------------------------------
10,000,000 Polymer Group, Inc., Sr. Notes, 12.25%,
07/15/02(a) (Acquired 06/17/94-06/21/94;
Cost $10,098,750) 9,650,000
- ------------------------------------------------------------------------------
35,074,250
- ------------------------------------------------------------------------------
CHEMICALS (SPECIALTY)-3.58%
8,000,000 Agricultural Minerals & Chemicals, Sr. Notes,
10.75%, 09/30/03 8,080,000
- ------------------------------------------------------------------------------
9,000,000 Applied Extrusion Technologies, Inc., Sr. Notes,
11.50%, 04/01/02 8,910,000
- ------------------------------------------------------------------------------
11,400,000 Harris Chemical Corp., Gtd. Sr. Sub. Notes,
10.75%, 10/15/03 10,559,250
- ------------------------------------------------------------------------------
27,549,250
- ------------------------------------------------------------------------------
CONGLOMERATES-1.68%
6,000,000 Berry Plastics Corp., Sr. Sub. Notes, 12.25%,
04/15/04 5,820,000
- ------------------------------------------------------------------------------
7,000,000 Tjiwi Kimia International Global Co., Gtd. Notes,
13.25%, 08/01/01 7,087,500
- ------------------------------------------------------------------------------
12,907,500
- ------------------------------------------------------------------------------
CONTAINERS-6.45%
16,000,000 Ivex Holdings Corp., Disc. Series B Deb., 13.25%,
03/15/05(b) 6,400,000
- ------------------------------------------------------------------------------
6,500,000 Ivex Packaging Corp., Sr. Sub. Notes, 12.50%,
12/15/02 6,467,500
- ------------------------------------------------------------------------------
7,000,000 Owens-Illinois, Inc., Sr. Deb., 11.00% 12/01/03 7,262,500
- ------------------------------------------------------------------------------
21,750,000 Silgan Holdings Inc., Sr. Disc. Deb., 13.25%,
12/15/02(b) 18,270,000
- ------------------------------------------------------------------------------
7,300,000 Stone Container Corp., Sr. Sub. Notes, 11.00%,
08/15/99 7,190,500
- ------------------------------------------------------------------------------
3,750,000 U.S. Can Co., Sr. Sub. Notes, 13.50%, 01/15/02 4,106,250
- ------------------------------------------------------------------------------
49,696,750
- ------------------------------------------------------------------------------
ENERGY ALTERNATE SOURCES-2.35%
9,680,000 Foamex L.P., Sr. Sub. Deb., 11.875%, 10/01/04 9,196,000
- ------------------------------------------------------------------------------
8,500,000 Kenetech Corp., Sr. Secured Notes, 12.75%,
12/15/02 8,925,000
- ------------------------------------------------------------------------------
18,121,000
- ------------------------------------------------------------------------------
</TABLE>
F-54
<PAGE> 273
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCE ASSET MANAGEMENT-0.95%
Indah Kiat International Finance Co., Sr. Secured
Notes,
- -------------------------------------------------------------------------------
$ 2,500,000 11.875%, 06/15/02 $ 2,425,000
- -------------------------------------------------------------------------------
5,000,000 12.50%, 06/15/06 4,862,500
- -------------------------------------------------------------------------------
7,287,500
- -------------------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-2.76%
19,500,000 GPA Delaware, Deb., 8.75%, 12/15/98 14,820,000
- -------------------------------------------------------------------------------
7,125,000 Grupo Industrial Durango, Sr. Notes, 12.00%
07/15/01 6,412,500
- -------------------------------------------------------------------------------
21,232,500
- -------------------------------------------------------------------------------
FOOD & DRUG-3.76%
6,500,000 Fleming Co. Inc., Sr. Notes, 10.625%, 12/15/01 6,500,000
- -------------------------------------------------------------------------------
8,025,000 Pathmark Stores, Inc., Sub. Notes, 11.625%,
06/15/02 7,704,000
- -------------------------------------------------------------------------------
7,500,000 Star Markets Co., Inc., Sr. Sub. Notes, 13.00%,
11/01/04(a) (Acquired 10/26/94-11/10/94;
Cost $7,509,375) 7,650,000
- -------------------------------------------------------------------------------
Thrifty Payless Inc., Sr. Sub. Notes,
- -------------------------------------------------------------------------------
1,000,000 11.75%, 04/15/03 990,000
- -------------------------------------------------------------------------------
6,500,000 12.25%, 04/15/04 6,110,000
- -------------------------------------------------------------------------------
28,954,000
- -------------------------------------------------------------------------------
FOOD/PROCESSING-1.15%
8,800,000 PF Acquisition Corp., Sr. Sub. Notes, 12.75%,
02/01/05(a) (Acquired 10/21/94-11/28/94;
Cost $8,815,750) 8,844,000
- -------------------------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-2.50%
7,650,000 American Life Holding Co., Sr. Sub. Notes, 11.25%,
09/15/04 7,497,000
- -------------------------------------------------------------------------------
5,045,000 Bankers Life Holding Corp., Sr. Sub. Series A
Deb., 13.00% 11/01/02 5,599,950
- -------------------------------------------------------------------------------
5,745,000 Life Partners Group Inc., Sr. Sub. Notes, 12.75%,
07/15/02 6,204,600
- -------------------------------------------------------------------------------
19,301,550
- -------------------------------------------------------------------------------
LEISURE & RECREATION-5.29%
8,375,000 Affinity Group, Sr. Sub. Notes, 11.50%, 10/15/03 7,956,250
- -------------------------------------------------------------------------------
10,000,000 Bally's Grand Inc., First Mortgage Notes, 10.375%,
12/15/03 8,700,000
- -------------------------------------------------------------------------------
9,700,000 Harrah's Jazz Co., First Mortgage Notes, 14.25%,
11/15/01 10,185,000
- -------------------------------------------------------------------------------
8,000,000 IHF Holdings, Inc., Sr. Sub. Disc. Notes, 15.00%,
11/15/04(a)(b)(c) (Acquired 11/04/94;
Cost $3,879,920) 3,920,000
- -------------------------------------------------------------------------------
4,000,000 Icon Health & Fitness, Sr. Sub. Notes, 13.00%,
07/15/02(a)(d) (Acquired 11/04/94-11/15/94;
Cost $3,954,380) 3,960,000
- -------------------------------------------------------------------------------
6,500,000 Plitt Theaters, Inc., Sr. Sub. Notes, 10.875%,
06/15/04 6,045,000
- -------------------------------------------------------------------------------
40,766,250
- -------------------------------------------------------------------------------
</TABLE>
F-55
<PAGE> 274
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MACHINERY-3.36%
$12,000,000 Calmar Spraying Systems, Sr. Sub. Disc. Notes,
14.00%, 02/15/99 $ 11,940,000
- ------------------------------------------------------------------------------
9,525,000 Interlake Corp., Sr. Sub. Deb., 12.125%, 03/01/02 8,858,250
- ------------------------------------------------------------------------------
5,000,000 Waters Corp., Sr. Sub. Notes, 12.75%, 09/30/04 5,075,000
- ------------------------------------------------------------------------------
25,873,250
- ------------------------------------------------------------------------------
MEDICAL SERVICES-3.59%
5,800,000 General Medical Corp., Sr. Sub. Notes, 10.875%,
08/15/03 5,684,000
- ------------------------------------------------------------------------------
Ornda Healthcorp, Sr. Sub. Notes,
- ------------------------------------------------------------------------------
4,500,000 12.25%, 05/15/02 4,815,000
- ------------------------------------------------------------------------------
5,250,000 11.375%, 08/15/04 5,381,250
- ------------------------------------------------------------------------------
8,285,000 Quorum Health Group, Sr. Sub. Notes, 11.875%,
12/15/02 8,782,100
- ------------------------------------------------------------------------------
4,000,000 Total Renal Care, Sr. Sub. Disc. Notes, 12.00%,
08/15/04(b)(e) 3,020,000
- ------------------------------------------------------------------------------
27,682,350
- ------------------------------------------------------------------------------
METALS-1.24%
9,500,000 Kaiser Aluminum, Sr. Sub. Notes, 12.75%, 02/01/03 9,571,250
- ------------------------------------------------------------------------------
OIL & GAS-0.51%
4,000,000 Ferrell Gas Inc., Sr. Sub. Deb., 10.00% 08/01/01 3,940,000
- ------------------------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-0.62%
5,055,000 Energy Ventures, Inc., Sr. Notes, 10.25%, 03/15/04 4,776,975
- ------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS-3.90%
7,000,000 Container Corp. of America, Gtd. Sr. Series A
Notes, 11.25%, 05/01/04 7,175,000
- ------------------------------------------------------------------------------
8,100,000 Domtar Inc., Sr. Notes, 12.00%, 04/15/01 8,424,000
- ------------------------------------------------------------------------------
3,925,000 Riverwood International Corp., Sr. Sub. Notes,
10.375%, 06/30/04 3,895,563
- ------------------------------------------------------------------------------
6,000,000 S.D. Warren Co., Sr. Sub. Notes, 12.00%,
12/15/04(a) (Acquired 12/13/94-12/14/94;
Cost $6,016,250) 6,135,000
- ------------------------------------------------------------------------------
4,500,000 Stone Consolidated Corp., Sr. Secured Notes,
10.25%, 12/15/00 4,432,500
- ------------------------------------------------------------------------------
30,062,063
- ------------------------------------------------------------------------------
POLLUTION CONTROL-2.20%
9,500,000 Allied Waste Industries, Inc., Sr. Sub. Notes,
10.75%, 02/01/04 8,930,000
- ------------------------------------------------------------------------------
8,000,000 Mid-American Waste Systems, Inc., Sr. Sub. Notes,
12.25%, 02/15/03 8,000,000
- ------------------------------------------------------------------------------
16,930,000
- ------------------------------------------------------------------------------
</TABLE>
F-56
<PAGE> 275
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
PUBLISHING-2.02%
$13,826,000 Affiliated Newspaper Investments, Inc., Sr. Disc.
Notes, 13.25%, 07/01/06(b) $ 7,051,260
- -----------------------------------------------------------------------------
8,500,000 Garden State Newspapers, Sr. Sub. Notes, 12.00%,
07/01/04 8,500,000
- -----------------------------------------------------------------------------
15,551,260
- -----------------------------------------------------------------------------
RESTAURANTS-1.61%
15,000,000 Flagstar Corp., Sr. Sub. Notes, 11.25%, 11/01/04 12,375,000
- -----------------------------------------------------------------------------
STEEL-2.96%
6,925,000 Earle Jorgensen Co., Sr. Notes, 10.75%, 03/01/00 6,648,000
- -----------------------------------------------------------------------------
8,505,000 Geneva Steel Co., Sr. Notes, 11.125%, 03/15/01 7,994,700
- -----------------------------------------------------------------------------
8,250,000 GS Technologies Operating Co., Sr. Notes, 12.00%,
09/01/04 8,167,500
- -----------------------------------------------------------------------------
22,810,200
- -----------------------------------------------------------------------------
TELECOMMUNICATIONS SERVICES-10.72%
8,000,000 Celcaribe S.A., Sr. Secured Notes, 13.50%,
03/15/04(a)(b)(f)(Acquired 05/17/94-05/26/94;
Cost $6,429,128) 6,700,000
- -----------------------------------------------------------------------------
16,000,000 Cellular Inc., Sr. Sub. Disc. Notes, 11.75%,
09/01/03(b) 10,560,000
- -----------------------------------------------------------------------------
9,000,000 Centennial Cellular, Sr. Notes, 8.875%, 11/01/01 7,965,000
- -----------------------------------------------------------------------------
20,200,000 Horizon Cellular Telephone, Sr. Sub. Disc. Notes,
11.375%, 10/01/00(b) 14,695,500
- -----------------------------------------------------------------------------
3,500,000 K-III Communications Corp., Sr. Notes, 10.25%,
06/01/04 3,342,500
- -----------------------------------------------------------------------------
7,550,000 MobileMedia Communications, Inc., Sr. Sub. Notes,
10.50%, 12/01/03(b) 4,303,500
- -----------------------------------------------------------------------------
3,100,000 Paging Network, Sr. Sub. Notes, 11.75%, 05/15/02 3,069,000
- -----------------------------------------------------------------------------
10,500,000 PriCellular Wireless Corp., Sr. Sub. Disc. Notes,
14.00%, 11/15/01(a) (Acquired 11/17/94;
Cost $7,017,570) 6,982,500
- -----------------------------------------------------------------------------
6,655,000 Rogers Cantel Mobile Inc., Sr. Sub. Gtd. Notes,
11.125%, 07/15/02 6,788,100
- -----------------------------------------------------------------------------
8,500,000 Telex Communications, Inc., Sr. Notes, 12.00%,
07/15/04 8,415,000
- -----------------------------------------------------------------------------
12,000,000 USA Mobile Communications, Sr. Notes, 9.50%,
02/01/04 9,720,000
- -----------------------------------------------------------------------------
82,541,100
- -----------------------------------------------------------------------------
TEXTILES-2.08%
10,465,000 Dan River Inc., Sr. Sub. Notes, 10.125%, 12/15/03 9,418,500
- -----------------------------------------------------------------------------
7,400,000 Synthetic Industries Inc., Sr. Sub. Deb., 12.75%,
12/01/02 6,586,000
- -----------------------------------------------------------------------------
16,004,500
- -----------------------------------------------------------------------------
TRANSPORTATION-1.38%
3,000,000 Dade International Inc., Sr. Sub. Notes, 13.00%,
02/01/05(a)(Acquired 12/09/94; Cost $3,000,000) 3,015,000
- -----------------------------------------------------------------------------
Sea Container Ltd., Sr. Sub. Deb.,
- -----------------------------------------------------------------------------
5,350,000 Series A, 12.50%, 12/01/04 5,350,000
- -----------------------------------------------------------------------------
2,250,000 Series B, 12.50%, 12/01/04 2,283,750
- -----------------------------------------------------------------------------
10,648,750
- -----------------------------------------------------------------------------
</TABLE>
F-57
<PAGE> 276
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
UTILITIES-0.69%
$ 5,400,000 Southeastern Public Services, Sr. Sub. Deb.,
11.875%, 02/01/98 $ 5,346,000
- -----------------------------------------------------------------------------
Total Non-Convertible Bonds and Notes 718,439,048
- -----------------------------------------------------------------------------
SHARES
COMMON STOCKS-0.30%
AUTOMOBILE/TRUCKS PARTS & TIRES-0.19%
72,600 Lear Seating Corp.(g) 1,442,925
- -----------------------------------------------------------------------------
BUSINESS SERVICES-0.04%
13,826 Affiliated Newspaper Investments, Inc.(g) 345,650
- -----------------------------------------------------------------------------
RETAIL (FOOD & DRUG)-0.07%
123,500 Thrifty Payless Holdings-Class C(g) 540,312
- -----------------------------------------------------------------------------
Total Common Stocks 2,328,887
- -----------------------------------------------------------------------------
PRINCIPAL AMOUNT
REPURCHASE AGREEMENTS(h)-4.41%
$33,945,984 Daiwa Securities America Inc., 3.50%,
01/03/95(i) 33,945,984
- -----------------------------------------------------------------------------
Total Repurchase Agreements 33,945,984
- -----------------------------------------------------------------------------
SHARES
WARRANTS-0.01%
BUILDING MATERIALS-0.00%
3,000 Payless Cashways, Inc., expiring 11/01/96(g) 7,125
- -----------------------------------------------------------------------------
CONGLOMERATES-0.01%
6,000 Berry Plastics Holdings, expiring 04/15/04(g) 82,500
- -----------------------------------------------------------------------------
Total Warrants 89,625
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS - 97.99% 754,803,544
- -----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 2.01% 15,493,715
- -----------------------------------------------------------------------------
NET ASSETS - 100.00% $770,297,259
=============================================================================
</TABLE>
F-58
<PAGE> 277
FINANCIALS
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
aggregate market value of these securities at December 31, 1994, was
$64,084,000, which represented 8.32% of the net assets.
(b) Discounted bond at purchase. Interest rate shown represents coupon rate at
which the bond will accrue at a specified future date.
(c) Issued as a unit. This unit also includes 8,000 warrants to purchase
0.64673 shares of Class L common stock at $0.01 per share and 6.4673 shares
of Class A common stock at $0.01 per share per warrant.
(d) Issued as a unit. This unit also includes 4 warrants to purchase 0.19753
shares of Class L common stock and 1.9753 shares of Class A common stock
per warrant.
(e) Issued as a unit. This unit also includes 36 Class B common shares.
(f) Issued as a unit. This unit also includes 1,300,800 Celcaribe Ordinary
Trust Certificates.
(g) Non-income producing security.
(h) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102 percent of the sales price of
the repurchase agreement.
(i) Joint repurchase agreement entered into 12/30/94 with a maturing value of
$391,353,115. Collateralized by $426,987,000 U.S. Treasury obligations,
4.75% to 9.25% due 01/15/96 to 11/15/24. The aggregate market value of the
collateral at 12/31/94 was $399,025,510. The Fund's pro-rata interest in
the collateral at 12/31/94 was $34,624,948.
Abbreviations:
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Sr. - Senior
Sub. - Subordinated
See Notes to Financial Statements.
F-59
<PAGE> 278
FINANCIALS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $782,302,194) $754,803,544
- --------------------------------------------------------------
Receivables for:
- --------------------------------------------------------------
Fund shares sold 4,554,737
- --------------------------------------------------------------
Interest 18,242,846
- --------------------------------------------------------------
Investment for deferred compensation plan 27,048
- --------------------------------------------------------------
Other assets 26,056
- --------------------------------------------------------------
Total assets 777,654,231
- --------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 826,354
- --------------------------------------------------------------
Fund shares reacquired 1,955,370
- --------------------------------------------------------------
Dividends 3,412,802
- --------------------------------------------------------------
Deferred compensation plan 27,048
- --------------------------------------------------------------
Accrued advisory fees 351,473
- --------------------------------------------------------------
Accrued administrative service fees 5,847
- --------------------------------------------------------------
Accrued distribution fees 494,838
- --------------------------------------------------------------
Accrued trustees' fees 2,017
- --------------------------------------------------------------
Accrued operating expenses 281,223
- --------------------------------------------------------------
Total liabilities 7,356,972
- --------------------------------------------------------------
Net assets applicable to shares outstanding $770,297,259
==============================================================
NET ASSETS:
Class A $578,958,950
==============================================================
Class B $191,338,309
==============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 64,862,396
==============================================================
Class B 21,448,584
==============================================================
CLASS A:
Net asset value and redemption price per share $8.93
==============================================================
Offering price per share:
(Net asset value of $8.93 / 95.25%) $9.38
==============================================================
CLASS B:
Net asset value and offering price per share $8.92
==============================================================
</TABLE>
See Notes to Financial Statements.
F-60
<PAGE> 279
FINANCIALS
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest $ 77,046,979
- ------------------------------------------------------------------------------
EXPENSES:
Advisory fees 3,881,526
- ------------------------------------------------------------------------------
Custodian fees 78,258
- ------------------------------------------------------------------------------
Transfer agent fees-Class A 636,119
- ------------------------------------------------------------------------------
Transfer agent fees-Class B 140,063
- ------------------------------------------------------------------------------
Administrative service fees 313,218
- ------------------------------------------------------------------------------
Trustees' fees 11,260
- ------------------------------------------------------------------------------
Distribution fees-Class A 1,446,888
- ------------------------------------------------------------------------------
Distribution fees-Class B 1,173,408
- ------------------------------------------------------------------------------
Other 242,018
- ------------------------------------------------------------------------------
Total expenses 7,922,758
- ------------------------------------------------------------------------------
Net investment income 69,124,221
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES:
Realized gain (loss) on sales of investment securities (26,898,895)
- ------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (57,089,748)
- ------------------------------------------------------------------------------
Net gain (loss) on investment securities (83,988,643)
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(14,864,422)
==============================================================================
</TABLE>
See Notes to Financial Statements.
F-61
<PAGE> 280
FINANCIALS
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
OPERATIONS:
Net investment income $ 69,124,221 $ 43,165,298
- -------------------------------------------------------------------------------
Net realized gain (loss) on sales of
investment securities (26,898,895) 21,110,401
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investment securities (57,089,748) 8,730,979
- -------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (14,864,422) 73,006,678
- -------------------------------------------------------------------------------
Distributions to shareholders from net investment
income:
- -------------------------------------------------------------------------------
Class A (58,337,288) (42,939,509)
- -------------------------------------------------------------------------------
Class B (10,971,364) (298,341)
- -------------------------------------------------------------------------------
Distributions in excess of net investment income:
- -------------------------------------------------------------------------------
Class A (91,900) (1,354,416)
- -------------------------------------------------------------------------------
Class B (16,331) (9,410)
- -------------------------------------------------------------------------------
Share transactions-net:
- -------------------------------------------------------------------------------
Class A 97,407,253 197,980,549
- -------------------------------------------------------------------------------
Class B 175,148,092 31,120,047
- -------------------------------------------------------------------------------
Net increase in net assets 188,274,040 257,505,598
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 582,023,219 324,517,621
- -------------------------------------------------------------------------------
End of period $770,297,259 $582,023,219
===============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $888,574,587 $616,826,638
- -------------------------------------------------------------------------------
Undistributed net investment income 949,305 184,431
- -------------------------------------------------------------------------------
Undistributed net realized gain (loss)
on sales of investment securities (91,727,983) (64,578,948)
- -------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (27,498,650) 29,591,098
- -------------------------------------------------------------------------------
$770,297,259 $582,023,219
===============================================================================
</TABLE>
See Notes to Financial Statements.
F-62
<PAGE> 281
FINANCIALS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM High Yield Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate series
portfolios, each having an unlimited number of shares of beneficial interest.
The Fund currently offers two different classes of shares: the Class A shares
and the Class B shares. Class A shares are sold with a front-end sales charge.
Class B shares are sold with a contingent deferred sales charge. Matters
affecting each portfolio or class are voted on exclusively by the shareholders
of such portfolio or class. The assets, liabilities and operations of each
portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The Fund invests primarily in
high yield bonds. These bonds may involve special risks in addition to the
risks associated with investment in higher rated debt securities. High yield
bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. Also, the secondary
market in which high yield bonds are traded may be less liquid than the market
for higher grade bonds. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. Security Valuations - Non-convertible bonds and notes are valued on the
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as institution-size
trading in similar groups of securities, developments related to special
securities, yield, quality, coupon rate, maturity, type of issue, individual
trading characteristics and other market data. Investment securities for
which prices are not provided by the pricing service and which are listed or
traded on an exchange are valued at the last sales price on the exchange
where principally traded or, lacking any sales on a particular day, at the
mean between the closing bid and asked prices on that day unless the Board
of Trustees, or persons designated by the Board of Trustees, determines that
the over-the-counter quotations more closely reflect the current market
value of the security. Securities traded in the over-the-counter market,
except (i) securities priced by the pricing service, (ii) securities for
which representative exchange prices are available, and (iii) securities
reported in the NASDAQ National Market System, are valued at the mean
between representative last bid and asked prices obtained from an electronic
quotation reporting system, if such prices are available, or from
established market makers. Each security reported in 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 and
"restricted securities" are valued at fair value as determined in good faith
by or under the supervision of the Trust's officers in accordance with
methods which are specifically authorized by the Board of Trustees. Short-
term obligations having 60 days or less to maturity are valued at amortized
cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date. It is the policy of the Fund to declare daily dividends
from net investment income. Such dividends are paid monthly. Distributions
from net realized capital gains, if any, are recorded on ex-dividend date
and are paid annually subject to restrictions noted in section "C" below. On
December 31, 1994, $1,057,536 was reclassified from undistributed net
realized gain (loss) to undistributed net investment income as a result of
permanent book/tax differences. In addition, paid-in capital was reduced by
$807,396 with an equivalent offset to undistributed gain (loss) on sales of
investment securities due to the expiration of a portion of the capital loss
carryforward. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carryforward of $76,729,687 (which may be carried forward to offset future
taxable capital gains/losses) which expires, if not previously utilized,
through the year 2002.
D. Expenses - Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g. advisory fees, are allocated between them. Expenses of the
Trust which are not directly attributable to the operations of any class of
shares or portfolio of the Trust are prorated among the classes to which the
expense relates based upon the relative net assets of each class.
F-63
<PAGE> 282
FINANCIALS
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% of
the first $200 million of the Fund's average daily net assets, plus 0.55% of
the Fund's average daily net assets in excess of $200 million to and including
$500 million, plus 0.50% of the Fund's average daily net assets in excess of
$500 million to and including $1 billion, plus 0.45% of the Fund's average
daily net assets in excess of $1 billion. Under the terms of a sub-advisory
agreement between AIM and CIGNA Investments, Inc. ("CII"), AIM pays CII 0.15%
of the first $300 million of the Fund's average daily net assets, plus 0.10% of
the Fund's average daily net assets in excess of $300 million. The advisory
agreement requires AIM to reduce its fees or, if necessary, make payments to
the Fund to the extent required to satisfy any expense limitations imposed by
the securities laws or regulations thereunder of any state in which the Fund's
shares are qualified for sale.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting and shareholder services to the Fund. During the year ended December
31, 1994, AIM was reimbursed $313,218 for such services. Effective November 1,
1994, A I M Fund Services, Inc. ("AFS") became the transfer agent for the Fund
and was paid $92,451 for such services during the two months ended December 31,
1994.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares (the
"Class B Plan") (collectively, the "Plans"). The Fund, pursuant to the Class A
Plan, pays AIM Distributors compensation at an annual rate of 0.25% of the
average daily net assets attributable to the Class A shares. The Class A Plan
is designed to compensate AIM Distributors for certain promotional and other
sales related costs, and to implement a program which provides periodic
payments to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own Class A
shares of the Fund. The Fund, pursuant to the Class B Plan, pays AIM
Distributors compensation at an annual rate of 1.00% of the average daily net
assets attributable to the Class B shares. Of this amount, the Fund may pay a
service fee of 0.25% of the average daily net assets of the Class B shares to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class B shares of
the Fund. Any amounts not paid as a service fee under such Plans would
constitute an asset-based sales charge. The Plans also impose a cap on the
total sales charges, including asset-based sales charges, that may be paid by
the respective classes. During the year ended December 31, 1994, the Class A
shares and the Class B shares paid AIM Distributors $1,446,888 and $1,173,408,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $808,554 from sales of the Class A
shares of the Fund during the year ended December 31, 1994. Such commissions
are not an expense of the Fund. They are deducted from, and are not included
in, the proceeds from sales of Class A shares. During the year ended December
31, 1994, AIM Distributors received $391,108 in contingent deferred sales
charges imposed on redemptions of Class B shares. Certain officers and trustees
of the Trust are officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1994, the Fund paid legal fees of $1,665
for services rendered by Reid & Priest as counsel to the Board of Trustees.
Effective September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was
appointed as counsel to the Board of Trustees. The Fund paid legal fees of $389
for services rendered by that firm as counsel. A member of that firm is a
trustee of the Trust.
F-64
<PAGE> 283
FINANCIALS
NOTE 3 - TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is
not an "interested person" of the Trust. The Trust may invest trustees' fees,
if so elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short- term
securities) purchased and sold by the Fund during the year ended December 31,
1994 was $598,636,324 and $348,321,786, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1994 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 16,257,702
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (43,807,602)
- ---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities $(27,549,900)
===========================================================================
</TABLE>
Cost of investments for tax purposes is $782,353,444.
NOTE 5 - SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
1994 1993
-------------------------- ---------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 25,855,410 $ 248,478,420 28,591,005 $ 280,639,899
- -------------------------------------------------------------------------------
Class B* 23,795,476 226,709,226 3,124,915 31,240,320
- -------------------------------------------------------------------------------
Issued as reinvestment
of dividends:
Class A 3,794,971 35,880,387 2,927,197 28,804,993
- -------------------------------------------------------------------------------
Class B* 470,871 4,424,592 11,218 112,418
- -------------------------------------------------------------------------------
Reacquired:
Class A (19,578,260) (186,951,554) (11,249,858) (111,464,343)
- -------------------------------------------------------------------------------
Class B* (5,930,666) (55,985,726) (23,230) (232,691)
- -------------------------------------------------------------------------------
28,407,802 $ 272,555,345 23,381,247 $ 229,100,596
===============================================================================
</TABLE>
* Sales of Class B shares commenced on September 1, 1993.
F-65
<PAGE> 284
FINANCIALS
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a Class A share
outstanding during each of the years in the ten-year period ended December 31,
1994 and for a Class B share outstanding during the year ended December 31,
1994 and the period September 1, 1993 (date sales commenced) through December
31, 1993.
<TABLE>
<CAPTION>
1994 1993 1992(a) 1991 1990
CLASS A: -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.05 $9.40 $8.86 $7.07 $8.94
- ----------------------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.96 0.97 1.04 1.02 1.09
- ----------------------- -------- -------- -------- -------- --------
Net gains (losses) on
securities (both
realized and
unrealized) (1.12) 0.69 0.55 1.81 (1.84)
- ----------------------- -------- -------- -------- -------- --------
Total from investment
operations (0.16) 1.66 1.59 2.83 (0.75)
- ----------------------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income (0.96) (1.01) (1.05) (1.04) (1.12)
- ----------------------- -------- -------- -------- -------- --------
Net asset value, end of
period $8.93 $10.05 $9.40 $8.86 $7.07
======================= ======== ======== ======== ======== ========
Total return(b) (1.67)% 18.40% 18.60% 42.18% (9.03)%
======================= ======== ======== ======== ======== ========
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $578,959 $550,760 $324,518 $259,677 $204,932
======================= ======== ======== ======== ======== ========
Ratio of expenses to
average net assets 1.00 %(c) 1.12% 1.15% 1.22% 1.21%(d)
======================= ======== ======== ======== ======== ========
Ratio of net investment
income to average net
assets 10.07 %(c) 9.82% 11.00% 12.67% 13.59%(e)
======================= ======== ======== ======== ======== ========
Portfolio turnover rate 53 % 53% 56% 61% 27%
======================= ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985
CLASS A: -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.01 $9.67 $10.54 $10.21 $9.43
- ----------------------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income 1.21 1.18 1.16 1.26 1.26
- ----------------------- -------- -------- -------- -------- --------
Net gains (losses) on
securities (both
realized and
unrealized) (1.07) 0.34 (0.83) 0.31 0.80
- ----------------------- -------- -------- -------- -------- --------
Total from investment
operations 0.14 1.52 0.33 1.57 2.06
- ----------------------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income (1.21) (1.18) (1.20) (1.24) (1.28)
- ----------------------- -------- -------- -------- -------- --------
Net asset value, end of
period $8.94 $10.01 $9.67 $10.54 $10.21
======================= ======== ======== ======== ======== ========
Total return(b) 1.18% 16.41% 3.07% 15.97% 23.49%
======================= ======== ======== ======== ======== ========
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $261,920 $274,631 $242,858 $246,865 $147,123
======================= ======== ======== ======== ======== ========
Ratio of expenses to
average net assets 0.99% 0.96%(d) 0.92% 0.92% 0.94%(d)
======================= ======== ======== ======== ======== ========
Ratio of net investment
income to average net
assets 12.40% 11.84%(e) 11.21% 11.84% 12.91%(e)
======================= ======== ======== ======== ======== ========
Portfolio turnover rate 36% 76% 81% 86% 79%
======================= ======== ======== ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Total returns do not deduct sales charges.
(c) Ratios are based on average net assets of $578,623,456.
(d) Ratios of expenses to average net assets prior to reduction of advisory
fees were 1.22%, 1.00% and 0.98% for years 1990, 1988 and 1985,
respectively.
(e) Ratios of net investment income to average net assets prior to reduction of
advisory fees were 13.58%, 11.80% and 12.87% for years 1990, 1988 and 1985,
respectively.
F-66
<PAGE> 285
FINANCIALS
<TABLE>
<CAPTION>
1994 1993
CLASS B: -------- -------
<S> <C> <C>
Net asset value,
beginning of period $ 10.04 $ 9.96
- ----------------------- -------- -------
Income from investment
operations:
Net investment income 0.87 0.32
- ----------------------- -------- -------
Net gains (losses) on
securities (both
realized and
unrealized) (1.10) 0.07
- ----------------------- -------- -------
Total from investment
operations (0.23) 0.39
- ----------------------- -------- -------
Less distributions:
Dividends from net
investment income (0.89) (0.31)
- ----------------------- -------- -------
Net asset value, end of
period $ 8.92 $ 10.04
======================= ======== =======
Total return(a) (2.48)% 4.00%(b)
======================= ======== =======
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $191,338 $31,264
======================= ======== =======
Ratio of expenses to
average net assets 1.80%(c) 1.93%(d)
======================= ======== =======
Ratio of net investment
income to average net
assets 9.27%(c) 8.99%(d)
======================= ======== =======
Portfolio turnover rate 53% 53%
======================= ======== =======
</TABLE>
(a) Does not deduct contingent deferred sales charges.
(b) Total return is not annualized.
(c) Ratios are based on average net assets of $117,681,823.
(d) Annualized.
F-67
<PAGE> 286
AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Income Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Income Fund (a portfolio of AIM Funds Group), including the schedule of
investments, as of December 31, 1994, and the related statements of operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended and the financial highlights for each of the
years in the two-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Income Fund as of December 31, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
two-year period then ended, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
February 3, 1995
F-68
<PAGE> 287
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT(a) MARKET VALUE
<S> <C> <C> <C>
NON-CONVERTIBLE BONDS AND NOTES-67.16%
ADVERTISING/BROADCASTING-0.42%
Comcast Corp.,
Sr. Sub. Deb., 9.50% 01/15/08 $ 1,000,000 $ 905,000
---------------------------------------------------------------------------------------------
Total Advertising/Broadcasting 905,000
---------------------------------------------------------------------------------------------
AIRLINES-3.23%
Delta Air Lines Inc.,
Deb., 10.375% 02/01/11 1,500,000 1,466,505
Equipment Trust Certificates, 10.50% 04/30/16 5,000,000 4,907,550
---------------------------------------------------------------------------------------------
NWA Inc.,
Notes, 8.625% 08/01/96 550,000 528,000
---------------------------------------------------------------------------------------------
Total Airlines 6,902,055
---------------------------------------------------------------------------------------------
AUTOMOBILE-MANUFACTURERS-3.20%
General Motors Corp.,
Deb., 8.80% 03/01/21 6,700,000 6,859,661
---------------------------------------------------------------------------------------------
Total Automobile-Manufacturers 6,859,661
---------------------------------------------------------------------------------------------
AUTOMOBILE-PARTS-0.69%
Doehler Jarvis,
Sr. Notes, 11.875% 06/01/02 1,500,000 1,470,000
---------------------------------------------------------------------------------------------
Total Automobile-Parts 1,470,000
---------------------------------------------------------------------------------------------
BEVERAGES-0.50%
Lion Nathan Ltd. (Australia),
Sub. Deb., 12.00%(b) 09/30/00 1,490,300 1,070,810
---------------------------------------------------------------------------------------------
Total Beverages 1,070,810
---------------------------------------------------------------------------------------------
BUILDING MATERIALS-0.84%
Cemex SA DE C.V.,
Gtd. Deb., 9.50%(c) 09/20/01 2,200,000 1,793,000
---------------------------------------------------------------------------------------------
Total Building Materials 1,793,000
---------------------------------------------------------------------------------------------
CABLE TV-2.29%
Marcus Cable Operating Co.,
Sr. Disc. Notes, 13.50%(d) 08/01/04 5,000,000 2,650,000
---------------------------------------------------------------------------------------------
Rogers Cablesystem Inc. (Canada),
Sr. Secured 2nd Priority Deb., 9.65%(b) 01/15/04 1,750,000 1,035,423
---------------------------------------------------------------------------------------------
Videotron Ltd.,
Sr. Sub Notes, 10.25% 10/15/02 1,250,000 1,225,000
---------------------------------------------------------------------------------------------
Total Cable TV 4,910,423
---------------------------------------------------------------------------------------------
CONSUMER NONDURABLES-0.30%
Health O Meter,
Sr. Sub. Notes, 13.00% 08/15/02 710,000 646,100
---------------------------------------------------------------------------------------------
Total Consumer Nondurables 646,100
---------------------------------------------------------------------------------------------
</TABLE>
F-69
<PAGE> 288
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT(a) MARKET VALUE
<S> <C> <C> <C>
CONTAINERS-2.05%
Container Corp. of America,
Gtd. Sr. Notes, 9.75% 04/01/03 $ 1,000,000 $ 947,500
---------------------------------------------------------------------------------------------
Ivex Packaging Inc.,
Sr. Sub. Notes, 12.50% 12/15/02 1,500,000 1,492,500
---------------------------------------------------------------------------------------------
Owens-Illinois Inc.,
Sr. Sub. Notes, 10.00% 08/01/02 2,000,000 1,955,000
---------------------------------------------------------------------------------------------
Total Containers 4,395,000
---------------------------------------------------------------------------------------------
FINANCE-CONSUMER CREDIT-3.20%
Ash Capital Finance (United Kingdom),
Gtd. Bonds, 9.50%(b) 07/15/06 2,850,000 2,965,510
---------------------------------------------------------------------------------------------
GMAC,
Notes, 5.50%(e) 10/15/02 1,500,000 1,476,660
---------------------------------------------------------------------------------------------
GPA Delaware Inc.,
Deb., 8.75% 12/15/98 2,000,000 1,520,000
---------------------------------------------------------------------------------------------
KFW International Finance (Italy),
Gtd. Notes, 11.625%(b) 11/27/98 1,430,000,000 888,831
---------------------------------------------------------------------------------------------
Total Finance-Consumer Credit 6,851,001
---------------------------------------------------------------------------------------------
FOOD/PROCESSING-3.99%
ConAgra Inc.,
Sub. Notes, 9.75% 03/01/21 5,000,000 5,285,650
---------------------------------------------------------------------------------------------
Fleming Companies Inc.,
Sr. Notes, 10.625% 12/15/01 1,000,000 1,000,000
---------------------------------------------------------------------------------------------
PF Acquisition Corp.,
Sr. Sub. Notes, 12.75%(c) 02/01/05 1,300,000 1,306,500
---------------------------------------------------------------------------------------------
Pilgrim's Pride Corp.,
Sr. Sub. Notes, 10.875% 08/01/03 1,000,000 942,500
---------------------------------------------------------------------------------------------
Total Food/Processing 8,534,650
---------------------------------------------------------------------------------------------
HOMEBUILDING-1.28%
Continental Homes Holdings,
Sr. Notes, 12.00% 08/01/99 1,000,000 940,000
---------------------------------------------------------------------------------------------
Ryland Group,
Sr. Sub. Notes, 10.50% 07/15/02 2,000,000 1,790,000
---------------------------------------------------------------------------------------------
Total Homebuilding 2,730,000
---------------------------------------------------------------------------------------------
HOTELS/MOTELS-1.11%
Four Seasons Hotel (Canada),
Deb., 11.05%(b) 03/25/96 1,750,000 1,241,275
---------------------------------------------------------------------------------------------
John Q. Hammons Hotels,
Gtd. First Mortgage Notes, 8.875% 02/15/04 1,300,000 1,124,500
---------------------------------------------------------------------------------------------
Total Hotels/Motels 2,365,775
---------------------------------------------------------------------------------------------
INSURANCE-LIFE AND HEALTH-1.78%
American Life Holding,
Sr. Sub. Notes, 11.25% 09/15/04 1,300,000 1,274,000
---------------------------------------------------------------------------------------------
Americo Life Inc.,
Sr. Sub. Notes, 9.25% 06/01/05 3,000,000 2,535,000
---------------------------------------------------------------------------------------------
Total Insurance-Life and Health 3,809,000
---------------------------------------------------------------------------------------------
</TABLE>
F-70
<PAGE> 289
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT(a) MARKET VALUE
<S> <C> <C> <C>
LEISURE AND RECREATION-3.67%
Aztar Corp.,
Sr. Sub. Notes, 13.75% 10/01/04 $ 1,000,000 $ 1,020,000
---------------------------------------------------------------------------------------------
Harrah's Jazz Co.,
First Mortgage Notes, 14.25% 11/15/01 1,000,000 1,050,000
---------------------------------------------------------------------------------------------
Icon Health & Fitness,
Sr. Sub. Notes, 13.00%(c) 07/15/02 1,500,000 1,485,000
---------------------------------------------------------------------------------------------
Showboat, Inc.,
Gtd. First Mortgage Notes, 9.25% 05/01/08 4,000,000 3,340,000
Sr. Sub. Notes, 13.00% 08/01/09 1,000,000 950,000
---------------------------------------------------------------------------------------------
Total Leisure and Recreation 7,845,000
---------------------------------------------------------------------------------------------
MACHINERY-HEAVY-2.50%
Caterpillar Inc.,
Deb., 9.375% 08/15/11 5,000,000 5,348,400
---------------------------------------------------------------------------------------------
Total Machinery-Heavy 5,348,400
---------------------------------------------------------------------------------------------
MEDICAL SERVICES-0.48%
Ornda Healthcorp.,
Sr. Sub. Notes, 11.375% 08/15/04 1,000,000 1,025,000
---------------------------------------------------------------------------------------------
Total Medical Services 1,025,000
---------------------------------------------------------------------------------------------
NATURAL GAS-1.93%
Transco Energy Co.,
Deb., 9.875% 06/15/20 4,000,000 4,120,000
---------------------------------------------------------------------------------------------
Total Natural Gas 4,120,000
---------------------------------------------------------------------------------------------
OIL AND GAS-2.64%
Canadian Oil Debco Inc. (Canada),
Deb., 11.00%(b) 10/31/00 6,500,000 4,818,905
---------------------------------------------------------------------------------------------
Petroleum Heat & Power,
Sub. Deb., 9.375% 02/01/06 1,000,000 840,000
---------------------------------------------------------------------------------------------
Total Oil and Gas 5,658,905
---------------------------------------------------------------------------------------------
OIL EQUIPMENT AND SUPPLIES-0.42%
Centragas,
Sr. Asset Backed Notes, 10.65%(c) 12/01/10 950,000 907,250
---------------------------------------------------------------------------------------------
Total Oil Equipment and Supplies 907,250
---------------------------------------------------------------------------------------------
RESTAURANTS-0.86%
Carrols Corp.,
Sr. Notes, 11.50% 08/15/03 1,000,000 920,000
---------------------------------------------------------------------------------------------
Flagstar Corp.,
Sr. Notes, 10.875% 12/01/02 1,000,000 930,000
---------------------------------------------------------------------------------------------
Total Restaurants 1,850,000
---------------------------------------------------------------------------------------------
</TABLE>
F-71
<PAGE> 290
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT(a) MARKET VALUE
<S> <C> <C> <C>
RETAIL-FOOD AND DRUG-1.18%
Food 4 Less Supermarkets,
Sr. Notes, 10.45% 04/15/00 $ 1,000,000 $ 980,000
---------------------------------------------------------------------------------------------
Penn Traffic Co.,
Sr. Notes, 10.65% 11/01/04 1,580,000 1,540,500
---------------------------------------------------------------------------------------------
Total Retail-Food and Drug 2,520,500
---------------------------------------------------------------------------------------------
RETAIL-STORES-1.93%
Pamida Inc.,
Sr. Sub. Notes, 11.75% 03/15/03 1,000,000 935,000
---------------------------------------------------------------------------------------------
Southland Corp.,
Sr. Sub. Deb., 4.50% 06/15/04 2,250,000 1,395,000
---------------------------------------------------------------------------------------------
Specialty Retail,
Sr. Sub. Notes, 11.00% 08/15/03 2,000,000 1,800,000
---------------------------------------------------------------------------------------------
Total Retail-Stores 4,130,000
---------------------------------------------------------------------------------------------
STEEL-0.46%
GS Technologies Inc.,
Sr. Notes, 12.00% 09/01/04 1,000,000 990,000
---------------------------------------------------------------------------------------------
Total Steel 990,000
---------------------------------------------------------------------------------------------
SUPRANATIONAL ORGANIZATION-3.05%
International Bank for Reconstruction &
Development (Germany),
Unsub. Global Bonds, 5.875%(b) 11/10/03 7,000,000 3,965,920
Unsub. Global Bonds, 7.25%(b) 10/13/99 4,000,000 2,573,400
---------------------------------------------------------------------------------------------
Total Supranational Organization 6,539,320
---------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-0.47%
Mobile Telecomm Technology,
Sr. Notes, 13.50% 12/15/02 1,000,000 1,008,750
---------------------------------------------------------------------------------------------
Total Telecommunications 1,008,750
---------------------------------------------------------------------------------------------
TEXTILES-2.22%
Consoltex Group,
Sr. Sub. Notes, 11.00% 10/01/03 1,500,000 1,387,500
---------------------------------------------------------------------------------------------
Fieldcrest Cannon Inc.,
Sr. Sub. Deb., 11.25% 06/15/04 2,000,000 2,000,000
---------------------------------------------------------------------------------------------
Tarkett International,
Sr. Sub. Notes, 9.00% 03/01/02 1,500,000 1,368,750
---------------------------------------------------------------------------------------------
Total Textiles 4,756,250
---------------------------------------------------------------------------------------------
TRANSPORTATION-MISCELLANEOUS-1.84%
Gearbulk Holding Ltd,
Sr. Notes, 11.25% 12/01/04 1,000,000 990,000
---------------------------------------------------------------------------------------------
Sea-Containers Ltd.,
Sr. Sub. Deb., 12.50% 12/01/04 2,000,000 2,000,000
---------------------------------------------------------------------------------------------
Trans Ocean Container,
Sr. Sub. Notes, 12.25% 07/01/04 1,000,000 940,000
---------------------------------------------------------------------------------------------
Total Transportation-Miscellaneous 3,930,000
---------------------------------------------------------------------------------------------
</TABLE>
F-72
<PAGE> 291
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT(a) MARKET VALUE
<S> <C> <C> <C>
UTILITIES-8.65%
California Energy,
Sr. Disc. Notes, 10.25%(d) 01/15/04 $ 1,500,000 $ 1,065,000
---------------------------------------------------------------------------------------------
Indiana Michigan Power Co.,
Secured Lease Obligation Bonds, 9.82% 12/07/22 8,992,309 9,596,772
---------------------------------------------------------------------------------------------
Kansas Gas & Electric,
Secured Lease Obligation Bonds, 8.29% 03/29/16 5,000,000 4,642,500
---------------------------------------------------------------------------------------------
Ontario Hydro (Canada),
Gtd. Deb., 9.75%(b) 05/01/05 4,500,000 3,198,240
---------------------------------------------------------------------------------------------
Total Utilities 18,502,512
---------------------------------------------------------------------------------------------
FOREIGN GOVERNMENTS-9.98%
Australian Government (Australia),
Notes, 9.00%(b) 09/15/04 9,750,000 7,104,533
---------------------------------------------------------------------------------------------
New Brunswick (Province of) (Canada),
Deb, 8.94%(b) 01/15/05 3,500,000 2,457,595
---------------------------------------------------------------------------------------------
Queensland Treasury Corp. (Australia),
Gtd. Notes, 8.875%(b) 11/08/96 1,500,000 1,138,140
---------------------------------------------------------------------------------------------
Saskatchewan (Province of) (Canada),
Sr. Deb., 9.875% (b) 07/06/99 4,600,000 3,328,330
---------------------------------------------------------------------------------------------
U.K. Treasury Notes (United Kingdom),
8.00%,(b) 06/10/03 4,900,000 7,322,021
---------------------------------------------------------------------------------------------
Total Foreign Governments 21,350,619
---------------------------------------------------------------------------------------------
Total Non-Convertible Bonds and Notes 143,724,981
---------------------------------------------------------------------------------------------
CONVERTIBLE BONDS AND NOTES-6.52%
COMPUTER NETWORKING-0.40%
3Com Corp.,
Conv. Sub. Notes, 10.25%(c) 11/01/01 800,000 852,000
---------------------------------------------------------------------------------------------
Total Computer Networking 852,000
---------------------------------------------------------------------------------------------
FINANCE-CONSUMER CREDIT-2.86%
ELF Enterprise Finance PLC (United Kingdom),
Gtd. Conv. Bonds, 8.75%(b) 06/27/06 2,900,000 4,497,929
---------------------------------------------------------------------------------------------
Henderson Capital,
Conv. Bonds, 4.00% 10/27/96 1,700,000 1,627,750
---------------------------------------------------------------------------------------------
Total Finance-Consumer Credit 6,125,679
---------------------------------------------------------------------------------------------
OIL EQUIPMENT AND SUPPLIES-2.23%
Lasmo PLC (United Kingdom),
Conv. Deb., 7.75%(b) 10/04/05 3,700,000 4,776,256
---------------------------------------------------------------------------------------------
Total Oil Equipment and Supplies 4,776,256
---------------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS-1.03%
Repap Enterprise (Canada),
Conv. Deb., 8.50%(b) 08/01/97 1,350,000 1,275,750
Conv. Deb., 9.00%(b) 06/30/98 1,500,000 919,590
---------------------------------------------------------------------------------------------
Total Paper and Forest Products 2,195,340
---------------------------------------------------------------------------------------------
Total Convertible Bonds and Notes 13,949,275
---------------------------------------------------------------------------------------------
</TABLE>
F-73
<PAGE> 292
FINANCIALS
<TABLE>
<S> <C> <C> <C>
MARKET
SHARES VALUE
CONVERTIBLE PREFERRED STOCKS-0.53%
CONGLOMERATES-0.26%
Sears Roebuck & Co.-Series A, $3.75 Dep. Conv.
Pfd. 10,000 $ 556,250
---------------------------------------------------------------------------------------------
Total Conglomerates 556,250
---------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS-0.27%
Westinghouse Electric-Series C, $1.30 Conv.
Pfd.(c) 43,000 580,500
---------------------------------------------------------------------------------------------
Total Electronic Components 580,500
---------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks 1,136,750
---------------------------------------------------------------------------------------------
PRINCIPAL MARKET
MATURITY AMOUNT VALUE
U.S. TREASURY SECURITIES-12.57%
U.S. Treasury Notes, 7.50% 12/31/96 $15,000,000 14,946,150
---------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 7.50% 11/15/24 12,500,000 11,957,000
---------------------------------------------------------------------------------------------
Total U.S. Treasury Securities 26,903,150
---------------------------------------------------------------------------------------------
Total Investments (excluding
Repurchase Agreements) 185,714,156
---------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT-18.21%(f)
Daiwa Securities America Inc. 3.50%(g) 01/03/95 38,972,000 38,972,000
---------------------------------------------------------------------------------------------
Total Repurchase Agreements 38,972,000
---------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-104.99% 224,686,156
---------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(4.99)% (10,688,437)
---------------------------------------------------------------------------------------------
NET ASSETS-100.00% $213,997,719
=============================================================================================
</TABLE>
Notes to Schedule of Investments:
(a) Principal amount is in U.S. Dollars, except as
indicated by note (b).
(b) Foreign denominated security. Par value and coupon
are denominated in currency of country indicated.
(c) Restricted securities. May be resold to qualified
institutional buyers in accordance with the
provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities
has been determined in accordance with procedures
established by the Board of Trustees. The aggregate
market value of these securities at December 31,
1994 was $6,924,250, which represented 3.24% of the
Fund's net assets.
(d) Discounted bond at purchase. Interest rate
represents coupon rate at which the bond will
accrue at a specified future date.
(e) Coupon steps up to 9.00%, effective 10/15/95.
(f) Collateral on repurchase agreements, including the
Fund's pro-rata interest in joint repurchase
agreements, is taken into possession by the Fund
upon entering into the repurchase agreement. The
collateral is marked to market daily to ensure its
market value as being 102% of the sales price of
the repurchase agreement.
(g) Joint repurchase agreement entered into 12/30/94
with a maturing value of $391,353,115.
Collateralized by $426,987,000 U.S. Treasury
Obligations, 4.75% to 9.25% due 01/15/96 to
11/15/24. The aggregate market value of collateral
at 12/31/94 was $399,025,510. The Funds pro-rata
interest in the collateral was $39,751,491.
Abbreviations:
<TABLE>
<S> <C> <C> <C> <C> <C>
Conv. -Convertible Disc. -Discounted Sr. -Senior
Deb. -Debentures Gtd. -Guaranteed Sub. -Subordinated
Dep. -Depository Pfd. -Preferred Unsub. -Unsubordinated
</TABLE>
See Notes to Financial Statements.
F-74
<PAGE> 293
FINANCIALS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at market value (cost
$194,841,173) $185,714,156
---------------------------------------------------------------------------------------
Repurchase agreements (cost $38,972,000) 38,972,000
---------------------------------------------------------------------------------------
Foreign currencies, at market value (cost $2,314,693) 2,316,025
---------------------------------------------------------------------------------------
Receivables for:
Forward contracts 9,678
---------------------------------------------------------------------------------------
Fund shares sold 562,693
---------------------------------------------------------------------------------------
Interest 3,709,924
---------------------------------------------------------------------------------------
Reimbursement from advisor 6,600
---------------------------------------------------------------------------------------
Investment for deferred compensation plan 69,362
---------------------------------------------------------------------------------------
Other assets 51,052
---------------------------------------------------------------------------------------
Total assets 231,411,490
---------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 16,580,697
---------------------------------------------------------------------------------------
Fund shares reacquired 152,093
---------------------------------------------------------------------------------------
Dividends 287,744
---------------------------------------------------------------------------------------
Deferred compensation plan 69,362
---------------------------------------------------------------------------------------
Accrued advisory fees 89,081
---------------------------------------------------------------------------------------
Accrued distribution fees 137,649
---------------------------------------------------------------------------------------
Accrued administrative service fees 21,340
---------------------------------------------------------------------------------------
Accrued trustees' fees 1,989
---------------------------------------------------------------------------------------
Accrued operating expenses 73,816
---------------------------------------------------------------------------------------
Total liabilities 17,413,771
---------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $213,997,719
=======================================================================================
NET ASSETS:
Class A $201,676,654
=======================================================================================
Class B $12,321,065
=======================================================================================
SHARES OUTSTANDING, $.01 PAR VALUE PER SHARE
Class A 28,018,428
=======================================================================================
Class B 1,715,260
=======================================================================================
Class A:
Net asset value and redemption price per share $ 7.20
=======================================================================================
Offering price per share:
(Net asset value of $7.20 / 95.25%) $ 7.56
=======================================================================================
Class B:
Net asset value and offering price per share $ 7.18
=======================================================================================
</TABLE>
See Notes to Financial Statements.
F-75
<PAGE> 294
FINANCIALS
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 18,988,592
- ---------------------------------------------------------------------------------------
Dividends 395,439
- ---------------------------------------------------------------------------------------
Total investment income 19,384,031
- ---------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,110,855
- ---------------------------------------------------------------------------------------
Custodian fees 48,028
- ---------------------------------------------------------------------------------------
Distribution fees -- Class A 547,787
- ---------------------------------------------------------------------------------------
Distribution fees -- Class B 85,988
- ---------------------------------------------------------------------------------------
Printing fees 54,333
- ---------------------------------------------------------------------------------------
Trustees' fees 7,200
- ---------------------------------------------------------------------------------------
Transfer agent fees -- Class A 168,872
- ---------------------------------------------------------------------------------------
Transfer agent fees -- Class B 14,763
- ---------------------------------------------------------------------------------------
Administrative service fees 154,517
- ---------------------------------------------------------------------------------------
Other 126,533
- ---------------------------------------------------------------------------------------
Total expenses 2,318,876
- ---------------------------------------------------------------------------------------
Less expenses assumed by advisor (18,200)
- ---------------------------------------------------------------------------------------
Net expenses 2,300,676
- ---------------------------------------------------------------------------------------
Net investment income 17,083,355
- ---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FOREIGN
CURRENCIES AND FORWARD CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities (15,577,011)
- ---------------------------------------------------------------------------------------
Foreign currencies (1,013,931)
- ---------------------------------------------------------------------------------------
Forward contracts (1,863,160)
- ---------------------------------------------------------------------------------------
(18,454,102)
- ---------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of:
Investment securities (18,007,808)
- ---------------------------------------------------------------------------------------
Foreign currencies (8,230)
- ---------------------------------------------------------------------------------------
Forward contracts (56,320)
- ---------------------------------------------------------------------------------------
(18,072,358)
- ---------------------------------------------------------------------------------------
Net gain (loss) on investment securities, foreign currencies and
forward contracts (36,526,460)
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(19,443,105)
=======================================================================================
</TABLE>
See Notes to Financial Statements.
F-76
<PAGE> 295
FINANCIALS
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
OPERATIONS:
Net investment income $ 17,083,355 $ 16,803,637
- ------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities, foreign currencies and forward contracts (18,454,102) 13,829,680
- ------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investment securities, foreign currencies and
forward contracts (18,072,358) 2,883,983
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (19,443,105) 33,517,300
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net investment
income:
Class A (14,029,228) (16,739,113)
- ------------------------------------------------------------------------------------------
Class B (478,570) (29,488)
- ------------------------------------------------------------------------------------------
Distributions to shareholders from capital:
Class A (3,123,648) --
- ------------------------------------------------------------------------------------------
Class B (122,674) --
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (360,558) (5,221,148)
- ------------------------------------------------------------------------------------------
Class B (20,562) (67,509)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A (6,155,618) 13,744,750
- ------------------------------------------------------------------------------------------
Class B 9,961,208 3,717,856
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (33,772,755) 28,922,648
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 247,770,474 218,847,826
- ------------------------------------------------------------------------------------------
End of period $213,997,719 $247,770,474
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $239,006,873 $238,447,605
- ------------------------------------------------------------------------------------------
Undistributed net investment income (60,059) 51,614
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities, foreign currencies and
forward contracts (15,778,038) 369,954
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and forward contracts (9,171,057) 8,901,301
- ------------------------------------------------------------------------------------------
$213,997,719 $247,770,474
==========================================================================================
</TABLE>
See Notes to Financial Statements.
F-77
<PAGE> 296
FINANCIALS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Income Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of nine separate series portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers two different classes of shares: the Class A shares and the
Class B shares. Class A shares are sold with a front-end sales charge. Class B
shares are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. Security Valuations--Non-convertible bonds and notes are valued on the basis
of prices provided by an independent pricing service. Prices provided by the
pricing service may be determined without exclusive reliance on quoted
prices, and may reflect appropriate factors such as institution-size trading
in similar groups of securities, developments related to special securities,
yield, quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Investment securities for which prices
are not provided by the pricing service and which are listed or traded on an
exchange are valued at the last sales price on the exchange where the
security is principally traded or, lacking any sales on a particular day, at
the mean between the closing bid and asked prices on that day unless the
Board of Trustees, or persons designated by the Board of Trustees, determines
that the over-the-counter quotations more closely reflect the current market
value of the security. Securities traded in the over-the-counter market,
except (i) securities priced by the pricing service, (ii) securities for
which representative exchange prices are available, and (iii) securities
reported in the NASDAQ National Market System, are valued at the mean between
representative last bid and asked prices obtained from an electronic
quotation reporting system, if such prices are available, or from established
market makers. Each security reported in 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 and "restricted securities" are
valued at fair value as determined in good faith by or under the supervision
of the Trust's officers in accordance with methods which are specifically
authorized by the Board of Trustees. Short-term obligations having 60 days or
less to maturity are valued at amortized cost which approximates market
value.
B. Foreign Currency Translation--Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts--A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward contract to attempt to minimize the
risk to the Fund from adverse changes in the relationship between currencies.
The Fund may also enter into a currency contract for the purchase or sale of
a security denominated in a foreign currency in order to "lock-in" the U.S.
dollar price of that security. The Fund could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
Outstanding contracts at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Contract to Unrealized
Settlement ---------------------------------------- Appreciation
Date Receive Deliver (Depreciation)
--------- ------------------------- ---------- -------------
<S> <C> <C> <C>
02/28/95 DM 4,300,000 $2,780,292 $ (25,824)
02/28/95 Pound Sterling 5,580,000 $8,732,979 $ (9,486)
</TABLE>
D. Securities Transactions, Investment Income and Distributions--Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the
F-78
<PAGE> 297
FINANCIALS
NOTE 1-(continued)
accrual basis. Dividend income is recorded on the ex-dividend date. Dividends
to shareholders are declared daily and are paid monthly. On December 31, 1994
$2,687,230 was reclassified from undistributed net realized gain (loss) to
undistributed net investment income as a result of permanent book/tax
differences due to the differing book/tax treatment for the following: losses
on forward currency contracts, foreign currency losses on sales of foreign
denominated bonds, and reclassification of market discount on securities
sold. In addition, $3,246,322 was reclassified from undistributed net
investment income to paid in capital, consisting of the following: $1,818,172
of losses on forward currency contracts, $1,013,931 of foreign currency
losses on sales of foreign denominated bonds and $414,219 of distributions in
excess of net investment income. Net assets of the Fund were unaffected by
the reclassifications discussed above.
E. Federal Income Taxes -- The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. The Fund has a capital loss
carryforward of $12,848,136 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2001. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
F. Expenses -- Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g. advisory fees, are allocated between them. Expenses of the
Trust which are not directly attributable to the operations of any class of
shares or portfolio of the Trust are prorated among the classes to which the
expense relates based upon the relative net assets of each class.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays AIM an advisory fee at an annual rate of 0.50% of the
first $200 million of the Fund's average daily net assets, plus 0.40% of the
Fund's average daily net assets in excess of $200 million to and including $500
million, plus 0.35% of the Fund's average daily net assets in excess of $500
million to and including $1 billion, plus 0.30% of the Fund's average daily net
assets in excess of $1 billion. The advisory agreement requires AIM to reduce
its fees or, if necessary, make payments to the Fund to the extent required to
satisfy any expense limitations imposed by the securities laws or regulations
thereunder of any state in which the Fund's shares are qualified for sale. AIM
voluntarily paid expenses of $18,200 with respect to Class B shares during the
year ended December 31, 1994.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting and shareholder services to the Fund. During the year ended December
31, 1994, AIM was reimbursed $154,517 for such services. Effective November 1,
1994, A I M Fund Services, Inc. ("AFS") became transfer agent for the Fund and
was reimbursed $22,737 for such services during the two months ended December
31, 1994.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares (the
"Class B Plan")(collectively, the "Plans"). The Fund, pursuant to the Class A
Plan, pays to AIM Distributors compensation at an annual rate of 0.25% of the
average daily net assets attributable to the Class A shares. The Class A Plan is
designed to compensate AIM Distributors for certain promotional and other sales
related costs, and to implement a program which provides periodic payments to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class A shares of
the Fund. The Fund, pursuant to the Class B Plan, pays AIM Distributors
compensation at an annual rate of 1.00% of the average daily net assets
attributable to the Class B shares. Of this amount, the Fund may pay a service
fee of 0.25% of the average daily net assets of the Class B shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own Class B shares of the Fund. Any
amounts not paid as a service fee under such Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes.
F-79
<PAGE> 298
FINANCIALS
During the year ended December 31, 1994, the Class A shares and the Class B
shares paid AIM Distributors $547,787 and $85,988, respectively, as compensation
under the Plans.
AIM Distributors received commissions of $94,637 from sales of the Class A
shares of the Fund during the year ended December 31, 1994. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 1994,
AIM Distributors received $16,712 in contingent deferred sales charges imposed
on redemptions of Class B shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1994 the Fund paid legal fees of $1,140 for
services rendered by Reid & Priest as counsel to the Board of Trustees.
Effective September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was
appointed as counsel to the Board of Trustees. A member of that firm is a
trustee of the Trust.
NOTE 3-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of the Trust. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1994 was
$380,170,477 and $398,387,923, respectively.
The amount of unrealized appreciation (depreciation) of investment securities on
a tax basis as of December 31, 1994 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 701,363
- -----------------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,937,318)
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities $(9,235,955)
===========================================================================================================
</TABLE>
Cost of investments for tax purposes is $194,950,111.
NOTE 5-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
Shares Value Shares Value
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 4,265,341 $33,272,800 4,747,133 $40,539,249
- ----------------------------------------------------------------------------------- ------------------------
Class B* 1,696,358 13,014,930 453,943 3,957,121
- ----------------------------------------------------------------------------------- ------------------------
Issued as reinvestment of dividends:
Class A 1,895,928 14,388,718 2,187,858 18,565,615
- ----------------------------------------------------------------------------------- ------------------------
Class B* 54,029 403,397 9,046 76,512
- ----------------------------------------------------------------------------------- ------------------------
Reacquired:
Class A (7,025,819) (53,817,136) (5,295,378) (45,360,114)
- ----------------------------------------------------------------------------------- ------------------------
Class B* (462,198) (3,457,119) (35,918) (315,777)
- ----------------------------------------------------------------------------------- ------------------------
423,639 $ 3,805,590 2,066,684 $17,462,606
=================================================================================== ========================
</TABLE>
* Sales of Class B shares commenced on September 7, 1993.
F-80
<PAGE> 299
FINANCIALS
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a Class A share
outstanding for each of the years in the ten-year period ended December 31, 1994
and for a Class B share outstanding during the year ended December 31, 1994 and
the period September 7, 1993 (date sales commenced) through December 31, 1993.
<TABLE>
<CAPTION>
CLASS A: 1994 1993 1992(a) 1991 1990 1989
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.45 $ 8.03 $ 8.07 $ 7.41 $ 7.80 $ 7.53
- ------------------------------------------------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.58 0.60 0.60 0.61 0.65 0.66
- ------------------------------------------------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized
and unrealized) (1.22) 0.61 (0.03) 0.66 (0.39) 0.32
- ------------------------------------------------- -------- -------- -------- -------- -------- --------
Total from investment operations (0.64) 1.21 0.57 1.27 0.26 0.98
- ------------------------------------------------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.49) (0.60) (0.61) (0.61) (0.65) (0.71)
- ------------------------------------------------- -------- -------- -------- -------- -------- --------
Distributions from net realized capital gains (0.01) (0.19) -- -- -- --
- ------------------------------------------------- -------- -------- -------- -------- -------- --------
Distributions from capital (0.11) -- -- -- -- --
- ------------------------------------------------- -------- -------- -------- -------- -------- --------
Total distributions (0.61) (0.79) (0.61) (0.61) (0.65) (0.71)
- ------------------------------------------------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41 $ 7.80
================================================= ======== ======== ======== ======== ======== ========
Total return(b) (7.65)% 15.38% 7.42% 18.00% 3.65% 13.56%
================================================= ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $201,677 $244,168 $218,848 $231,798 $215,987 $229,222
================================================= ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.98%(c) 0.98% 0.99%(d) 1.00%(d) 1.00% 0.96%
================================================= ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets 7.53%(c) 7.01% 7.54%(d) 7.97%(d) 8.73% 8.56%
================================================= ======== ======== ======== ======== ======== ========
Portfolio turnover rate 185% 99% 82% 67% 106% 222%
================================================= ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CLASS A: 1988 1987 1986 1985
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.55 $ 8.20 $ 7.53 $ 6.74
- ------------------------------------------------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.68 0.67 0.71 0.74
- ------------------------------------------------- -------- -------- -------- --------
Net gains (losses) on securities (both realized
and unrealized) (0.02) (0.63) 0.60 0.80
- ------------------------------------------------- -------- -------- -------- --------
Total from investment operations 0.66 0.04 1.31 1.54
- ------------------------------------------------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.68) (0.69) (0.64) (0.75)
- ------------------------------------------------- -------- -------- -------- --------
Distributions from net realized capital gains -- -- -- --
- ------------------------------------------------- -------- -------- -------- --------
Distributions from capital -- -- -- --
- ------------------------------------------------- -------- -------- -------- --------
Total distributions (0.68) (0.69) (0.64) (0.75)
- ------------------------------------------------- -------- -------- -------- --------
Net asset value, end of period $ 7.53 $ 7.55 $ 8.20 $ 7.53
================================================= ======== ======== ======== ========
Total return(b) 9.01% 0.56% 18.04% 24.33%
================================================= ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $218,946 $237,466 $273,121 $216,725
================================================= ======== ======== ======== ========
Ratio of expenses to average net assets 0.95% 0.84% 0.82% 0.79%
================================================= ======== ======== ======== ========
Ratio of net investment income to average net
assets 8.81% 8.64% 8.93% 10.50%
================================================= ======== ======== ======== ========
Portfolio turnover rate 361% 195% 85% 38%
================================================= ======== ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges.
(c) Ratios are based on average net assets of $219,115,024.
(d) After waiver of advisory fees and expense reimbursements. Ratios of expenses
to average net assets prior to waiver of advisory fees and expense
reimbursements were 1.00% and 1.03% for 1992-1991, respectively. Ratios of
net investment income to average net assets prior to waiver of advisory fees
and expense reimbursements were 7.53% and 7.94% for 1992-1991, respectively.
<TABLE>
<CAPTION>
CLASS B: 1994 1993
------- ------
<S> <C> <C>
Net asset value, beginning of period $ 8.43 $ 8.95
- --------------------------------------------------------------------------------- ------- ------
Income from investment operations:
- --------------------------------------------------------------------------------- ------- ------
Net investment income 0.52 0.19
- --------------------------------------------------------------------------------- ------- ------
Net gains (losses) on securities (both realized and unrealized) (1.23) (0.34)
- --------------------------------------------------------------------------------- ------- ------
Total from investment operations (0.71) (0.15)
- --------------------------------------------------------------------------------- ------- ------
Less distributions:
Dividends from net investment income (0.42) (0.18)
- --------------------------------------------------------------------------------- ------- ------
Distributions from net realized capital gains (0.01) (0.19)
- --------------------------------------------------------------------------------- ------- ------
Distributions from capital (0.11) --
- --------------------------------------------------------------------------------- ------- ------
Total distributions (0.54) (0.37)
- --------------------------------------------------------------------------------- ------- ------
Net asset value, end of period $ 7.18 $ 8.43
================================================================================= ======= ======
Total return(a) (8.46)% (0.75)%
================================================================================= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $12,321 $3,602
================================================================================= ======= ======
Ratio of expenses to average net assets 1.83 (b)(c) 1.75 (c)(d)
================================================================================= ======= ======
Ratio of net investment income to average net assets 6.69 (b)(c) 6.24 (c)(d)
================================================================================= ======= ======
Portfolio turnover rate 185% 99%
================================================================================= ======= ======
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average net assets of $8,598,712.
(c) After expense reimbursements. Annualized ratios of expenses and net
investment income to average net assets prior to expense reimbursements were
2.04% and 2.50% and 6.48% and 5.49% for 1994-1993, respectively.
(d) Annualized.
F-81
<PAGE> 300
AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Money Market Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Money Market Fund (a portfolio of AIM Funds Group), including the schedule of
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, and the changes in its net assets and the financial
highlights for the year then ended and the period October 16, 1993 (date
operations commenced) through December 31, 1993. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Money Market Fund as of December 31, 1994, the results of its operations for
the year then ended, and the changes in its net assets and financial highlights
for the year then ended, and the period October 16, 1993 (date operations
commenced) through December 31, 1993, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
February 3, 1995
F-82
<PAGE> 301
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
COMMERCIAL PAPER-36.20%(a)
ASSET-BACKED SECURITIES-8.36%
Asset Securitization Cooperative Corp.
5.60% 01/10/95 $27,000 $ 26,962,200
- ---------------------------------------------------------------------------------------------
Preferred Receivables Funding Corp.
5.95% 01/20/95 18,500 18,441,905
- ---------------------------------------------------------------------------------------------
45,404,105
- ---------------------------------------------------------------------------------------------
AUTOMOBILE MANUFACTURERS-4.42%
Toyota Motor Credit Corp.
5.48% 01/03/95 24,000 23,992,693
- ---------------------------------------------------------------------------------------------
BEVERAGES-3.95%
Seagram (Joseph E.) & Sons, Inc.
6.07% 02/03/95 21,569 21,448,987
- ---------------------------------------------------------------------------------------------
BROKERAGE/INVESTMENT-5.06%
Merrill Lynch & Co. Inc.
5.80% 01/06/95 27,500 27,477,848
- ---------------------------------------------------------------------------------------------
FINANCE (BUSINESS CREDIT)-4.60%
General Electric Capital Corp.
5.50% 01/04/95 25,000 24,988,542
- ---------------------------------------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.65%
Lincoln National Corp.
5.77% 02/14/95 9,000 8,936,530
- ---------------------------------------------------------------------------------------------
MACHINERY (HEAVY)-3.00%
Dover Corp.
6.03% 01/12/95 16,300 16,269,968
- ---------------------------------------------------------------------------------------------
OIL & GAS-5.16%
ARCO Coal Australia Inc.
5.40% 01/05/95 22,500 22,486,500
- ---------------------------------------------------------------------------------------------
Consolidated Natural Gas Company
5.53% 01/03/95 5,500 5,498,310
- ---------------------------------------------------------------------------------------------
27,984,810
- ---------------------------------------------------------------------------------------------
Total Commercial Paper 196,503,483
- ---------------------------------------------------------------------------------------------
BANK NOTE-3.68%
PNC Bank Corp.(b)
5.82% 04/21/95 20,000 19,995,769
- ---------------------------------------------------------------------------------------------
MASTER NOTE AGREEMENT-4.51%
Morgan (J.P.) & Co. Inc.(c)
6.20% 01/19/95 24,500 24,500,000
- ---------------------------------------------------------------------------------------------
PROMISSORY NOTE AGREEMENT-2.03%
Goldman Sachs Group, L.P. (The)(d)
6.48% 01/20/95 11,000 11,000,000
- ---------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES-12.46%
Federal National Mortgage Association
6.53%(b) 06/02/99 32,000 32,000,000
- ---------------------------------------------------------------------------------------------
</TABLE>
F-83
<PAGE> 302
FINANCIALS
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
Student Loan Marketing Association
5.91%(b) 08/20/98 $ 2,600 $ 2,600,000
- ---------------------------------------------------------------------------------------------
5.92%(b) 02/22/99 3,000 3,001,043
- ---------------------------------------------------------------------------------------------
5.93%(b) 01/13/99 10,000 10,000,000
- ---------------------------------------------------------------------------------------------
5.93%(b) 02/08/99 20,000 20,014,757
- ---------------------------------------------------------------------------------------------
Total U.S. Government Agencies 67,615,800
- ---------------------------------------------------------------------------------------------
Total Investments (excluding Repurchase
Agreements) 319,615,052
- ---------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS(e)-41.11%
Goldman, Sachs & Co., Inc.(f)
5.75% 01/03/95 26,595 26,595,035
- ---------------------------------------------------------------------------------------------
Harris-Nesbitt Thomson Securities Inc.(g)
5.875% 01/03/95 99,785 99,785,000
- ---------------------------------------------------------------------------------------------
Swiss Bank Government Securities, Inc.(h)
6.10% 01/03/95 96,785 96,785,000
- ---------------------------------------------------------------------------------------------
Total Repurchase Agreements 223,165,035
- ---------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.99% 542,780,087
- ---------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.01% 56,152
- ---------------------------------------------------------------------------------------------
NET ASSETS-100.00% $542,836,239
=============================================================================================
(a) Some commercial paper is traded on a discount basis. In such cases the interest rate
shown represents the rate of discount paid or received at the time of purchase by the
Fund.
(b) Interest rates are redetermined weekly. Rates shown are the rates in effect on December
31, 1994.
(c) The Fund may demand prepayment of notes purchased under the Master Note Purchase
Agreement upon seven calendar days' telephonic notice. Interest rates are redetermined
periodically. Rate shown is the rate in effect on December 31, 1994.
(d) The Fund has the right to require prepayment of the promissory note upon thirty calendar
days' notice. Interest rates are redetermined periodically. Rate shown is the rate in
effect on December 31, 1994.
(e) Collateral on repurchase agreements, including the Portfolio's pro-rata interest in joint
repurchase agreements, is taken into possession by the Fund upon entering into the
repurchase agreement. The collateral is marked to market daily to ensure its market value
as being 102 percent of the sales price of the repurchase agreement.
(f) Joint repurchase agreement entered into 12/30/94 with a maturing value of $52,570,761.
Collaterized by $53,268,000 U.S. Treasury obligations, 0.00% to 11.25% due 02/15/95 to
05/15/97. The aggregate market value of the collateral at 12/31/94 was $53,657,741. The
Fund's pro-rata interest in the collateral at 12/31/94 was $27,162,270.
(g) Joint repurchase agreement entered into 12/30/94 with a maturing value of $100,065,278.
Collaterized by $109,170,000 U.S. Treasury obligations, 5.125% due 12/31/98 with a market
value at 12/31/94 of $101,910,195. The Fund's pro-rata interest in the collateral at
12/31/94 was $101,691,088.
(h) Joint repurchase agreement entered into 12/30/94 with a maturing value of $105,071,167.
Collaterized by $102,135,000 U.S. Treasury obligations, 3.875% to 12.00% due 09/30/95 to
08/15/23. The aggregate market value of the collateral at 12/31/94 was $107,300,661. The
Fund's pro-rata interest in the collateral at 12/31/94 was $98,905,662.
See Notes to Financial Statements.
</TABLE>
F-84
<PAGE> 303
FINANCIALS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at value (amortized cost) $319,615,052
- ---------------------------------------------------------------------------------------
Repurchase agreements 223,165,035
- ---------------------------------------------------------------------------------------
Interest receivable 1,051,039
- ---------------------------------------------------------------------------------------
Investment for deferred compensation plan 75,531
- ---------------------------------------------------------------------------------------
Other assets 130,770
- ---------------------------------------------------------------------------------------
Total assets 544,037,427
- ---------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
- ---------------------------------------------------------------------------------------
Dividends 265,845
- ---------------------------------------------------------------------------------------
Deferred compensation plan 75,531
- ---------------------------------------------------------------------------------------
Accrued advisory fees 270,058
- ---------------------------------------------------------------------------------------
Accrued distribution fees 352,093
- ---------------------------------------------------------------------------------------
Accrued administrative service fees 4,464
- ---------------------------------------------------------------------------------------
Accrued trustees' fees 1,642
- ---------------------------------------------------------------------------------------
Accrued operating expenses 231,555
- ---------------------------------------------------------------------------------------
Total liabilities 1,201,188
- ---------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $542,836,239
=======================================================================================
NET ASSETS:
Class A $148,885,729
=======================================================================================
Class B $ 33,998,958
=======================================================================================
Class C $359,951,552
=======================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 148,885,729
=======================================================================================
Class B 33,998,958
=======================================================================================
Class C 359,951,552
=======================================================================================
Class A:
Net asset value and redemption price per share $ 1.00
=======================================================================================
Offering price per share:
(Net asset value of $1.00/94.50%) $ 1.06
=======================================================================================
Class B:
Net asset value and offering price per share $ 1.00
=======================================================================================
Class C:
Net asset value, offering and redemption price per share $ 1.00
=======================================================================================
</TABLE>
See Notes to Financial Statements.
F-85
<PAGE> 304
FINANCIALS
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income $20,015,403
- ---------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 2,057,756
- ---------------------------------------------------------------------------------------
Custodian fees 68,969
- ---------------------------------------------------------------------------------------
Distribution fees-Class A 277,607
- ---------------------------------------------------------------------------------------
Distribution fees-Class B 191,213
- ---------------------------------------------------------------------------------------
Distribution fees-Class C 785,906
- ---------------------------------------------------------------------------------------
Trustees' fees 7,472
- ---------------------------------------------------------------------------------------
Transfer agent fees-Class A 148,885
- ---------------------------------------------------------------------------------------
Transfer agent fees-Class B 10,369
- ---------------------------------------------------------------------------------------
Transfer agent fees-Class C 412,337
- ---------------------------------------------------------------------------------------
Administrative service fees 209,642
- ---------------------------------------------------------------------------------------
Registration and filing fees 247,371
- ---------------------------------------------------------------------------------------
Other 112,192
- ---------------------------------------------------------------------------------------
Total expenses 4,529,719
- ---------------------------------------------------------------------------------------
Net investment income 15,485,684
- ---------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $15,485,684
=======================================================================================
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1994 and the period October 16, 1993
(date operations commenced) through December 31, 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
OPERATIONS:
Net investment income $ 15,485,684 $ 1,388,373
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 15,485,684 1,388,373
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (3,918,606) (364,494)
- ------------------------------------------------------------------------------------------
Class B (600,466) (1,784)
- ------------------------------------------------------------------------------------------
Class C (10,966,612) (1,022,095)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 67,425,582 81,460,147
- ------------------------------------------------------------------------------------------
Class B 32,709,856 1,289,102
- ------------------------------------------------------------------------------------------
Class C 118,173,709 241,777,843
- ------------------------------------------------------------------------------------------
Net increase in net assets 218,309,147 324,527,092
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 324,527,092 --
- ------------------------------------------------------------------------------------------
End of period $542,836,239 $324,527,092
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $542,836,239 $324,527,092
==========================================================================================
</TABLE>
See Notes to Financial Statements.
F-86
<PAGE> 305
FINANCIALS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Money Market Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of nine separate series portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers three different classes of shares: the Class A shares, the
Class B shares and the Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares are sold with a contingent deferred sales charge.
Class C shares are sold at net asset value. Matters affecting each portfolio or
class will be voted on exclusively by the shareholders of such portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
A. Security Valuations - The Fund invests only in securities which have
maturities of 397 days or less from the date of purchase. The securities are
valued on the basis of amortized cost which approximates market value. This
method values a security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income, adjusted for amortization of premiums and
discounts on investments, is recorded as earned from settlement date and is
recorded on the accrual basis. Dividends to shareholders are declared daily
and are paid monthly.
C. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
D. Expenses - Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to all
classes, e.g. advisory fees, are allocated among them. Expenses of the Trust
which are not directly attributable to the operations of any class of shares
or portfolio of the Trust are prorated among the classes to which the expense
relates based upon the relative net assets of each class.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.55% of
the first $1 billion of the Fund's average daily net assets plus 0.50% of the
Fund's average daily net assets in excess of $1 billion. This agreement requires
AIM to reduce its fees or, if necessary, make payments to the Fund to the extent
required to satisfy any expense limitations imposed by the securities laws or
regulations thereunder of any state in which the Fund's shares are qualified for
sale. AIM voluntarily waived fees of $387,205 during the year ended December 31,
1994.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting and shareholder services to the Fund. During the year ended December
31, 1994, AIM was reimbursed $209,642 for such services. Effective November 1,
1994, A I M Fund Services, Inc. ("AFS") became the transfer agent for the Fund
and was paid $69,492 for such services during the two months ended December 31,
1994.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares, the Class B shares and the Class C shares of the Fund. The Trust
has adopted Plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and Class C shares (the "Class A and C Plan") and with
respect to the Fund's Class B shares (the "Class B Plan")(collectively, the
"Plans"). The Fund, pursuant to the Class A and C Plan, pays to AIM Distributors
compensation at an annual rate of 0.25% of the average daily net assets
attributable to the Class A shares and the Class C shares. The Class A and C
Plan is designed to compensate AIM Distributors for certain promotional and
other sales related costs, and to implement a program which provides periodic
payments to
F-87
<PAGE> 306
FINANCIALS
NOTE 2-(continued)
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class A shares or
Class C shares of the Fund. The Fund, pursuant to the Class B Plan, pays AIM
Distributors compensation at an annual rate of 1.00% of the average daily net
assets attributable to the Class B shares. Of this amount, the Fund may pay a
service fee of 0.25% of the average daily net assets of the Class B shares to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class B shares of
the Fund. Any amounts not paid as a service fee under such Plans would
constitute an asset-based sales charge. The Plans also impose a cap on the total
sales charges, including asset-based sales charges, that may be paid by the
respective classes. During the year ended December 31, 1994, the Class A shares,
the Class B shares and the Class C shares paid AIM Distributors $277,607,
$191,213 and $785,906, respectively, as compensation under the Plans.
AIM Distributors received commissions of $182,129 from sales of the Class A
shares of the Fund during the year ended December 31, 1994. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 1994,
AIM Distributors received $81,600 in contingent deferred sales charges imposed
on redemptions of Class B shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1994, the Fund paid legal fees of $4,238
for services rendered by Reid & Priest as counsel to the Board of Trustees.
Effective September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was
appointed as counsel to the Board of Trustees. The Fund paid legal fees of $303
for services rendered by that firm as counsel. A member of that firm is a
trustee of the Trust.
NOTE 3-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of the Trust. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-SHARE INFORMATION
Changes in shares outstanding during the year ended December 31, 1994 and the
period October 16, 1993 (date operations commenced) through December 31, 1993
were as follows:
<TABLE>
<CAPTION>
1994 1993*
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sold:
Class A 607,113,357 $ 607,113,357 130,014,360 $130,014,360
- ------------------------------------------------------------------------------------------------------------------------
Class B 94,699,624 94,699,624 2,358,066 2,358,066
- ------------------------------------------------------------------------------------------------------------------------
Class C 2,084,342,014 2,084,342,014 447,740,570 447,740,570
- ------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 3,420,397 3,420,397 400,927 400,927
- ------------------------------------------------------------------------------------------------------------------------
Class B 503,240 503,240 1,512 1,512
- ------------------------------------------------------------------------------------------------------------------------
Class C 9,396,978 9,396,978 1,079,471 1,079,471
- ------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (543,108,172) (543,108,172) (48,955,140) (48,955,140)
- ------------------------------------------------------------------------------------------------------------------------
Class B (62,493,008) (62,493,008) (1,070,476) (1,070,476)
- ------------------------------------------------------------------------------------------------------------------------
Class C (1,975,565,283) (1,975,565,283) (207,042,198) (207,042,198)
- ------------------------------------------------------------------------------------------------------------------------
218,309,147 $ 218,309,147 324,527,092 $324,527,092
========================================================================================================================
</TABLE>
* Includes shares issued in a reorganization of three former funds: the AIM
Money Market Fund(C) and AIM Cash Fund portfolios of AIM Funds Group and the
AIM Money Market Fund portfolio of Short-Term Investments Co.
F-88
<PAGE> 307
FINANCIALS
NOTE 5-FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a Class A share, a Class
B share and a Class C share outstanding during the year ended
December 31, 1994 and the period October 16, 1993 (date operations commenced)
through December 31, 1993.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
--------------------- -------------------- ----------------------
1994 1993 1994 1993 1994 1993
-------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------- -------- -------- ------- -------- -------- --------
Income from investment operations:
Net investment income .0337 0.0048 .0259 0.0032 .0337 0.0048
- ----------------------------------------- -------- -------- ------- -------- -------- --------
Less distributions:
Dividends from net investment income (.0337) (0.0048) (.0259) (0.0032) (.0337) (0.0048)
- ----------------------------------------- -------- -------- ------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================= ======== ======== ======= ======== ======== ========
Total return(b) 3.43% 2.27%(a) 2.62% 1.51%(a) 3.42% 2.27%(a)
========================================= ======== ======== ======= ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $148,886 $ 81,460 $33,999 $ 1,289 $359,952 $241,778
========================================= ======== ======== ======= ======== ======== ========
Ratio of expenses to average net
assets(c) 0.97%(d) 1.00%(a) 1.78%(e) 1.75%(a) 0.99%(f) 1.00%(a)
========================================= ======== ======== ======= ======== ======== ========
Ratio of net investment income to average
net assets(c) 3.53%(d) 2.27%(a) 3.14%(e) 1.54%(a) 3.49%(f) 2.27%(a)
========================================= ======== ======== ======= ======== ======== ========
</TABLE>
(a) Annualized.
(b) Does not deduct sale charges or contingent deferral sales charges, where
applicable.
(c) After waiver of advisory fees.
(d) Ratios are based on average net assets of $111,042,610. Ratios of expenses
and net investment income to average net assets prior to waiver of advisory
fees are 1.06% and 3.44%, respectively.
(e) Ratios are based on average net assets of $19,121,318. Ratios of expenses
and net investment income to average net assets prior to waiver of advisory
fees are 1.87% and 3.05%, respectively.
(f) Ratios are based on average net assets of $314,362,619. Ratios of expenses
and net investment income to average net assets prior to waiver of advisory
fees are 1.08% and 3.40%, respectively.
F-89
<PAGE> 308
AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Municipal Bond Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Municipal Bond Fund (a portfolio of AIM Funds Group), including the schedule of
investments, as of December 31, 1994, and the related statements of operations
for the year then ended, and the changes in its net assets and the financial
highlights for each of the years in the two-year period then ended. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of AIM Municipal Bond Fund as of December 31, 1994, the results of
its operations for the year then ended, and the changes in its net assets and
the financial highlights for each of the years in the two-year period then
ended, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
February 3, 1995
F-90
<PAGE> 309
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ALASKA-2.02%
Alaska (State of) Housing Finance Corp.; Series A RB
6.375%, 12/01/12 A+ Aa $1,000 $ 1,026,880
- ------------------------------------------------------------------------------------------------------------------------
Alaska (State of) Housing Finance Corp.; Collateralized First Veterans' Home
Mortgage Series A-2 RB
6.75%, 12/01/24(b) AAA Aaa 2,150 2,034,137
- ------------------------------------------------------------------------------------------------------------------------
Alaska (State of) Housing Finance Corp.; Collateralized Mortgage Program
First Series RB
6.875%, 06/01/33 AAA Aaa 2,430 2,330,394
- ------------------------------------------------------------------------------------------------------------------------
5,391,411
- ------------------------------------------------------------------------------------------------------------------------
ARKANSAS-0.87%
Fayetteville (City of); Water and Sewer Refunding and Improvement
Series 1992 RB
6.15%, 08/15/12 A A 2,405 2,307,477
- ------------------------------------------------------------------------------------------------------------------------
ARIZONA-1.56%
Payson (County of) Unified School District #10; School Improvement
Series 1994 GO
5.50%, 07/01/06(c) AAA Aaa 1,000 955,680
- ------------------------------------------------------------------------------------------------------------------------
Pima (County of) Unified School District #10 (Amphitheater); School
Improvement Series 1992 E GO
6.50%, 07/01/05 A+ A 3,100 3,204,811
- ------------------------------------------------------------------------------------------------------------------------
4,160,491
- ------------------------------------------------------------------------------------------------------------------------
CALIFORNIA-0.82%
Palm Springs (City of) Financing Authority; Convention Center
Project Series A RB
6.75%, 11/01/21(c) AAA Aaa 1,150 1,155,923
- ------------------------------------------------------------------------------------------------------------------------
San Francisco (City and County of) Parking Authority; Parking Meter
Series 1994 RB
7.00%, 06/01/13(c) AAA Aaa 1,000 1,026,640
- ------------------------------------------------------------------------------------------------------------------------
2,182,563
- ------------------------------------------------------------------------------------------------------------------------
COLORADO-3.27%
Adams County School District Number 1; Unlimited Tax Building
Series 1992-A GO
6.625%, 12/01/02(c)(d) AAA Aaa 500 531,335
- ------------------------------------------------------------------------------------------------------------------------
Colorado (State of) Housing Finance Authority (Single Family Residential
Housing); Series 1987 B RB
9.00%, 09/01/17 - Aa 635 666,604
- ------------------------------------------------------------------------------------------------------------------------
Denver (City and County of) (Denver International Airport); Airport System
Series 1991 A RB
8.00%, 11/15/25(b) BB Baa 2,000 1,959,380
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-91
<PAGE> 310
FINANCIALS
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
COLORADO-CONTINUED
Denver (City and County of) (Stapleton International Airport); Airport System
Series 1985 RB
8.375%, 08/01/97 BB Baa $4,000 $ 4,025,040
- -----------------------------------------------------------------------------------------------------------------------
Mesa County School District #51; 1989 Series B Certificates of Participation
6.875%, 12/01/05(c) AAA Aaa 1,465 1,543,817
- ------------------------------------------------------------------------------------------------------------------------
8,726,176
- ------------------------------------------------------------------------------------------------------------------------
CONNECTICUT-4.59%
Connecticut (State of) Development Authority (Connecticut Power & Light);
Series 1993 A RB
5.40%, 09/01/28(e) A-1+ VMIG-1 500 500,000
- ------------------------------------------------------------------------------------------------------------------------
Connecticut (State of); General Purpose Public Improvement Series 1992-A GO
6.50%, 03/15/02(c)(d) AA- - 5,500 5,819,770
- ------------------------------------------------------------------------------------------------------------------------
Connecticut Resource Recovery Authority (American Ref-Fuel Company)
(Southeastern Connecticut Project); Corporate Credit 1988 RB
8.10%, 11/15/15(b) A A2 925 985,356
- ------------------------------------------------------------------------------------------------------------------------
Connecticut Resource Recovery Authority (American Ref-Fuel Company)
(Southeastern Connecticut Project); Series 1988 A RB
7.875%, 11/15/06(b) AA- A 1,700 1,789,760
- ------------------------------------------------------------------------------------------------------------------------
8.00%, 11/15/15(b) AA- A 1,000 1,054,180
- ------------------------------------------------------------------------------------------------------------------------
Connecticut Resource Recovery Authority (Bridgeport Resco Corp. Ltd.
Partners); Project A 1985 RB
7.625%, 01/01/09 A A 2,000 2,080,960
- ------------------------------------------------------------------------------------------------------------------------
12,230,026
- ------------------------------------------------------------------------------------------------------------------------
DELAWARE-0.20%
Delaware Housing Authority; Multifamily Housing Series 1982 RB
7.00%, 07/01/14 A+ A1 780 546,000
- ------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA-0.40%
District of Columbia; Unlimited Tax Refunding Series 1986 A GO
7.875%, 06/01/96(c)(d) AAA Aaa 1,000 1,054,390
- ------------------------------------------------------------------------------------------------------------------------
FLORIDA-0.43%
Miami (City of) Parking System; Series 1992 A RB
6.70%, 10/01/06 A A 1,120 1,149,646
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-92
<PAGE> 311
FINANCIALS
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
GEORGIA-1.62%
Georgia Municipal Electric Authority; Series P RB
8.00%, 01/01/98(c)(d) AAA Aaa $2,000 $ 2,168,320
- ------------------------------------------------------------------------------------------------------------------------
Private Colleges and University Facilities Authority (Mercer University); RB
9.20%, 11/01/95(c)(d) AAA Aaa 250 263,600
- ------------------------------------------------------------------------------------------------------------------------
Savannah (City of) Economic Development Authority (Fuji Vegetable Oil
Company Project) General Obligation IDR
5.60%, 10/01/99(b)(e)(f) - - 1,900 1,900,000
- ------------------------------------------------------------------------------------------------------------------------
4,331,920
- ------------------------------------------------------------------------------------------------------------------------
GUAM-0.37%
Guam (Government of); Series 1994 A GO
5.50%, 08/15/97 BBB - 1,000 981,540
- ------------------------------------------------------------------------------------------------------------------------
IDAHO-0.53%
Student Loan Fund of Idaho Marketing Association, Inc.; Student Loan
Subordinate Series 2 RB
5.70%, 10/01/07(b) Aa - 1,500 1,400,565
- ------------------------------------------------------------------------------------------------------------------------
ILLINOIS-6.76%
Berwyn (City of) (Macneal Memorial Hospital Association); Hospital
Series 1991 RB
7.00%, 06/01/15(c) AAA Aaa 3,250 3,295,045
- ------------------------------------------------------------------------------------------------------------------------
Cook (County of); Series 1992 B GO
5.75%, 11/15/07(c) AAA Aaa 2,000 1,915,680
- ------------------------------------------------------------------------------------------------------------------------
Illinois (State of); Sales Tax Series 1993 B RB
6.50%, 06/15/13 AAA Aa 1,500 1,491,960
- ------------------------------------------------------------------------------------------------------------------------
Illinois Health Facilities Authority (Evangelical Hospitals Corp.);
Series 1992-C RB
6.25%, 04/15/22 AA- A1 1,150 1,025,110
- ------------------------------------------------------------------------------------------------------------------------
Illinois Health Facilities Authority (Franciscan Sisters Health Care);
Refunding Series 1992 RB
6.40%, 09/01/04(c) AAA Aaa 2,475 2,521,134
- ------------------------------------------------------------------------------------------------------------------------
Illinois Health Facilities Authority (Ravenswood Hospital Medical Center);
Refunding Series 1987 A RB
8.80%, 06/01/06 - Baa1 1,000 1,071,020
- ------------------------------------------------------------------------------------------------------------------------
Metropolitan Fair and Exposition Authority; Refunding Series 1986 A RB
5.00%, 06/01/15(c) AAA Aaa 3,000 2,402,790
- ------------------------------------------------------------------------------------------------------------------------
Peoria and Pekin and Waukegan (Cities of); GNMA Collateralized Mortgage
Series 1990 RB
7.875%, 08/01/22(b) AAA - 180 188,953
- ------------------------------------------------------------------------------------------------------------------------
University of Illinois Auxiliary Facilities System; Series 1991 RB
5.75%, 04/01/22 AA- Aa 4,750 4,123,998
- ------------------------------------------------------------------------------------------------------------------------
18,035,690
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-93
<PAGE> 312
FINANCIALS
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
IOWA-0.36%
Salix (City of) (Illinois Gas and Electric); PCR
5.75%, 06/01/03 - Aa3 $1,000 $ 972,040
- ------------------------------------------------------------------------------------------------------------------------
KANSAS-1.02%
Kansas City (General Motors Corp. Project); Series 1984 PCR
5.45%, 04/01/06 BBB+ Baa1 3,000 2,728,650
- ------------------------------------------------------------------------------------------------------------------------
KENTUCKY-0.78%
Trimble (County of) (Louisville Gas & Electric); PCR
7.25%, 12/01/16 AA Aa2 2,000 2,067,720
- ------------------------------------------------------------------------------------------------------------------------
LOUISIANA-1.09%
Calcasieu (Parish of) Industrial Development Authority (Olin Corp.);
Refunding Series 1993 A RB
6.10%, 02/01/16(e) A-1+ - 200 200,000
- ------------------------------------------------------------------------------------------------------------------------
Louisiana Public Facilities Authority (Louisiana Department of Health
and Hospital Medical Center of Louisiana at New Orleans Project);
Series 1992 RB
6.125%, 10/15/07(c) AAA - 2,775 2,703,960
- ------------------------------------------------------------------------------------------------------------------------
2,903,960
- ------------------------------------------------------------------------------------------------------------------------
MAINE-0.56%
Maine (State of) Education Loan Authority; Education Loan Series A-2 RB
6.95%, 12/01/07(b) - A 1,465 1,481,437
- ------------------------------------------------------------------------------------------------------------------------
MARYLAND-0.44%
Maryland Health and Higher Education Facilities Authority (Doctors Community
Hospital Inc.); Series 1990 RB
8.75%, 07/01/00(c)(d) - Aaa 1,000 1,162,170
- ------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS - 6.71%
Massachusetts (State of); Consolidated Loan Series 1991 C GO
7.00%, 08/01/12 A+ A1 2,450 2,519,702
- ------------------------------------------------------------------------------------------------------------------------
Massachusetts (State of) Housing Finance Agency; Insured Rental Housing
Series 1994 A RB
6.00%, 07/01/04(b)(c) AAA Aaa 2,000 1,956,180
- ------------------------------------------------------------------------------------------------------------------------
Massachusetts Health and Education Facilities Authority (Anna Jacques
Hospital Issue); Series B RB
6.875%, 10/01/12 - Baa1 1,400 1,283,940
- ------------------------------------------------------------------------------------------------------------------------
Massachusetts Health and Education Facilities Authority (Lowell General
Hospital); Series 1991 A RB
8.40%, 06/01/11 - Baa1 3,550 3,735,133
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-94
<PAGE> 313
FINANCIALS
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MASSACHUSETTS-CONTINUED
Massachusetts Health and Education Facilities Authority (Valley Regional
Health System Issue); Series 1990 B RB
8.00%, 07/01/00(c)(d) - Aaa $3,000 $3,379,680
- ------------------------------------------------------------------------------------------------------------------------
Massachusetts Municipal Wholesale Electric Cooperative Power Supply; System
Series 1992 A RB
6.75%, 07/01/08(c) AAA Aaa 3,000 3,071,730
- ------------------------------------------------------------------------------------------------------------------------
Massachusetts Water Resources Authority; General Revenue Refunding 1992
Series B RB
6.25%, 11/01/10 A A 2,000 1,939,260
- ------------------------------------------------------------------------------------------------------------------------
17,885,625
- ------------------------------------------------------------------------------------------------------------------------
MICHIGAN-4.92%
Detroit (City of) School District; School Building and Site (Unlimited Tax)
Series 1992 GO
6.00%, 05/01/05 AA A1 1,000 981,070
- ------------------------------------------------------------------------------------------------------------------------
6.15%, 05/01/07 AA A1 1,300 1,276,756
- ------------------------------------------------------------------------------------------------------------------------
Lake Orion Community School District; School Building and Site (Unlimited Tax)
Series 1994 GO
7.00%, 05/01/15(c) AAA Aaa 2,500 2,584,675
- ------------------------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority (Oakwood Hospital Obligated Group);
Refunding Series 1993 A RB
5.30%, 11/01/06(c) AAA Aaa 1,175 1,067,840
- ------------------------------------------------------------------------------------------------------------------------
Michigan Strategic Fund (General Motors Corp. Project); Refunding
Series 1987 PCR
6.625%, 03/01/07 BBB+ Baa1 1,000 983,110
- ------------------------------------------------------------------------------------------------------------------------
Monroe (County of) (Detroit Edison Co.); PCR
10.125%, Series 1985 I, 09/01/05 BBB+ A3 3,800 4,072,764
- ------------------------------------------------------------------------------------------------------------------------
10.50%, Series 1985 A, 12/01/16 BBB Baa1 2,000 2,143,840
- ------------------------------------------------------------------------------------------------------------------------
13,110,055
- ------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI-1.89%
Mississippi Higher Education Assistance Corp.; Student Loan
Series 1994 C RB
7.50%, 09/01/09(b) - A 5,000 5,033,300
- ------------------------------------------------------------------------------------------------------------------------
MISSOURI-0.75%
Kansas City Industrial Development Authority (General Motors Corp.
Project); PCR
6.05%, 04/01/06 BBB+ Baa1 1,435 1,382,737
- ------------------------------------------------------------------------------------------------------------------------
Kansas City Municipal Assistance Corp. (Truman Medical Center Charitable
Foundation); Leasehold Improvement Series 1991 A RB
7.00%, 11/01/08 A A 605 607,190
- ------------------------------------------------------------------------------------------------------------------------
1,989,927
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-95
<PAGE> 314
FINANCIALS
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEBRASKA-0.83%
Nebraska Higher Education Loan Program, Inc. (A-6 Junior Subordinate Bond);
Series 1993 A RB
5.90%, 06/01/03(b) - A $2,250 $ 2,224,935
- ------------------------------------------------------------------------------------------------------------------------
NEVADA-1.50%
Humboldt (County of) (Sierra Pacific Project); Series 1987 PCR
6.55%, 10/01/13(c) AAA Aaa 3,000 2,980,410
- ------------------------------------------------------------------------------------------------------------------------
Las Vegas (City of); 1992 Limited Tax GO
6.50%, 10/01/08(c) AAA Aaa 1,000 1,012,100
- ------------------------------------------------------------------------------------------------------------------------
3,992,510
- ------------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE-2.17%
New Hampshire Housing Finance Authority; Single Family Residential Mortgage
Series 1987 B RB
8.625%, 07/01/13(b) A+ Aa 1,510 1,564,448
- ------------------------------------------------------------------------------------------------------------------------
New Hampshire State Turnpike System; Series 1990 RB
7.40%, 04/01/00(c)(d) AAA Aaa 3,850 4,211,361
- ------------------------------------------------------------------------------------------------------------------------
5,775,809
- ------------------------------------------------------------------------------------------------------------------------
NEW JERSEY-2.54%
Camden (County of) Municipal Utilities Authority; Series 1987 RB
8.25%, 12/01/17(c) AAA Aaa 2,000 2,169,180
- ------------------------------------------------------------------------------------------------------------------------
Hudson County Correctional Facility; Certificate of Participation
Series 1992 RB
6.60%, 12/01/21(c) AAA Aaa 1,250 1,250,838
- ------------------------------------------------------------------------------------------------------------------------
New Jersey City Economic Development Authority (Atlantic City Sewer Co.);
Sewer Facility Series 1991 RB
7.25%, 12/01/11(b)(f) - - 2,000 2,013,300
- ------------------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facility Financing Authority (St. Peters
Medical Center); Series 1987 C RB
8.60%, 07/01/17(c) AAA Aaa 1,250 1,352,112
- ------------------------------------------------------------------------------------------------------------------------
6,785,430
- ------------------------------------------------------------------------------------------------------------------------
NEW MEXICO-1.06%
Los Alamos (County of); Utility Series A RB
6.00%, 07/01/15(c) AAA Aaa 2,000 1,870,440
- ------------------------------------------------------------------------------------------------------------------------
Santa Fe (City of); Series 1994 A RB
6.25%, 06/01/15(c) AAA Aaa 1,000 964,230
- ------------------------------------------------------------------------------------------------------------------------
2,834,670
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-96
<PAGE> 315
FINANCIALS
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW YORK-11.59%
New York (City of); GO
8.25%, Series F 11/15/01(c)(d) - Aaa $1,840 $ 2,130,334
- ------------------------------------------------------------------------------------------------------------------------
8.25%, Series F 11/15/01(d) A- Baa1 160 174,067
- ------------------------------------------------------------------------------------------------------------------------
7.65%, Series 1992 F 02/01/06 A- Baa1 4,775 5,047,127
- ------------------------------------------------------------------------------------------------------------------------
7.70%, Series D 02/01/09 A- Baa1 2,000 2,094,140
- ------------------------------------------------------------------------------------------------------------------------
7.20%, Series H 02/01/15 A- Baa1 500 502,430
- ------------------------------------------------------------------------------------------------------------------------
7.00%, Series C Sub-Series C-1 08/01/17 A- Baa1 2,000 1,971,940
- ------------------------------------------------------------------------------------------------------------------------
7.00%, Series B 02/01/18(c) AAA Aaa 1,000 1,019,400
- ------------------------------------------------------------------------------------------------------------------------
7.00%, Series H 02/01/20 A- Baa1 350 344,887
- ------------------------------------------------------------------------------------------------------------------------
5.85%, Series 1994 H-3 08/01/21(e) AAA Aaa 400 400,000
- -----------------------------------------------------------------------------------------------------------------------
New York City Housing Development Corp. (James Tower Development);
Multifamily Housing Series 1994 A RB
5.40%, 07/01/05(e) A-1 - 2,400 2,400,000
- -----------------------------------------------------------------------------------------------------------------------
New York City Industrial Development Agency (The Lighthouse Inc. Project);
Series 1992 RB
6.50%, 07/01/22 AA Aa2 1,500 1,385,055
- -----------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority (City University); Refunding Series T RB
10.25%, 07/01/12(c) BBB Baa1 2,435 2,549,055
- -----------------------------------------------------------------------------------------------------------------------
New York State Medical Care Facilities Authority (Mental Health Services);
Refunding Series 1987 A RB
8.875%, 08/15/97(c)(d) AAA Aaa 940 1,040,571
- ------------------------------------------------------------------------------------------------------------------------
8.875%, 08/15/07 BBB+ Baa1 1,060 1,143,772
- -----------------------------------------------------------------------------------------------------------------------
New York State Urban Development Corp.; Capital Facilities 1991 Series 3 RB
7.375%, 01/01/02(c)(d) BBB Baa1 7,850 8,716,011
- -----------------------------------------------------------------------------------------------------------------------
30,918,789
- -----------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA-2.28%
North Carolina Eastern Municipal Power Agency; Series 1988 A RB
8.00%, 01/01/98(c)(d) A1 Aaa 3,000 3,261,277
- -----------------------------------------------------------------------------------------------------------------------
North Carolina Eastern Municipal Power Agency; Series A RB
6.125%, 01/01/10(c) AAA Aaa 1,500 1,447,980
- -----------------------------------------------------------------------------------------------------------------------
North Carolina Municipal Power Agency (No. 1 Catawba Electric Project);
Series 1990 RB
6.50%, 01/01/10(c) AAA Aaa 1,375 1,378,974
- -----------------------------------------------------------------------------------------------------------------------
6,088,231
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-97
<PAGE> 316
FINANCIALS
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OHIO-3.13%
Akron Bath Copley Joint Township (Akron City Hospital); Series 1987 RB
8.875%, 11/15/97(c)(d) - Aaa $1,610 $ 1,787,792
- ------------------------------------------------------------------------------------------------------------------------
Claremont (County of) (Mercy Health Care System-Province of Cincinnati);
Hospital Facilities Refunding Series 1985 A RB
9.75%, 09/01/13(c) AAA Aaa 775 814,145
- ------------------------------------------------------------------------------------------------------------------------
Columbus (City of); Unlimited Tax Series GO
5.50%, 05/15/08 AA+ Aa1 1,350 1,253,232
- ------------------------------------------------------------------------------------------------------------------------
Hamilton (County of); Electric System Mortgage Series 1988 B RB
8.00%, 10/15/98(c)(d) AAA Aaa 1,000 1,101,390
- ------------------------------------------------------------------------------------------------------------------------
Mason (City of) Health Care Facilities (MCV Health Care Facilities, Inc.);
Series 1990 RB
7.625%, 02/01/40 AAA - 2,215 2,279,744
- ------------------------------------------------------------------------------------------------------------------------
Ohio Department of Transportation (Panhandle Rail Line Project);
Series 1992 Certificates of Participation
6.50%, 04/15/12(c) AAA Aaa 1,100 1,112,078
- ------------------------------------------------------------------------------------------------------------------------
8,348,381
- ------------------------------------------------------------------------------------------------------------------------
OKLAHOMA-1.41%
Southern Oklahoma Memorial Hospital Authority; Hospital Series 1993 A RB
5.60%, 02/01/00 A A 2,500 2,465,150
- ------------------------------------------------------------------------------------------------------------------------
Tulsa Public Facilities Authority-Capital Improvements-Water System;
Series 1988 B RB
6.00%, 03/01/08 A+ - 1,305 1,283,898
- ------------------------------------------------------------------------------------------------------------------------
3,749,048
- ------------------------------------------------------------------------------------------------------------------------
OREGON-2.38%
Polk, Marion, and Benton (Counties of) School District #13J; GO
5.40%, 12/01/07(c) AAA Aaa 1,000 925,350
- ------------------------------------------------------------------------------------------------------------------------
Portland (City of) Multi-Family Housing (South Park Block Project);
Refunding Variable Rate Demand Series 1988 A RB
5.50%, 12/01/11(e) A-1+ - 3,300 3,300,000
- ------------------------------------------------------------------------------------------------------------------------
Portland (City of); Sewer System Series 1994 A RB
6.20%, 06/01/12 A+ A1 1,200 1,159,068
- ------------------------------------------------------------------------------------------------------------------------
6.20%, 06/01/15 A+ A1 1,000 964,230
- ------------------------------------------------------------------------------------------------------------------------
6,348,648
- ------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA-1.82%
Lancaster (County of) Solid Waste Management Authority; Resource
Recovery System Series 1988 A RB
8.50%, 12/15/10(b) BBB A1 2,000 2,039,880
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-98
<PAGE> 317
FINANCIALS
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
PENNSYLVANIA-CONTINUED
Pennsylvania Economic Development Finance Authority (Colver Project);
Resource Recovery Series 1994 D RB
7.05%, 12/01/10(b) BBB- - $2,900 $ 2,803,082
- -----------------------------------------------------------------------------------------------------------------------
4,842,962
- -----------------------------------------------------------------------------------------------------------------------
PUERTO RICO-1.91%
Puerto Rico (Commonwealth of) Electric Power Authority; RB
6.00%, Series 1989 07/01/10 A- Baa1 4,000 3,747,120
- ------------------------------------------------------------------------------------------------------------------------
7.00%, Series 1991 P 07/01/21 A- Baa1 1,325 1,342,742
- -----------------------------------------------------------------------------------------------------------------------
5,089,862
- -----------------------------------------------------------------------------------------------------------------------
RHODE ISLAND-0.87%
Rhode Island Depositors Economic Protection Corp.; Special Obligation
Series 1992 A RB
6.95%, 08/01/02(c)(d) AAA - 1,250 1,358,963
- -----------------------------------------------------------------------------------------------------------------------
Rhode Island Housing and Mortgage Finance Agency; Homeownership
Opportunity Series 15 B RB
6.00%, 10/01/04 AA+ Aa 1,000 972,600
- -----------------------------------------------------------------------------------------------------------------------
2,331,563
- -----------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA-0.38%
South Carolina State Education Assistance Authority; Guaranteed
Student Loan Series 1990 RB
6.60%, 09/01/01(b) AA - 500 503,950
- -----------------------------------------------------------------------------------------------------------------------
South Carolina State Housing Finance and Development Authority;
Homeownership Mortgage Series 1990 C RB
7.50%, 07/01/05(b) AA Aa 500 521,490
- -----------------------------------------------------------------------------------------------------------------------
1,025,440
- -----------------------------------------------------------------------------------------------------------------------
TENNESSEE-1.23%
Nashville and Davidson (Counties of) Metropolitan Government;
Water and Sewer Refunding Series 1986 RB
7.25%, 01/01/06 A A1 500 516,205
- -----------------------------------------------------------------------------------------------------------------------
Tennessee Housing Development Agency; Mortgage Finance Program 1993 Series A RB
5.50%, 07/01/05 A+ A1 3,000 2,769,900
- -----------------------------------------------------------------------------------------------------------------------
3,286,105
- -----------------------------------------------------------------------------------------------------------------------
TEXAS-16.89%
Brazos Higher Education Loan Authority Inc.; Student Loan Refunding RB
6.45%, Series 1992 C-1 11/01/02(b) - Aa 1,200 1,214,556
- ------------------------------------------------------------------------------------------------------------------------
6.50%, Series 1994 B-1 06/01/04(b) - A 700 696,549
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-99
<PAGE> 318
FINANCIALS
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-CONTINUED
Brazos River Authority (Houston Lighting and Power Project);
Collateralized Series 1986 A RB
7.875%, 11/01/18(b)(c) AAA Aaa $2,825 $ 2,970,657
- ------------------------------------------------------------------------------------------------------------------------
Brazos River Authority (Texas Utilities Electric Company);
Collateralized Series 1988 A PCR
9.25%, 03/01/18(b) BBB Baa2 6,500 7,183,540
- ------------------------------------------------------------------------------------------------------------------------
Comal County Industrial Development Authority (The Coleman Co.,
Inc. Project); Industrial Development Series 1980 RB
9.25%, 08/01/00(f) - - 1,700 1,870,051
- ------------------------------------------------------------------------------------------------------------------------
Dallas (City of); Series 1994 GO
6.20%, 01/01/10 AAA Aa1 1,000 989,420
- ------------------------------------------------------------------------------------------------------------------------
Dallas (City of); Waterworks and Sewer System Series 1994 A RB
6.00%, 10/01/14 AA Aa 2,030 1,902,739
- ------------------------------------------------------------------------------------------------------------------------
Harris County Flood Control District; Limited Tax GO
5.60%, Series 1991 10/01/97 AA+ Aa 1,000 1,006,480
- ------------------------------------------------------------------------------------------------------------------------
Harris County Health Facilities Development Corp. (The Methodist Hospital);
Hospital Series 1994 RB
5.85%, 12/01/25(e) A-1+ - 2,600 2,600,000
- ------------------------------------------------------------------------------------------------------------------------
Harris County Health Facilities Development Corp. (Saint Luke's Episcopal
Hospital Project); Series 1991 RB
6.70%, 02/15/03 AA Aa 1,000 1,025,030
- ------------------------------------------------------------------------------------------------------------------------
Harris County Health Facility Development Corp. (Texas Medical Center
Project); Special Facility RB
7.375%, 05/15/20(c) AAA Aaa 2,745 2,847,910
- ------------------------------------------------------------------------------------------------------------------------
Harris County Mental Health and Mental Retardation Authority; Refunding
Series 1992 RB
6.25%, 09/15/10(c) AAA Aaa 4,500 4,402,710
- ------------------------------------------------------------------------------------------------------------------------
Harris County; Toll Road Unlimited Tax General Obligation and Subordinate
Lien Refunding Series 1991 RB
6.75%, 08/01/14 AA+ Aa 3,850 3,894,622
- ------------------------------------------------------------------------------------------------------------------------
Houston (City of); GO
6.25%, Series 1992 C, 03/01/02(c)(d) AA- Aa 1,470 1,511,675
- ------------------------------------------------------------------------------------------------------------------------
5.25%, Series 1987, 03/01/06 AA- Aa 2,205 2,024,411
- ------------------------------------------------------------------------------------------------------------------------
Keller (City of) Independent School District; Certificates of Participation
Series 1994 RB
6.00%, 08/15/05(c) AAA Aaa 1,000 964,930
- ------------------------------------------------------------------------------------------------------------------------
Plano (City of) Independent School District; Unlimited Tax Series 1991 B GO
5.625%, 02/15/01(c)(d) AAA Aaa 2,500 2,495,325
- ------------------------------------------------------------------------------------------------------------------------
Sherman (City of) Metro Health Facilities Development Corp. (The
Wilson N. Jones Memorial Hospital); Series 1993 RB
5.50%, 01/01/12(c) AAA - 500 436,440
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-100
<PAGE> 319
FINANCIALS
<TABLE>
<CAPTION>
RATING(a)
PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-CONTINUED
Texas (State of) Housing Agency; Residential Development Mortgage
Series 1987 D RB
8.40%, 07/01/20(b) A+ Aa $4,050 $ 4,026,861
- ----------------------------------------------------------------------------------------------------------------------
Weatherford (City of) Independent School District; Refunding Series 1994 GO
6.40%, 02/15/12(c) AAA Aaa 1,000 988,640
- ----------------------------------------------------------------------------------------------------------------------
45,052,546
- ----------------------------------------------------------------------------------------------------------------------
UTAH-1.18%
Utah (State of) Housing Finance Agency; Federally Insured Term
Subordinate Single Family Mortgage RB
6.30%, Series 1994 E-1, 07/01/06 A+ A1 1,000 989,540
- -----------------------------------------------------------------------------------------------------------------------
7.15%, Series 1994 G-1, 07/01/06 A+ A1 1,150 1,164,375
- ----------------------------------------------------------------------------------------------------------------------
Utah (State of) Housing Finance Agency; Series 1994 C RB
6.05%, 07/01/06 - A1 1,000 984,560
- ----------------------------------------------------------------------------------------------------------------------
3,138,475
- ----------------------------------------------------------------------------------------------------------------------
VIRGIN ISLANDS-1.21%
Virgin Island Territory (Hugo Insurance Claims Fund);
Special Tax Bond Series 1991 GO
7.75%, 10/01/06(f) - - 3,070 3,214,198
- ----------------------------------------------------------------------------------------------------------------------
WASHINGTON-1.34%
Seattle (City of) Metropolitan Sewer District; Series T RB
6.80%, 01/01/11 AA- A1 1,780 1,800,684
- ----------------------------------------------------------------------------------------------------------------------
Washington (State of) Health Care Facility Authority (Highline
Community Hospital); Series 1993 RB
5.30%, 08/15/06(c) AAA - 1,000 905,340
- ----------------------------------------------------------------------------------------------------------------------
Washington State Public Power Supply (Nuclear Project No. 2);
Refunding Series 1994A RB
5.375%, 07/01/10 AA Aa 1,000 858,320
- ----------------------------------------------------------------------------------------------------------------------
3,564,344
- ----------------------------------------------------------------------------------------------------------------------
WISCONSIN-0.37%
Wisconsin Housing and Economic Development Authority; Home Ownership
Series 1990 E RB
8.00%, 03/01/21(b) A+ Aa 950 986,680
- ----------------------------------------------------------------------------------------------------------------------
WYOMING-0.19%
Lincoln (County of) (Exxon Project); Series 1984 C PCR
6.00%, 11/01/14(e) A-1+ - 500 500,000
- -----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS-98.24% 261,931,405
- -----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.76% 4,699,675
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS-100.00% $266,631,080
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-101
<PAGE> 320
FINANCIALS
NOTES TO SCHEDULE OF IINVESTMENTS:
(a) Ratings assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"). Ratings are not covered by
independent auditors' report.
(b) Security subject to the alternative minimum tax.
(c) Security is secured by an escrow fund, bond insurance, or a letter of
credit.
(d) Security has an irrevocable call or mandatory put by the issuer.
Maturity date reflects such call or put.
(e) Demand security; payable upon demand by the Fund with usually no more
than seven calendar days' notice. Interest rates are
redetermined periodically. Rates shown are the rates in effect on
December 31, 1994.
(f) Unrated security.
Investment Abbreviations:
GO-General Obligation Bonds
IDR-Industrial Development Revenue Bonds
PCR-Pollution Control Revenue Bonds
RB-Revenue Bonds
See Notes to Financial Statements.
F-102
<PAGE> 321
FINANCIALS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $259,864,885) $261,931,405
- -----------------------------------------------------------------------------------------------------------------------
Cash 17,584
- -----------------------------------------------------------------------------------------------------------------------
Receivables for:
Investments sold 2,135,819
- -----------------------------------------------------------------------------------------------------------------------
Fund shares sold 227,438
- -----------------------------------------------------------------------------------------------------------------------
Interest 5,311,845
- -----------------------------------------------------------------------------------------------------------------------
Investment for deferred compensation plan 53,165
- -----------------------------------------------------------------------------------------------------------------------
Other assets 22,727
- -----------------------------------------------------------------------------------------------------------------------
Total assets 269,699,983
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 980,283
- -----------------------------------------------------------------------------------------------------------------------
Fund shares reacquired 1,103,440
- -----------------------------------------------------------------------------------------------------------------------
Deferred compensation plan 53,165
- ----------------------------------------------------------------------------------------------------------------------
Dividends 556,833
- -----------------------------------------------------------------------------------------------------------------------
Accrued advisory fees 107,745
- -----------------------------------------------------------------------------------------------------------------------
Accrued administrative service fees 12,100
- -----------------------------------------------------------------------------------------------------------------------
Accrued distribution fees 172,450
- -----------------------------------------------------------------------------------------------------------------------
Accrued trustees' fees 1,553
- -----------------------------------------------------------------------------------------------------------------------
Accrued operating expenses 81,334
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 3,068,903
- -----------------------------------------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $266,631,080
=======================================================================================================================
NET ASSETS:
Class A $257,456,220
=======================================================================================================================
Class B $ 9,174,860
=======================================================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 33,084,335
=======================================================================================================================
Class B 1,179,161
=======================================================================================================================
CLASS A:
Net asset value and redemption price per share $7.78
=======================================================================================================================
Offering price per share:
(Net asset value of $7.78/95.25%) $8.17
=======================================================================================================================
CLASS B:
Net asset value and offering price per share $7.78
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-103
<PAGE> 322
FINANCIALS
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 18,324,727
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,327,611
- ------------------------------------------------------------------------------------------------------------------------
Custodian fees 48,508
- ------------------------------------------------------------------------------------------------------------------------
Transfer agent fees--Class A 107,037
- -----------------------------------------------------------------------------------------------------------------------
Transfer agent fees--Class B 147
- -----------------------------------------------------------------------------------------------------------------------
Administrative service fees 103,945
- -----------------------------------------------------------------------------------------------------------------------
Trustees' fees 6,857
- -----------------------------------------------------------------------------------------------------------------------
Distribution fees-Class A 690,578
- -----------------------------------------------------------------------------------------------------------------------
Distribution fees-Class B 56,949
- -----------------------------------------------------------------------------------------------------------------------
Other 215,848
- ------------------------------------------------------------------------------------------------------------------------
Total expenses 2,557,480
- -----------------------------------------------------------------------------------------------------------------------
Less expenses assumed by advisor (10,100)
- ------------------------------------------------------------------------------------------------------------------------
Net expenses 2,547,380
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 15,777,347
- -----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES:
Realized gain (loss) on sales of investment securities (2,668,737)
- -----------------------------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (24,480,672)
- -----------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investment securities (27,149,409)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(11,372,062)
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-104
<PAGE> 323
FINANCIALS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the years ended December 31, 1994 and 1993
1994 1993
<S> <C> <C>
OPERATIONS:
Net investment income $ 15,777,347 $16,227,427
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (2,668,737) 3,839,835
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities (24,480,672) 11,594,432
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (11,372,062) 31,661,694
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (15,315,671) (16,062,560)
- ----------------------------------------------------------------------------------------------------------------------
Class B (269,520) (14,881)
- ---------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on investment securities:
Class A (934,223) (3,686,182)
- ----------------------------------------------------------------------------------------------------------------------
Class B (30,963) (25,851)
- ---------------------------------------------------------------------------------------------------------------------
Return of capital:
Class A (969,892) (358,169)
- ----------------------------------------------------------------------------------------------------------------------
Class B (17,068) (2,126)
- ---------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (8,364,063) 11,471,431
- ----------------------------------------------------------------------------------------------------------------------
Class B 7,376,340 2,339,574
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (29,897,122) 25,322,930
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 296,528,202 271,205,272
- ----------------------------------------------------------------------------------------------------------------------
End of period $266,631,080 $296,528,202
======================================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $266,770,610 $268,745,293
- ----------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 399,992 284,914
- ----------------------------------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on investment securities (2,606,042) 950,803
- ----------------------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 2,066,520 26,547,192
- ----------------------------------------------------------------------------------------------------------------------
$266,631,080 $296,528,202
======================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-105
<PAGE> 324
FINANCIALS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Municipal Bond Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware business trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of nine separate series
portfolios, each having an unlimited number of shares of beneficial
interest. The Fund currently offers two different classes of shares: the Class A
shares and the Class B shares. Class A shares are sold with a front-end sales
charge. Class B shares are sold with a contingent deferred sales charge. Matters
affecting each portfolio or class are voted on exclusively by the share holders
of such portfolio or class. The assets, liabilities and operations of each
portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. Security Valuations - Portfolio securities are valued based on market
quotations or at fair value determined by a pricing service approved by the
Board of Trustees, provided that securities with a demand feature
exercisable within one to seven days will be valued at par. Prices provided
by the pricing service represent valuations of the mean between current bid
and asked market prices which may be determined without exclusive reliance
on quoted prices and may reflect appropriate factors such as institution
size trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, individual trading characteristics and other
market data. Portfolio securities for which prices are not provided by the
pricing service are valued at the mean between the last available bid and
asked prices, unless the Board of Trustees, or persons designated by the
Board of Trustees, determines that the mean between the last available bid
and asked prices does not accurately reflect the current market value of the
security. 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 Trust's officers in accordance with methods which are
specifically authorized by the Board of Trustees. Not withstanding the a
bove, short-term obligations with maturities of 60 days or less are valued
at amortized cost.
B. Securities Transactions, Investment Income and Distributions Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. It is the policy of the Fund to
declare daily dividends from net investment income. Such dividends are paid
monthly. Distributions from net realized capital gains, if any, are
recorded on ex-dividend date and are paid annually. On December 31, 1994,
$77,078 was reclassified from undistributed net investment income to
realized gain (loss) on sales of investments as a result of differing
book/tax treatments for amortization of premiums on tax-exempt securities.
In addition, $986,960 was reclassified from undistributed net investment
income to paid-in capital as a result of a return of capital distribution.
Net assets ofthe Fund were unaffected by the reclassifications discussed
above.
C. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. The Fund has a capital loss
carry forward of $458,030 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
in the year 2002.
D. Expenses - Operating expenses directly attributable to a class of shares
are charged to that class' operations. Expenses which are applicable to
both classes, e.g. advisory fees, are allocated between them. Expenses of
the Trust which are not directly attributable to the operations of any
class of shares or portfolio of the Trust are prorated among the classes to
which the expense relates based upon the relative net assets of each class.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.50% of
the first $200 million of the Fund's average daily net assets, plus 0.40% of the
Fund's average daily net assets in excess of $200 million to and including $500
million, plus 0.35% of the Fund's average daily net assets in excess of $500
million to and including $1 billion, plus 0.30% of the Fund's average daily net
assets in excess of $1 billion. This agreement requires AIM to reduce its fees
or, if necessary, make payments to the Fund to the extent required to satisfy
any expense limitations imposed by the securities laws or regulations
thereunder of any state in which the Fund's shares are qualified for sale.
During the year ended December 31, 1994, AIM reimbursed expenses of $10,100
with respect to the Class B shares.
F-106
<PAGE> 325
FINANCIALS
NOTE 2 - CONTINUED
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to reimburse AIM for certain administrative costs incurred
inproviding accounting and shareholder services to the Fund. During the year
ended December 31, 1994, AIM was reimbursed $103,945 for such services.
Effective November 1, 1994, A I M Fund Services, Inc. ("AFS") became the
transfer agent for the Fund and was paid $12,078 for such services during the
two months ended December 31, 1994.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares
(the "Class B Plan") (collectively, the "Plans"). The Fund, pursuant to the
Class A Plan, pays AIM Distributors compensation at an annual rate of 0.25% of
the average daily net assets attributable to the Class A shares. The Class A
Plan is designed to compensate AIM Distributors for certain promotional and
other sales related costs, and to implement a program which provides periodic
payments to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own Class A
shares of the Fund. The Fund, pursuant to the Class B Plan, pays AIM
Distributors compensation at at an annual rate of 1.00% of the average daily
net assets attributable to the Class B shares. Of this amount, the Fund may pay
a service fee of 0.25% of the average daily net assets of the Class B shares to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class B shares
ofthe Fund. Any amounts not paid as a service fee under such Plans would
constitute an asset-based sales charge. The Plans also impose a cap on the
total sales charges, including asset-based sales charges, that may be paid by
the respective classes. During the year ended December 31, 1994, the Class A
shares and the Class B shares paid AIM Distributors $690,578 and $56,949,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $82,774 from sales ofthe Class A
shares of the Fund during the year ended December 31, 1994. Such commissions
are not an expense of the Fund. They are deducted from, and are not included
in, the proceeds from sales of Class A shares. During the year ended December
31, 1994, AIM Distributors received $18,017 in contingent deferred sales
charges imposed on redemptions of Class B shares. Certain officers and trustees
of the Trust are officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1994, the Fund paid legal fees of $1,016
for services rendered by Reid & Priest as counsel to the Board of Trustees.
Effective September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was
appointed as counsel to the Board of Trustees. The Fund paid legal fees of $259
for services rendered by that firm as counsel. A member of that firm is a
trustee of the Trust.
NOTE 3 - TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is
not an "interested person" of the Trust. The Trust may invest trustees' fees,
if so elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short term
securities) purchased and sold by the Fund during the year ended December
31,1994 was $114,956,884 and $130,453,210, respectively.
The amount of unrealized appreciation (depreciation) of investment securities on
a tax basis as of December 31, 1994 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $5,957,650
- ----------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,526,670)
- ----------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $2,430,980
==================================================================================
</TABLE>
Cost of investments for tax purposes is $259,500,425.
F-107
<PAGE> 326
FINANCIALS
NOTE 5 - SHARE INFORMATION
Changes in shares outstanding during the years ended December 31,1994 and
1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
SHARES AMOUNT SHARES VALUE
<S> <C> <C> <C> <C>
Sold:
Class A 3,774,110 $30,827,309 4,092,807 $34,909,839
- -------------------------------------------------------------------------------------------------------------------------
Class B* 1,031,724 8,351,056 267,541 2,325,297
- -------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 1,275,719 10,304,397 1,473,760 12,587,503
- -------------------------------------------------------------------------------------------------------------------------
Class B* 24,242 193,390 2,767 23,752
- -------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (6,125,144) (49,495,769) (4,215,756) (36,025,911)
- -------------------------------------------------------------------------------------------------------------------------
Class B* (146,039) (1,168,106) (1,074) (9,475)
- -------------------------------------------------------------------------------------------------------------------------
(165,388) $(987,723) 1,620,045 $13,811,005
=========================================================================================================================
</TABLE>
*Sales of Class B shares commenced on September 1, 1993.
F-108
<PAGE> 327
FINANCIALS
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a Class A share
outstanding during each of the years in the ten year period ended December
31,1994.
<TABLE>
<CAPTION>
1994 1993 1992(A) 1991 1990 1989
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $ 8.61 $ 8.27 $ 8.13 $ 7.66 $ 7.81 $ 7.64
- ------------------------------------ -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.46 0.48 0.51 0.52 0.53 0.54
- ------------------------------------ -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (0.78) 0.46 0.21 0.46 (0.14) 0.18
- ------------------------------------ -------- -------- -------- -------- -------- --------
Total from investment
operations (0.32) 0.94 0.72 0.98 0.39 0.72
- ------------------------------------ -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.45) (0.48) (0.51) (0.51) (0.53) (0.55)
- ------------------------------------ -------- -------- -------- -------- -------- --------
Distributions from net realized
capital gains (0.03) (0.11) (0.07) - - -
- ------------------------------------ -------- -------- -------- -------- -------- --------
Returns of capital (0.03) (0.01) - - (0.01) -
- ------------------------------------ -------- -------- -------- -------- -------- --------
Total distributions (0.51) (0.60) (0.58) (0.51) (0.54) (0.55)
- ------------------------------------ -------- -------- -------- -------- -------- --------
Net asset value, end of period $7.78 $ 8.61 $ 8.27 $ 8.13 $ 7.66 $ 7.81
==================================== ======== ======== ======== ======== ======== ========
Total return(b) (3.79)% 11.66% 9.10% 13.30% 5.27% 9.70%
==================================== ======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $257,456 $294,209 $271,205 $273,037 $258,194 $262,997
==================================== ======== ======== ======== ======== ======== ========
Ratio of expenses to average
net assets 0.89%(c) 0.91% 0.90% 0.94% 0.91% 0.89%
==================================== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets 5.61%(c) 5.65% 6.15% 6.58% 6.91% 6.97%
==================================== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 43% 24% 160% 289% 230% 305%
==================================== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1988 1987 1986 1985
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $ 7.32 $ 8.41 $ 7.69 $ 6.89
- ------------------------------------ -------- -------- -------- --------
Income from investment operations:
Net investment income 0.53 0.51 0.58 0.63
- ------------------------------------ -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) 0.34 (0.65) 1.00 0.83
- ------------------------------------ -------- -------- -------- --------
Total from investment
operations 0.87 (0.14) 1.58 1.46
- ------------------------------------ -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.55) (0.49) (0.60) (0.66)
- ------------------------------------ -------- -------- -------- --------
Distributions from net realized
capital gains - (0.46) (0.26) -
- ------------------------------------ -------- -------- -------- --------
Returns of capital - - - -
- ------------------------------------ -------- -------- -------- --------
Total distributions (0.55) (0.95) (0.86) (0.66)
- ------------------------------------ -------- -------- -------- --------
Net asset value, end of period $ 7.64 $ 7.32 $ 8.41 $ 7.69
==================================== ======== ======== ======== ========
Total return(b) 12.33% (1.88)% 21.19% 22.29%
==================================== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $243,480 $237,225 $281,575 $198,892
==================================== ======== ======== ======== ========
Ratio of expenses to average
net assets 0.87% 0.80% 0.78% 0.75%
==================================== ======== ======== ======== ========
Ratio of net investment income to
average net assets 7.11% 6.71% 6.99% 8.75%
==================================== ======== ======== ======== ========
Portfolio turnover rate 381% 392% 249% 190%
==================================== ======== ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Total returns do not deduct sales charges.
(c) Ratios are based on average net assets of $276,209,259.
F-109
<PAGE> 328
FINANCIALS
NOTE 6 - CONTINUED
Shown below are the condensed financial highlights for a Class B share
outstanding during the year ended December 31, 1994 and the period September
1,1993 (date sales commenced) through December 31, 1993.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CLASS B:
Net asset value, beginning of period $ 8.61 $ 8.71
- --------------------------------------------------------------------------------------- ------ -------
Income from investment operations:
Net investment income 0.39 0.14
- --------------------------------------------------------------------------------------- ------ -------
Net gains (losses) on securities (both realized and unrealized) (0.78) 0.01
- --------------------------------------------------------------------------------------- ------ -------
Total from investment operations (0.39) 0.15
- --------------------------------------------------------------------------------------- ------ -------
Less distributions:
Dividends from net investment income (0.38) (0.13)
- --------------------------------------------------------------------------------------- ------ -------
Distributions from net realized capital gains (0.03) (0.11)
- --------------------------------------------------------------------------------------- ------ -------
Returns of capital (0.03) (0.01)
- --------------------------------------------------------------------------------------- ------ -------
Total distributions (0.44) (0.25)
- --------------------------------------------------------------------------------------- ------ -------
Net asset value, end of period $ 7.78 $ 8.61
======================================================================================= ====== =======
Total return(a) (4.57)% 1.95%(b)
======================================================================================= ====== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $9,175 $ 2,319
======================================================================================= ====== =======
Ratio of expenses to average net assets 1.67%(c) 1.65%
======================================================================================= ====== =======
Ratio of net investment income to average net assets 4.83%(c) 4.91%
======================================================================================= ====== =======
Portfolio turnover rate 43% 24%
======================================================================================= ====== =======
</TABLE>
(a) Does not deduct contingent deferred sales charges.
(b) Total return is not annualized.
(c) Ratios are based on average net assets of $5,693,594. Ratios of expenses
and net investment income to average net assets prior toexpense
reimbursements are 1.84% and 4.66%, respectively.
F-110
<PAGE> 329
AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Utilities Fund:
We have audited the accompanying statement of assets and liabilities of AIM
Utilities Fund (a portfolio of AIM Funds Group), including the schedule of
investments, as of December 31, 1994, and the related statements of operations
for the year then ended, and the changes in net assets and the financial
highlights for each of the years in the two-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Utilities Fund as of December 31, 1994, the results of its operations for the
year then ended, and the changes in its net assets and financial highlights for
each of the years in the two-year period then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
February 3, 1995
F-111
<PAGE> 330
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
COMMON STOCKS-80.04%
ADVERTISING/BROADCASTING-0.51%
41,100 British Sky Broadcasting-ADR(a) $ 986,400
------------------------------------------------------------------------------------------
CONGLOMERATES-0.55%
24,800 Tenneco Inc. 1,054,000
------------------------------------------------------------------------------------------
ELECTRIC SERVICES-32.03%
250,000 Boston Edison Co. 5,968,750
------------------------------------------------------------------------------------------
24,200 Chilgener S.A. ADR 595,925
------------------------------------------------------------------------------------------
50,000 Consolidated Edison Co. of New York, Inc. 1,287,500
------------------------------------------------------------------------------------------
12,000 DPL Inc. 246,000
------------------------------------------------------------------------------------------
60,500 Duke Power Co. 2,306,562
------------------------------------------------------------------------------------------
32,100 Eastern Group PLC 390,262
------------------------------------------------------------------------------------------
105,200 Eastern Utilities Associates 2,314,400
------------------------------------------------------------------------------------------
50,000 Empresa Nacional de Electricidad S.A.-ADR 2,025,000
------------------------------------------------------------------------------------------
40,000 Enersis S.A.-ADR 1,110,000
------------------------------------------------------------------------------------------
136,500 FPL Group, Inc. 4,794,562
------------------------------------------------------------------------------------------
40,000 General Public Utilities Corp. 1,050,000
------------------------------------------------------------------------------------------
25,000 Houston Industries, Inc. 890,625
------------------------------------------------------------------------------------------
100,000 Kansas City Power & Light Co. 2,337,500
------------------------------------------------------------------------------------------
49,500 Korea Electric Power Corp.-ADR 1,058,062
------------------------------------------------------------------------------------------
32,300 Midlands Electricity PLC 411,899
------------------------------------------------------------------------------------------
120,000 National Power PLC 920,043
------------------------------------------------------------------------------------------
32,200 New England Electric System 1,034,425
------------------------------------------------------------------------------------------
17,800 New Jersey Resources Corp. 402,725
------------------------------------------------------------------------------------------
80,000 Northeast Utilities 1,730,000
------------------------------------------------------------------------------------------
142,000 Northern States Power Co. 6,248,000
------------------------------------------------------------------------------------------
52,800 NYNEX Corp. 1,940,400
------------------------------------------------------------------------------------------
195,000 Oklahoma Gas & Electric Co. 6,459,375
------------------------------------------------------------------------------------------
178,000 Peco Energy Co. 4,361,000
------------------------------------------------------------------------------------------
50,000 Pinnacle West Capital Corp. 987,500
------------------------------------------------------------------------------------------
119,000 PowerGen PLC 998,030
------------------------------------------------------------------------------------------
70,000 Public Service Enterprise Group, Inc. 1,855,000
------------------------------------------------------------------------------------------
66,500 Shandong Huaneng Power Co. Ltd.-ADR(a) 640,062
------------------------------------------------------------------------------------------
20,000 Southern Co. (The) 400,000
------------------------------------------------------------------------------------------
15,000 Texas Utilities Co. 480,000
------------------------------------------------------------------------------------------
100,000 Tucson Electric Power Co.(a) 312,500
------------------------------------------------------------------------------------------
100,000 Unicom Corporation 2,400,000
------------------------------------------------------------------------------------------
25,000 Union Electric Co. 884,375
------------------------------------------------------------------------------------------
4,650 VEBA A.G. 1,620,316
------------------------------------------------------------------------------------------
</TABLE>
F-112
<PAGE> 331
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
ELECTRIC SERVICES-(continued)
30,000 Western Resources, Inc. $ 858,750
------------------------------------------------------------------------------------------
46,000 Yorkshire Electricity PLC 523,988
------------------------------------------------------------------------------------------
61,843,536
------------------------------------------------------------------------------------------
NATURAL GAS PIPELINE-13.82%
36,000 Columbia Gas System, Inc.(a) 846,000
------------------------------------------------------------------------------------------
69,700 El Paso Natural Gas Co. 2,125,850
------------------------------------------------------------------------------------------
75,000 Enron Corp. 2,287,500
------------------------------------------------------------------------------------------
200,200 MCN Corp. 3,628,625
------------------------------------------------------------------------------------------
45,000 National Fuel Gas Co. 1,147,500
------------------------------------------------------------------------------------------
150,000 NIPSCO Industries, Inc. 4,462,500
------------------------------------------------------------------------------------------
225,000 Panhandle Eastern Corp. 4,443,750
------------------------------------------------------------------------------------------
48,600 Sonat Inc. 1,360,800
------------------------------------------------------------------------------------------
270,300 Transco Energy Co. 4,493,737
------------------------------------------------------------------------------------------
87,800 Westcoast Energy, Inc. 1,393,825
------------------------------------------------------------------------------------------
20,000 Williams Companies Inc. (The) 502,500
------------------------------------------------------------------------------------------
26,692,587
------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-3.90%
30,300 Avalon Properties, Inc. 696,900
------------------------------------------------------------------------------------------
89,800 Bay Apartment Communities 1,807,225
------------------------------------------------------------------------------------------
22,100 Felcor Suite Hotels Inc. 430,950
------------------------------------------------------------------------------------------
100,000 Innkeepers USA Trust 725,000
------------------------------------------------------------------------------------------
12,000 Meditrust 363,000
------------------------------------------------------------------------------------------
11,000 Mid-America Apartment Communities Inc. 294,250
------------------------------------------------------------------------------------------
15,000 National Health Investors, Inc. 391,875
------------------------------------------------------------------------------------------
59,400 Oasis Residential Inc. 1,455,300
------------------------------------------------------------------------------------------
59,500 RFS Hotel Investors Inc. 870,187
------------------------------------------------------------------------------------------
40,000 South West Property Trust 490,000
------------------------------------------------------------------------------------------
7,524,687
------------------------------------------------------------------------------------------
TELEPHONE-25.34%
38,400 ALC Communications Corp(a) 1,195,200
------------------------------------------------------------------------------------------
10,000 ALLTEL Corp. 301,250
------------------------------------------------------------------------------------------
151,100 Ameritech Corp. 6,100,662
------------------------------------------------------------------------------------------
112,000 AT&T Corp. 5,628,000
------------------------------------------------------------------------------------------
95,000 Bell Atlantic Corp. 4,726,250
------------------------------------------------------------------------------------------
100,000 BellSouth Corp. 5,412,500
------------------------------------------------------------------------------------------
100,000 Century Telephone Enterprise, Inc. 2,950,000
------------------------------------------------------------------------------------------
95,400 Cincinnati Bell, Inc. 1,597,950
------------------------------------------------------------------------------------------
30,000 GTE Corp. 911,250
------------------------------------------------------------------------------------------
15,000 Grupo Iusacell S.A. de C.V.-ADR Series L(a) 279,375
------------------------------------------------------------------------------------------
51,000 Hong Kong Telecom Ltd.-ADR 975,375
------------------------------------------------------------------------------------------
18,700 PT Indosat-ADR(a) 668,525
------------------------------------------------------------------------------------------
85,100 Rochester Telephone Corp. 1,797,739
------------------------------------------------------------------------------------------
</TABLE>
F-113
<PAGE> 332
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
TELEPHONE-(continued)
74,100 Royal PTT Nederland N.V.-ADR(b) (Acquired 06/13/94; cost
$1,982,079) $ 2,500,875
------------------------------------------------------------------------------------------
60,000 Southern New England Telecommunications Corp. 1,927,500
------------------------------------------------------------------------------------------
135,000 Southwestern Bell Corp. 5,450,625
------------------------------------------------------------------------------------------
31,700 Sprint Corp. 875,712
------------------------------------------------------------------------------------------
33,600 Tele Danmark A/S-ADR(a) 856,800
------------------------------------------------------------------------------------------
55,000 Telecom Corp. of New Zealand Ltd.-ADR 2,825,625
------------------------------------------------------------------------------------------
383,300 Telecom Italia S.p.A. 997,705
------------------------------------------------------------------------------------------
18,000 Telefonica de Argentina-ADR 954,000
------------------------------------------------------------------------------------------
48,932,918
------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-3.04%
36,200 Nokia Corp.-ADR 2,715,000
------------------------------------------------------------------------------------------
27,020 Telefonaktiebolaget LM Ericsson 1,494,525
------------------------------------------------------------------------------------------
30,280 Telefonaktiebolaget LM Ericsson-ADR 1,669,185
------------------------------------------------------------------------------------------
5,878,710
------------------------------------------------------------------------------------------
WATER SUPPLY-0.85%
130,000 North West Water PLC 1,102,487
------------------------------------------------------------------------------------------
64,600 Yorkshire Water PLC 530,670
------------------------------------------------------------------------------------------
1,633,157
------------------------------------------------------------------------------------------
Total Common Stocks 154,545,995
------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE BONDS-0.46%
BUSINESS SERVICES-0.23%
$ 600,000 IDB Communications Group Inc., Convertible Subordinate Notes,
5.00%, 08/15/03 452,250
------------------------------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.23%
500,000 Network Equipment Technologies, Convertible Subordinate
Debentures, 7.25%, 05/15/14 446,250
------------------------------------------------------------------------------------------
Total Convertible Bonds 898,500
------------------------------------------------------------------------------------------
NON-CONVERTIBLE BONDS-10.39%
ELECTRIC SERVICES-6.03%
1,900,000 Central Power & Light Co., First Mortgage Series Z Bonds,
9.375%, 12/01/19 2,021,448
------------------------------------------------------------------------------------------
3,850,000 Commonwealth Edison Co., First Mortgage Series 74, Bonds,
9.75%, 02/15/20 3,760,834
------------------------------------------------------------------------------------------
2,308,000 Ohio Power Co., First Mortgage Bonds, 9.875%, 08/01/20 2,392,726
------------------------------------------------------------------------------------------
1,750,000 Pennsylvania Power & Light Co., First Mortgage Bonds, 9.25%,
10/01/19 1,770,195
------------------------------------------------------------------------------------------
1,640,000 San Diego Gas & Electric Co., First Mortgage Series JJ Bonds,
9.625%, 04/15/20 1,704,484
------------------------------------------------------------------------------------------
11,649,687
------------------------------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-1.24%
2,425,000 GMAC Step Up Notes, 5.50%, 10/15/02(c) 2,387,267
------------------------------------------------------------------------------------------
</TABLE>
F-114
<PAGE> 333
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
<S> <C> <C>
NATURAL GAS PIPELINE-3.12%
$ 700,000 Centragas, Asset-Backed Notes, 10.65%, 12/01/10(b) (Acquired
12/08/94; cost $698,670) $ 668,500
------------------------------------------------------------------------------------------
3,750,000 Enron Corp., Senior Subordinate Debentures, 6.75%, 07/01/05 3,248,062
------------------------------------------------------------------------------------------
6,019,470
------------------------------------------------------------------------------------------
Total Non-Convertible Bonds 20,056,424
------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS-8.30%(d)
16,017,167 Daiwa Securities America Inc., 3.50%, 01/03/95(e) 16,017,167
------------------------------------------------------------------------------------------
Total Repurchase Agreements 16,017,167
------------------------------------------------------------------------------------------
U.S. TREASURY SECURITIES-2.48%
2,400,000 U.S. Treasury Notes, 7.50%, 12/31/96 2,391,384
------------------------------------------------------------------------------------------
2,500,000 U.S. Treasury Notes, 7.25%, 08/15/04 2,399,600
------------------------------------------------------------------------------------------
Total U.S. Treasury Securities 4,790,984
------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES -- 101.67% 196,309,070
------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -- (1.67)% (3,225,969)
------------------------------------------------------------------------------------------
NET ASSETS -- 100.00% $193,083,101
==========================================================================================
</TABLE>
Notes to Schedule of Investments
(a) Non-income producing security.
(b) Restricted securities. May be resold to
qualified institutional buyers in accordance
with the provisions of Rule 144A under the
Securities Act of 1933, as amended. The
valuation of these securities has been
determined in accordance with procedures
established by the Board of Trustees. The
aggregate market value of these securities at
December 31, 1994, was $3,169,375, which
represented 1.64% of net assets.
(c) Rate shown is the rate in effect on December 31,
1994. Interest rate steps up to 9.00% effective
October 15, 1995.
(d) Collateral on repurchase agreements, including
the Fund's pro-rata interest in joint repurchase
agreements, is taken into possession by the Fund
upon entering into the repurchase agreement. The
collateral is marked to market daily to ensure
its market value as being 102 percent of the
sales price of the repurchase agreement.
(e) Joint repurchase agreement entered into 12/30/94
with a maturing value of $391,353,115.
Collateralized by $426,987,000. U.S. Treasury
obligations, 4.75% to 9.25% due 01/15/96 to
11/15/24. The aggregate market value of the
collateral at 12/31/94 was $399,025,510. The
Fund's pro-rata interest in the collateral at
12/31/94 was $16,337,531.
See Notes to Financial Statements.
F-115
<PAGE> 334
FINANCIALS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $200,354,522) $196,309,070
- ---------------------------------------------------------------------------------------
Foreign currencies (cost $1,707,857) 1,680,306
- ---------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 364,152
- ---------------------------------------------------------------------------------------
Dividends and interest 1,349,895
- ---------------------------------------------------------------------------------------
Investment for deferred compensation plan 4,652
- ---------------------------------------------------------------------------------------
Other assets 12,213
- ---------------------------------------------------------------------------------------
Total assets 199,720,288
- ---------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 5,850,938
- ---------------------------------------------------------------------------------------
Fund shares reacquired 332,369
- ---------------------------------------------------------------------------------------
Dividends 131,806
- ---------------------------------------------------------------------------------------
Deferred compensation 4,652
- ---------------------------------------------------------------------------------------
Accrued advisory fees 99,374
- ---------------------------------------------------------------------------------------
Accrued administrative service fees 4,847
- ---------------------------------------------------------------------------------------
Accrued distribution fees 135,647
- ---------------------------------------------------------------------------------------
Accrued trustees' fees 1,560
- ---------------------------------------------------------------------------------------
Accrued operating expenses 75,994
- ---------------------------------------------------------------------------------------
Total liabilities 6,637,187
- ---------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $193,083,101
=======================================================================================
NET ASSETS:
Class A $150,515,390
=======================================================================================
Class B $ 42,567,711
=======================================================================================
SHARES OUTSTANDING, $.01 PAR VALUE PER SHARE:
Class A 12,704,167
=======================================================================================
Class B 3,594,239
=======================================================================================
CLASS A:
Net asset value and redemption price per share $ 11.85
=======================================================================================
Offering price per share:
(Net asset value of $11.85 divided by 94.50%) $ 12.54
=======================================================================================
CLASS B:
Net asset value and offering price per share $ 11.84
=======================================================================================
</TABLE>
See Notes to Financial Statements.
F-116
<PAGE> 335
FINANCIALS
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 9,864,035
- ---------------------------------------------------------------------------------------
Interest 2,146,005
- ---------------------------------------------------------------------------------------
Total investment income 12,010,040
- ---------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,226,429
- ---------------------------------------------------------------------------------------
Administrative service fees 171,972
- ---------------------------------------------------------------------------------------
Custodian fees 42,566
- ---------------------------------------------------------------------------------------
Trustees' fees 6,718
- ---------------------------------------------------------------------------------------
Distribution fees-Class A 422,862
- ---------------------------------------------------------------------------------------
Distribution fees-Class B 361,395
- ---------------------------------------------------------------------------------------
Transfer agent fees-Class A 219,564
- ---------------------------------------------------------------------------------------
Transfer agent fees-Class B 83,494
- ---------------------------------------------------------------------------------------
Other 209,139
- ---------------------------------------------------------------------------------------
Total expenses 2,744,139
- ---------------------------------------------------------------------------------------
Net investment income 9,265,901
- ---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) on sales of investment securities (19,970,200)
- ---------------------------------------------------------------------------------------
Net realized gain on foreign currencies 35,148
- ---------------------------------------------------------------------------------------
(19,935,052)
- ---------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment securities (15,909,298)
- ---------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of foreign currencies (27,225)
- ---------------------------------------------------------------------------------------
(15,936,523)
- ---------------------------------------------------------------------------------------
Net gain (loss) on investment securities and foreign currencies (35,871,575)
- ---------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(26,605,674)
=======================================================================================
</TABLE>
See Notes to Financial Statements.
F-117
<PAGE> 336
FINANCIALS
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
OPERATIONS:
Net investment income $ 9,265,901 $ 6,717,453
- ------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities and foreign currencies (19,935,052) 3,166,560
- ------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities and foreign currencies (15,936,523) 3,639,243
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (26,605,674) 13,523,256
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net investment
income:
- ------------------------------------------------------------------------------------------
Class A (8,024,593) (6,615,512)
- ------------------------------------------------------------------------------------------
Class B (1,429,850) (129,289)
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
- ------------------------------------------------------------------------------------------
Class A -- (2,735,517)
- ------------------------------------------------------------------------------------------
Class B -- (285,403)
- ------------------------------------------------------------------------------------------
Distributions to shareholders in excess of net realized
gains on investment securities:
- ------------------------------------------------------------------------------------------
Class A -- (506,735)
- ------------------------------------------------------------------------------------------
Class B -- (52,869)
- ------------------------------------------------------------------------------------------
Returns of capital:
Class A (407,762) --
- ------------------------------------------------------------------------------------------
Class B (72,656) --
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A (18,722,360) 84,157,474
- ------------------------------------------------------------------------------------------
Class B 24,437,899 24,781,256
- ------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (30,824,996) 112,136,661
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 223,908,097 111,771,436
- ------------------------------------------------------------------------------------------
End of period $193,083,101 $223,908,097
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $217,650,435 $212,415,314
- ------------------------------------------------------------------------------------------
Undistributed net investment income -- 188,542
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities and foreign currencies (20,494,656) (559,604)
- ------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities and foreign currencies (4,072,678) 11,863,845
- ------------------------------------------------------------------------------------------
$193,083,101 $223,908,097
==========================================================================================
</TABLE>
See Notes to Financial Statements.
F-118
<PAGE> 337
FINANCIALS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Utilities Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of nine separate series portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers two different classes of shares: the Class A shares and the
Class B shares. Class A shares are sold with a front-end sales charge. Class B
shares are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. Security Valuations-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. 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. Non-convertible bonds
and notes are valued on the basis of prices provided by an independent
pricing service. Prices provided by the pricing service may be determined
without exclusive reliance on quoted prices, and may reflect appropriate
factors such as institution-size trading in similar groups of securities,
developments related to special securities, yield, quality, coupon rate,
maturity, type of issue, individual trading characteristics and other market
data. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision
of the Trust's officers in a manner specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income is recorded on the
ex-dividend date. It is the policy of the Fund to declare daily dividends
from net investment income. Such dividends are paid monthly. Distributions
from net realized capital gains, if any, are recorded on ex-dividend date and
are paid annually. On December 31, 1994, $480,418 was reclassified from
undistributed net investment income to paid-in capital as a result of a
permanent book/tax difference. Net assets of the Fund were unaffected by the
reclassification discussed above.
C. Foreign Currency Translation-Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amount at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
D. Foreign Currency Contracts-A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward contract to attempt to minimize the
risk to the Fund from adverse changes in the relationship between currencies.
The Fund may also enter into a forward contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of that security. The Fund could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
E. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements. The Fund has a capital loss carryforward of
$17,997,616 (which may be carried forward to offset future taxable capital
gains/losses) which expires, if not previously utilized, in the year 2002.
F-119
<PAGE> 338
FINANCIALS
F. Expenses-Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g. advisory fees, are allocated between them. Expenses of the
Trust which are not directly attributable to the operations of any class of
shares or portfolio of the Trust are prorated among the classes to which the
expense relates based upon the relative net assets of each class.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.60% of
the first $200 million of the Fund's average daily net assets, plus 0.50% of the
Fund's average daily net assets in excess of $200 million to and including $500
million, plus 0.40% of the Fund's average daily net assets in excess of $500
million to and including $1 billion, plus 0.30% of the Fund's average daily net
assets in excess of $1 billion. This agreement requires AIM to reduce its fees
or, if necessary, make payments to the Fund to the extent required to satisfy
any expense limitations imposed by the securities laws or regulations thereunder
of any state in which the Fund's shares are qualified for sale.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting and shareholder services to the Fund. During the year ended December
31, 1994, AIM was reimbursed $171,972 for such services. Effective November 1,
1994, A I M Fund Services, Inc. ("AFS") became the transfer agent for the Fund
and was paid $37,607 for such services during the two months ended December 31,
1994.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares (the
"Class B Plan")(collectively, the "Plans"). The Fund, pursuant to the Class A
Plan, pays AIM Distributors compensation at an annual rate of 0.25% of the
average daily net assets attributable to the Class A shares. The Class A Plan is
designed to compensate AIM Distributors for certain promotional and other sales
related costs, and to implement a program which provides periodic payments to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class A shares of
the Fund. The Fund, pursuant to the Class B Plan, pays AIM Distributors
compensation at an annual rate of 1.00% of the average daily net assets
attributable to the Class B shares. Of this amount, the Fund may pay a service
fee of 0.25% of the average daily net assets of the Class B shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own Class B shares of the Fund. Any
amounts not paid as a service fee under such Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the year ended December 31, 1994 the Class A shares and the
Class B shares paid AIM Distributors $422,862 and $361,395, respectively, as
compensation under the Plans.
AIM Distributors received commissions of $168,696 from sales of the Class A
shares of the Fund during the year ended December 31, 1994. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 1994,
AIM Distributors received $107,127 in contingent deferred sales charges imposed
on redemptions of Class B shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1994, the Fund paid legal fees of $1,638
for services rendered by Reid & Priest as counsel to the Board of Trustees.
Effective September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was
appointed as counsel to the Board of Trustees. The Fund paid legal fees of $239
for services rendered by that firm as counsel. A member of that firm is a
trustee of the Trust.
NOTE 3-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of the Trust. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
F-120
<PAGE> 339
FINANCIALS
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1994 was
$200,643,831 and $198,494,836, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1994 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 8,336,332
- ----------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (12,856,622)
- ----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities $ (4,520,290)
==================================================================================
</TABLE>
Cost of investments for tax purposes is $200,829,360.
NOTE 5-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
1994 1993
-------------------------- -------------------------
SHARES VALUE SHARES VALUE
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 4,097,001 $52,451,904 7,370,300 $107,023,142
- -------------------------------------------------------------------------------------
Class B* 2,720,021 34,681,563 1,713,157 25,037,131
- -------------------------------------------------------------------------------------
Issued as reinvestment of
dividends:
Class A 572,553 7,178,342 605,159 8,583,529
- -------------------------------------------------------------------------------------
Class B* 99,414 1,232,102 27,040 377,908
- -------------------------------------------------------------------------------------
Reacquired:
Class A (6,158,134) (78,352,606) (2,182,321) (31,449,197)
- -------------------------------------------------------------------------------------
Class B* (921,686) (11,475,766) (43,707) (633,783)
- -------------------------------------------------------------------------------------
409,169 $ 5,715,539 7,489,628 $108,938,730
=====================================================================================
</TABLE>
* Sales of Class B shares commenced on September 1, 1993.
F-121
<PAGE> 340
FINANCIALS
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a Class A share
outstanding during each of the years in the six-year period ended December 31,
1994 and the period January 18, 1988 (date operations commenced) through
December 31, 1988 and for a Class B share outstanding during the year ended
December 31, 1994 and the period September 1, 1993 (date sales commenced)
through December 31, 1993.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------------------- -------------------
1994 1993 1992(a) 1991 1990 1989 1988 1994 1993
- ---------------------- -------- -------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 14.09 $ 13.31 $ 13.75 $ 12.45 $ 13.73 $ 10.99 $ 10.00 $ 14.08 $ 15.30
- ---------------------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income 0.59 0.60 0.67 0.70 0.66 0.77 0.82 0.47 0.17
- ---------------------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Net gains (losses)
on securities
(both realized and
unrealized) (2.20) 1.02 0.36 2.12 (1.10) 3.06 0.83 (2.19) (0.98)
- ---------------------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Total from
investment
operations (1.61) 1.62 1.03 2.82 (0.44) 3.83 1.65 (1.72) (0.81)
- ---------------------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.60) (0.61) (0.68) (0.66) (0.70) (0.69) (0.66) (0.49) (0.17)
- ---------------------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Distributions from
net realized
capital gains -- (0.23) (0.79) (0.86) (0.14) (0.40) -- -- (0.24)
- ---------------------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Returns of capital (0.03) -- -- -- -- -- -- (0.03) --
- ---------------------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Total
distributions (0.63) (0.84) (1.47) (1.52) (0.84) (1.09) (0.66) (0.52) (0.41)
- ---------------------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Net asset value, end
of period $ 11.85 $ 14.09 $ 13.31 $ 13.75 $ 12.45 $ 13.73 $ 10.99 $ 11.84 $ 14.08
====================== ======== ======== ======== ======= ======= ======= ======= ======= =======
Total return(b) (11.57)% 12.32% 7.92% 23.65% (2.98)% 36.11% 17.03% (12.35)% (5.32)%
====================== ======== ======== ======== ======= ======= ======= ======= ======= =======
Ratios/supplemental
data:
Net assets, end of
period (000s
omitted) $150,515 $200,016 $111,771 $91,939 $69,541 $58,307 $20,104 $42,568 $23,892
====================== ======== ======== ======== ======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets 1.18%(c) 1.16% 1.17% 1.23% 1.21%(d) 1.05%(d) 1.22%(d)(f) 2.07%(c) 1.99%(f)
====================== ======== ======== ======== ======= ======= ======= ======= ======= =======
Ratio of net
investment income to
average net assets 4.67%(c) 4.21% 4.96% 5.36% 5.21%(e) 6.13%(e) 7.63%(e)(f) 3.78%(c) 3.38%(f)
====================== ======== ======== ======== ======= ======= ======= ======= ======= =======
Portfolio turnover
rate 101% 76% 148% 169% 123% 115% 87% 101% 76%
====================== ======== ======== ======== ======= ======= ======= ======= ======= =======
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Total returns do not deduct sales charges and for periods less than one year
are not annualized.
(c) Ratios for Class A are based on average daily net assets of $169,146,295.
Ratios for Class B are based on average daily net assets of $36,139,508.
(d) Ratios of expenses to average net assets prior to reduction of advisory fees
were 1.22%, 1.11% and 1.69% (annualized) for 1990-88, respectively.
(e) Ratios of net investment income to average net assets prior to reduction of
advisory fees were 5.20%, 6.07% and 7.16% (annualized) for 1990-88,
respectively.
(f) Annualized.
NOTE 7-SUBSEQUENT EVENT
Effective May 1, 1995, the Fund will change its name to "AIM Global Utilities
Fund". The Fund may invest up to 80% of its total assets in foreign securities
and will maintain investments in at least four countries, one of which will be
the United States.
F-122
<PAGE> 341
AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
AIM Value Fund:
We have audited the accompanying statement of assets and liabilities of the AIM
Value Fund (a portfolio of AIM Funds Group), including the schedule of
investments, as of December 31, 1994, and the related statements of operations
for the year then ended, and the changes in its net assets and financial
highlights for each of the years in the two-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Value Fund as of December 31, 1994, the results of its operations for the year
then ended, the changes in its net assets and the financial highlights for each
of the years in the two-year period then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
February 3, 1995
F-123
<PAGE> 342
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 1994
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
COMMON STOCKS-65.39%
ADVERTISING/BROADCASTING-0.26%
200,000 Heritage Media Corp.(a) $ 5,375,000
- -----------------------------------------------------------------------------------------
AEROSPACE/DEFENSE-0.21%
100,000 Northrop Grumman Corp. 4,200,000
- -----------------------------------------------------------------------------------------
AIRLINES-0.23%
300,000 Northwest Airlines Corp.(a) 4,725,000
- -----------------------------------------------------------------------------------------
APPLIANCES-1.44%
350,000 Premark International Inc. 15,312,500
- -----------------------------------------------------------------------------------------
471,000 Singer Company N.V. (The) 14,071,125
- -----------------------------------------------------------------------------------------
29,383,625
- -----------------------------------------------------------------------------------------
AUTOMOBILE (MANUFACTURING)-2.33%
1,700,000 Ford Motor Co. 47,600,000
- -----------------------------------------------------------------------------------------
AUTO/TRUCKS-PARTS & TIRES-1.06%
500,000 Borg-Warner Automotive 12,562,500
- -----------------------------------------------------------------------------------------
180,000 Eaton Corp. 8,910,000
- -----------------------------------------------------------------------------------------
21,472,500
- -----------------------------------------------------------------------------------------
BANKING-0.71%
500,000 Bank of New York Co., Inc. 14,500,000
- -----------------------------------------------------------------------------------------
BEVERAGES-1.33%
800,000 Coca-Cola Enterprises Inc. 14,300,000
- -----------------------------------------------------------------------------------------
400,000 Dr. Pepper/Seven-Up Companies, Inc.(a) 10,250,000
- -----------------------------------------------------------------------------------------
220,000 Robert Mondavi Corp.-Class A(a) 2,530,000
- -----------------------------------------------------------------------------------------
27,080,000
- -----------------------------------------------------------------------------------------
BUILDING MATERIALS-0.27%
18,100 Armstrong World Industries, Inc. 696,850
- -----------------------------------------------------------------------------------------
19,600 Medusa Corp. 480,200
- -----------------------------------------------------------------------------------------
137,800 Owens-Corning Fiberglass Corp.(a) 4,409,600
- -----------------------------------------------------------------------------------------
5,586,650
- -----------------------------------------------------------------------------------------
CHEMICALS-1.90%
102,800 Dow Chemical Co. 6,913,300
- -----------------------------------------------------------------------------------------
200,000 Geon Co. 5,475,000
- -----------------------------------------------------------------------------------------
200,000 PPG Industries, Inc. 7,425,000
- -----------------------------------------------------------------------------------------
544,600 Sterling Chemicals, Inc.(a) 7,147,875
- -----------------------------------------------------------------------------------------
200,000 Terra Industries, Inc. 2,075,000
- -----------------------------------------------------------------------------------------
330,000 Union Carbide Corp. 9,693,750
- -----------------------------------------------------------------------------------------
38,729,925
- -----------------------------------------------------------------------------------------
</TABLE>
F-124
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FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
CHEMICALS (SPECIALTY)-1.72%
100,000 Arco Chemical Co. $ 4,400,000
- -----------------------------------------------------------------------------------------
150,000 Cytec Industries Inc.(a) 5,850,000
- -----------------------------------------------------------------------------------------
282,500 IMC Global, Inc. 12,218,125
- -----------------------------------------------------------------------------------------
270,000 OM Group Inc. 6,480,000
- -----------------------------------------------------------------------------------------
300,000 Praxair, Inc. 6,150,000
- -----------------------------------------------------------------------------------------
35,098,125
- -----------------------------------------------------------------------------------------
COMPUTER MAINFRAMES-2.55%
600,000 Amdahl Corp.(a) 6,600,000
- -----------------------------------------------------------------------------------------
550,000 International Business Machines Corp. 40,425,000
- -----------------------------------------------------------------------------------------
250,000 Sequent Computer Systems, Inc.(a) 4,937,500
- -----------------------------------------------------------------------------------------
51,962,500
- -----------------------------------------------------------------------------------------
COMPUTER MINIS/PCS-4.99%
260,000 Apple Computer, Inc.(a) 10,140,000
- -----------------------------------------------------------------------------------------
1,300,000 COMPAQ Computer Corp.(a) 51,350,000
- -----------------------------------------------------------------------------------------
200,000 Dell Computer Corp.(a) 8,200,000
- -----------------------------------------------------------------------------------------
193,600 Gateway 2000, Inc.(a) 4,186,600
- -----------------------------------------------------------------------------------------
100,000 Hewlett-Packard Co. 9,987,500
- -----------------------------------------------------------------------------------------
500,000 Sun Microsystems, Inc.(a) 17,750,000
- -----------------------------------------------------------------------------------------
101,614,100
- -----------------------------------------------------------------------------------------
COMPUTER NETWORKING-1.56%
400,000 Belden Inc. 8,900,000
- -----------------------------------------------------------------------------------------
300,000 Cisco Systems, Inc.(a) 10,537,500
- -----------------------------------------------------------------------------------------
287,800 Comverse Technology, Inc. 3,417,625
- -----------------------------------------------------------------------------------------
500,000 Madge N.V.(a) 5,906,250
- -----------------------------------------------------------------------------------------
100,000 Standard Microsystems Corp.(a) 3,000,000
- -----------------------------------------------------------------------------------------
31,761,375
- -----------------------------------------------------------------------------------------
COMPUTER PERIPHERALS-2.93%
350,000 EMC Corp. 7,568,750
- -----------------------------------------------------------------------------------------
250,000 Komag, Inc.(a) 6,531,250
- -----------------------------------------------------------------------------------------
300,000 Read-Rite Corp.-Class A(a) 5,568,750
- -----------------------------------------------------------------------------------------
400,000 Seagate Technology(a) 9,600,000
- -----------------------------------------------------------------------------------------
217,300 Storage Technology Corp.(a) 6,301,700
- -----------------------------------------------------------------------------------------
325,000 U.S. Robotics, Inc.(a) 14,056,250
- -----------------------------------------------------------------------------------------
600,000 Western Digital Corp.(a) 10,050,000
- -----------------------------------------------------------------------------------------
59,676,700
- -----------------------------------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-2.56%
248,600 Ameridata Technologies, Inc.(a) 2,486,000
- -----------------------------------------------------------------------------------------
149,000 Bay Networks, Inc.(a) 4,395,500
- -----------------------------------------------------------------------------------------
150,000 Ceridian Corp.(a) 4,031,250
- -----------------------------------------------------------------------------------------
200,000 Computer Associates International, Inc. 9,700,000
- -----------------------------------------------------------------------------------------
200,000 Electronics for Imaging, Inc.(a) 5,500,000
- -----------------------------------------------------------------------------------------
16,000 National Data Corp. 412,000
- -----------------------------------------------------------------------------------------
</TABLE>
F-125
<PAGE> 344
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(continued)
400,000 Network General Corp.(a) $ 10,275,000
- -----------------------------------------------------------------------------------------
100,000 Silicon Graphics Inc.(a) 3,087,500
- -----------------------------------------------------------------------------------------
200,000 Sterling Software, Inc.(a) 7,350,000
- -----------------------------------------------------------------------------------------
317,700 S3, Inc.(a) 5,003,775
- -----------------------------------------------------------------------------------------
52,241,025
- -----------------------------------------------------------------------------------------
CONGLOMERATES-0.98%
180,000 Allied Products Corp.(a) 2,587,500
- -----------------------------------------------------------------------------------------
450,000 Corning, Inc. 13,443,750
- -----------------------------------------------------------------------------------------
84,165 Tyco Laboratories, Inc. 3,997,825
- -----------------------------------------------------------------------------------------
20,029,075
- -----------------------------------------------------------------------------------------
CONTAINERS-0.59%
180,000 Crown Cork & Seal Co., Inc.(a) 6,795,000
- -----------------------------------------------------------------------------------------
188,700 Stone Container Corp.(a) 3,255,075
- -----------------------------------------------------------------------------------------
100,000 U.S. Can Corp.(a) 1,900,000
- -----------------------------------------------------------------------------------------
11,950,075
- -----------------------------------------------------------------------------------------
COSMETICS AND TOILETRIES-0.00%
900 Helene Curtis Industries, Inc. 30,037
- -----------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS/MISC.-3.05%
293,900 Harman International Industries, Inc. 10,874,300
- -----------------------------------------------------------------------------------------
600,000 Itel Corp.(a) 20,775,000
- -----------------------------------------------------------------------------------------
200,000 Oak Industries, Inc.(a) 4,575,000
- -----------------------------------------------------------------------------------------
300,000 Raychem Corporation 10,687,500
- -----------------------------------------------------------------------------------------
50,000 Tektronix, Inc. 1,712,500
- -----------------------------------------------------------------------------------------
400,000 Teradyne Inc.(a) 13,550,000
- -----------------------------------------------------------------------------------------
62,174,300
- -----------------------------------------------------------------------------------------
ELECTRONIC/PC DISTRIBUTORS-1.54%
500,000 Arrow Electronics, Inc.(a) 17,937,500
- -----------------------------------------------------------------------------------------
282,300 Avnet, Inc. 10,445,100
- -----------------------------------------------------------------------------------------
150,000 Wyle Laboratories 2,925,000
- -----------------------------------------------------------------------------------------
31,307,600
- -----------------------------------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.18%
80,000 XTRA Corp. 3,600,000
- -----------------------------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-3.00%
300,000 ADVANTA Corp.-Class A 7,575,000
- -----------------------------------------------------------------------------------------
50,000 ADVANTA Corp.-Class B 1,312,500
- -----------------------------------------------------------------------------------------
150,000 CMAC Investment Corp. 4,331,250
- -----------------------------------------------------------------------------------------
58,300 Federal Home Loan Mortgage Corp. 2,944,150
- -----------------------------------------------------------------------------------------
400,000 First USA, Inc. 13,150,000
- -----------------------------------------------------------------------------------------
90,000 Foothill Group, Inc. (The) 1,350,000
- -----------------------------------------------------------------------------------------
160,000 Green Tree Financial Corp. 4,860,000
- -----------------------------------------------------------------------------------------
250,000 Household International, Inc. 9,281,250
- -----------------------------------------------------------------------------------------
700,000 MBNA Corp. 16,362,500
- -----------------------------------------------------------------------------------------
61,166,650
- -----------------------------------------------------------------------------------------
</TABLE>
F-126
<PAGE> 345
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
FINANCE-SAVINGS & LOAN-0.05%
66,000 First Financial Holdings, Inc. $ 1,056,000
- -----------------------------------------------------------------------------------------
FOOD/PROCESSING-0.66%
400,000 Hudson Foods, Inc.-Class A 10,050,000
- -----------------------------------------------------------------------------------------
144,600 International Multifoods Corp. 2,657,025
- -----------------------------------------------------------------------------------------
37,700 Ralcorp Holdings, Inc.(a) 838,825
- -----------------------------------------------------------------------------------------
13,545,850
- -----------------------------------------------------------------------------------------
GAMING-0.36%
360,000 Mirage Resort, Inc.(a) 7,380,000
- -----------------------------------------------------------------------------------------
HOMEBUILDING-0.13%
225,300 Beazer Homes USA Inc.(a) 2,619,113
- -----------------------------------------------------------------------------------------
14 Clayton Homes, Inc. 220
- -----------------------------------------------------------------------------------------
2,619,333
- -----------------------------------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-0.38%
175,000 St. Paul Companies, Inc. 7,831,250
- -----------------------------------------------------------------------------------------
MACHINE TOOLS-0.22%
180,000 Applied Power Inc. 4,567,500
- -----------------------------------------------------------------------------------------
MACHINERY-HEAVY-0.97%
500,000 Case Corp. 10,750,000
- -----------------------------------------------------------------------------------------
150,000 Caterpillar Inc. 8,268,750
- -----------------------------------------------------------------------------------------
41,100 Commercial Intertech Corp. 765,488
- -----------------------------------------------------------------------------------------
19,784,238
- -----------------------------------------------------------------------------------------
MEDICAL SERVICES-4.37%
300,000 Abbey Healthcare Group, Inc.(a) 6,975,000
- -----------------------------------------------------------------------------------------
122,900 Charter Medical Corp.(a) 2,642,350
- -----------------------------------------------------------------------------------------
200,000 Columbia Healthcare Corp. 7,300,000
- -----------------------------------------------------------------------------------------
112,500 Community Health Systems, Inc.(a) 3,065,625
- -----------------------------------------------------------------------------------------
200,000 Foundation Health Corp.(a) 6,200,000
- -----------------------------------------------------------------------------------------
200,000 Health Care and Retirement Corp.(a) 6,025,000
- -----------------------------------------------------------------------------------------
100,000 Healthcare Compare Corp.(a) 3,412,500
- -----------------------------------------------------------------------------------------
200,000 Health Systems International Inc.-Class A(a) 6,075,000
- -----------------------------------------------------------------------------------------
350,000 Healthtrust, Inc.-The Hospital Co.(a) 11,112,500
- -----------------------------------------------------------------------------------------
200,600 Humana Inc.(a) 4,538,575
- -----------------------------------------------------------------------------------------
100,000 Living Centers of America(a) 3,337,500
- -----------------------------------------------------------------------------------------
113,900 Mid-Atlantic Medical Services, Inc.(a) 2,605,463
- -----------------------------------------------------------------------------------------
190,000 Orthofix International N.V.(a) 2,185,000
- -----------------------------------------------------------------------------------------
97,700 Sierra Health Services, Inc.(a) 3,089,763
- -----------------------------------------------------------------------------------------
325,000 U.S. Healthcare, Inc. 13,406,250
- -----------------------------------------------------------------------------------------
200,000 United Wisconsin Services, Inc. 7,175,000
- -----------------------------------------------------------------------------------------
89,145,526
- -----------------------------------------------------------------------------------------
MEDICAL (DRUGS)-0.51%
501,800 Bergen Brunswig Corp. 10,475,075
- -----------------------------------------------------------------------------------------
</TABLE>
F-127
<PAGE> 346
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
METALS-1.68%
250,000 Alcan Aluminum Ltd. $ 6,343,750
- -----------------------------------------------------------------------------------------
200,000 Alumax, Inc.(a) 5,675,000
- -----------------------------------------------------------------------------------------
122,600 Mueller Industries, Inc.(a) 3,662,675
- -----------------------------------------------------------------------------------------
425,000 Olympic Steel, Inc.(a) 4,462,500
- -----------------------------------------------------------------------------------------
400,000 Timken Co. (The) 14,100,000
- -----------------------------------------------------------------------------------------
34,243,925
- -----------------------------------------------------------------------------------------
MINING-0.12%
200,000 Zeigler Coal Holdings Co. 2,350,000
- -----------------------------------------------------------------------------------------
NATURAL GAS PIPELINE-0.22%
175,000 Coastal Corp. 4,506,250
- -----------------------------------------------------------------------------------------
OFFICE AUTOMATION-0.73%
150,000 Xerox Corp. 14,850,000
- -----------------------------------------------------------------------------------------
OFFICE PRODUCTS-0.12%
100,000 Reynolds & Reynolds Co. 2,500,000
- -----------------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS-1.82%
68,400 Boise Cascade Corp. 1,829,700
- -----------------------------------------------------------------------------------------
250,000 Champion International Corp. 9,125,000
- -----------------------------------------------------------------------------------------
200,000 Federal Paper Board Co., Inc. 5,800,000
- -----------------------------------------------------------------------------------------
150,000 Georgia-Pacific Corp. 10,725,000
- -----------------------------------------------------------------------------------------
200,000 Mead Corp. (The) 9,725,000
- -----------------------------------------------------------------------------------------
37,204,700
- -----------------------------------------------------------------------------------------
POLLUTION CONTROL-0.25%
888,700 Allwaste, Inc.(a) 4,998,937
- -----------------------------------------------------------------------------------------
PUBLISHING-0.72%
250,000 American Publishing Co. 2,750,000
- -----------------------------------------------------------------------------------------
100,000 Central Newspapers, Inc. 2,812,500
- -----------------------------------------------------------------------------------------
300,000 Scripps (E.W.) Co. 9,075,000
- -----------------------------------------------------------------------------------------
14,637,500
- -----------------------------------------------------------------------------------------
REAL ESTATE-0.09%
100,000 Del Webb Corp. 1,762,500
- -----------------------------------------------------------------------------------------
RETAIL-FOOD AND DRUG-0.82%
250,000 Eckerd Corp.(a) 7,468,750
- -----------------------------------------------------------------------------------------
150,000 Revco D.S., Inc.(a) 3,543,750
- -----------------------------------------------------------------------------------------
180,000 Safeway Inc.(a) 5,737,500
- -----------------------------------------------------------------------------------------
16,750,000
- -----------------------------------------------------------------------------------------
RETAIL-STORES-2.20%
118,700 Caldor Corp. (The)(a) 2,641,075
- -----------------------------------------------------------------------------------------
400,000 Carson Pirie Scott & Co.(a) 7,600,000
- -----------------------------------------------------------------------------------------
200,000 Dayton-Hudson Corp. 14,150,000
- -----------------------------------------------------------------------------------------
460,000 Federated Department Stores, Inc.(a) 8,855,000
- -----------------------------------------------------------------------------------------
108,100 Mac Frugals Bargains Close-Outs, Inc.(a) 2,162,000
- -----------------------------------------------------------------------------------------
</TABLE>
F-128
<PAGE> 347
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
RETAIL-STORES-(continued)
50,000 Maxim Group, Inc.(a) $ 631,250
- -----------------------------------------------------------------------------------------
500,000 Waban Inc.(a) 8,875,000
- -----------------------------------------------------------------------------------------
44,914,325
- -----------------------------------------------------------------------------------------
SEMICONDUCTORS-7.93%
400,000 Analog Devices, Inc.(a) 14,050,000
- -----------------------------------------------------------------------------------------
300,000 Cypress Semiconductor Corp.(a) 6,937,500
- -----------------------------------------------------------------------------------------
270,000 Exar Corp.(a) 6,615,000
- -----------------------------------------------------------------------------------------
200,000 Kemet Corp.(a) 5,925,000
- -----------------------------------------------------------------------------------------
250,000 Lam Research Corp.(a) 9,312,500
- -----------------------------------------------------------------------------------------
150,000 LSI Logic Corp.(a) 6,056,250
- -----------------------------------------------------------------------------------------
340,000 Micron Technology, Inc. 15,002,500
- -----------------------------------------------------------------------------------------
180,000 Motorola, Inc. 10,417,500
- -----------------------------------------------------------------------------------------
500,000 National Semiconductor Corp.(a) 9,750,000
- -----------------------------------------------------------------------------------------
200,000 Quickturn Design Systems, Inc.(a) 2,750,000
- -----------------------------------------------------------------------------------------
1,000,000 Texas Instruments Inc. 74,875,000
- -----------------------------------------------------------------------------------------
161,691,250
- -----------------------------------------------------------------------------------------
SHOES AND RELATED APPAREL-0.19%
97,400 Reebok International, Ltd. 3,847,300
- -----------------------------------------------------------------------------------------
STEEL-0.66%
650,000 LTV Corp.(a) 10,562,500
- -----------------------------------------------------------------------------------------
130,000 Quanex Corp. 2,973,750
- -----------------------------------------------------------------------------------------
13,536,250
- -----------------------------------------------------------------------------------------
TELECOMMUNICATIONS-0.22%
100,000 Airtouch Communications, Inc.(a) 2,912,500
- -----------------------------------------------------------------------------------------
48,000 US Cellular Corp.(a) 1,572,000
- -----------------------------------------------------------------------------------------
4,484,500
- -----------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT-1.18%
450,000 Century Telephone Enterprises, Inc. 13,275,000
- -----------------------------------------------------------------------------------------
300,000 DSC Communications Corp.(a) 10,762,500
- -----------------------------------------------------------------------------------------
24,037,500
- -----------------------------------------------------------------------------------------
TEXTILES-0.31%
200,000 Fieldcrest Cannon, Inc.(a) 5,100,000
- -----------------------------------------------------------------------------------------
100,000 Quaker Fabric Corp.(a) 1,275,000
- -----------------------------------------------------------------------------------------
6,375,000
- -----------------------------------------------------------------------------------------
TOBACCO-1.95%
500,000 Philip Morris Companies, Inc. 28,750,000
- -----------------------------------------------------------------------------------------
2,000,000 RJR Nabisco Holdings Inc.(a) 11,000,000
- -----------------------------------------------------------------------------------------
39,750,000
- -----------------------------------------------------------------------------------------
UTILITIES-1.14%
500,000 Telephone & Data Systems, Inc. 23,062,500
- -----------------------------------------------------------------------------------------
Total Common Stocks 1,333,171,471
- -----------------------------------------------------------------------------------------
</TABLE>
F-129
<PAGE> 348
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
FOREIGN COMMON STOCKS-7.02%
AUSTRALIA-0.29%
181,561 Broken Hill Proprietary Co. Ltd. (Conglomerate) $ 2,756,642
- -----------------------------------------------------------------------------------------
394,161 National Australia Bank Ltd. (Banking) 3,160,378
- -----------------------------------------------------------------------------------------
Total Australia 5,917,020
- -----------------------------------------------------------------------------------------
FINLAND-0.29%
80,000 Nokia Corp. ADR (Telecommunications)(a) 6,000,000
- -----------------------------------------------------------------------------------------
FRANCE-0.79%
18,000 Compagnie de Saint Gobain (Building Materials) 2,069,275
- -----------------------------------------------------------------------------------------
15,200 Docks De France S.A. (Retail-Food and Drug) 1,858,379
- -----------------------------------------------------------------------------------------
4,800 Essilor International-Compagnie Generale d'Optique 660,550
(Medical Services)
- -----------------------------------------------------------------------------------------
1,860 Legrand S.A. (Electronic Components/Misc.) 2,256,657
- -----------------------------------------------------------------------------------------
13,000 LVMH Moet Hennessy Louis Vuitton (Beverages) 2,051,862
- -----------------------------------------------------------------------------------------
7,260 Promodes S.A. (Retail-Stores) 1,351,140
- -----------------------------------------------------------------------------------------
14,000 PSA Peugeot Citroen S.A. (Automobile-Manufacturing)(a) 1,918,742
- -----------------------------------------------------------------------------------------
79,800 Rhone-Poulenc-A (Chemicals) 1,851,192
- -----------------------------------------------------------------------------------------
16,900 Roussel Uclaf (Medical-Drugs) 2,021,924
- -----------------------------------------------------------------------------------------
Total France 16,039,721
- -----------------------------------------------------------------------------------------
GERMANY-0.16%
8,300 Mannesmann A.G. (Machinery-Heavy) 2,260,180
- -----------------------------------------------------------------------------------------
3,150 VEBA A.G. (Electric Services) 1,097,632
- -----------------------------------------------------------------------------------------
Total Germany 3,357,812
- -----------------------------------------------------------------------------------------
HONG KONG-0.55%
700,000 Hutchinson Whampoa Ltd.(Conglomerate) 2,831,664
- -----------------------------------------------------------------------------------------
41,900 Shanghai Petrochemical Co. Ltd.-ADR (Chemicals) 1,209,863
- -----------------------------------------------------------------------------------------
6,200,000 Shanghai Petrochemical Co., Ltd. (Chemicals) 1,762,844
- -----------------------------------------------------------------------------------------
440,000 Sun Hung Kai Properties Ltd. (Real Estate) 2,627,205
- -----------------------------------------------------------------------------------------
700,000 Television Broadcast Ltd. (Advertising/Broadcasting) 2,795,476
- -----------------------------------------------------------------------------------------
Total Hong Kong 11,227,052
- -----------------------------------------------------------------------------------------
ITALY-0.10%
820,000 Societa Italiana Per L'Esercizio delle Telecommunicazioni, 2,134,403
P.A. (Telecommunications)(a)
- -----------------------------------------------------------------------------------------
MALAYSIA-0.29%
337,500 Genting Berhad (Leisure and Recreation) 2,894,557
- -----------------------------------------------------------------------------------------
400,000 Leader Universal Holdings (Electronic Components/Misc.)(a) 1,284,512
- -----------------------------------------------------------------------------------------
272,500 Malayan Banking Berhad (Banking) 1,643,430
- -----------------------------------------------------------------------------------------
Total Malaysia 5,822,499
- -----------------------------------------------------------------------------------------
NETHERLANDS-2.43%
20,000 AKZO N.V. (Conglomerate) 2,308,889
- -----------------------------------------------------------------------------------------
200,000 Elsag Bailey Process Automation N.V. (Electronic 4,925,000
Components)(a)
- -----------------------------------------------------------------------------------------
40,300 Koninklijke Nedlloyd Hoogovens CVA (Steel)(a) 1,829,392
- -----------------------------------------------------------------------------------------
26,000 Oce-Van Der Grinten N.V. (Office Automation) 1,163,777
- -----------------------------------------------------------------------------------------
1,200,000 Philips N.V. ADR (Electronic Components)(a) 35,250,000
- -----------------------------------------------------------------------------------------
</TABLE>
F-130
<PAGE> 349
FINANCIALS
<TABLE>
<CAPTION>
SHARES MARKET VALUE
<S> <C> <C>
NETHERLANDS-(continued)
10,900 Verenigde Nederlandse Utgevbedri Verigd Bezit $ 1,131,505
(Publishing)(a)
- -----------------------------------------------------------------------------------------
40,000 Wolters Kluwer N.V. (Publishing)(a) 2,958,695
- -----------------------------------------------------------------------------------------
Total Netherlands 49,567,258
- -----------------------------------------------------------------------------------------
NEW ZEALAND-0.15%
1,320,000 Fletcher Challenge Ltd. (Paper and Forest Products) 3,101,210
- -----------------------------------------------------------------------------------------
SINGAPORE-0.29%
250,000 Development Bank of Singapore Ltd. (Banking) 2,572,899
- -----------------------------------------------------------------------------------------
400,000 Keppel Corp. Ltd. (Transportation) 3,403,088
- -----------------------------------------------------------------------------------------
Total Singapore 5,975,987
- -----------------------------------------------------------------------------------------
SWEDEN-0.41%
100,000 Astra AB "B" Free (Medical-Drugs) 2,550,265
- -----------------------------------------------------------------------------------------
27,500 Electrolux AB "B" Free (Furniture) 1,395,244
- -----------------------------------------------------------------------------------------
127,000 Sandvik AB (Machine Tools) 2,042,433
- -----------------------------------------------------------------------------------------
118,500 Volvo AB "B" Free (Automobile Manufacturing)(a) 2,232,659
- -----------------------------------------------------------------------------------------
Total Sweden 8,220,601
- -----------------------------------------------------------------------------------------
SWITZERLAND-0.10%
2,350 BBC Brown Boveri Ltd. (Conglomerate)(a) 2,023,263
- -----------------------------------------------------------------------------------------
UNITED KINGDOM-1.17%
268,500 Barclays Bank PLC (Finance-Consumer Credit)(a) 2,566,945
- -----------------------------------------------------------------------------------------
93,400 BOC Group PLC (Chemicals-Specialty) 1,030,309
- -----------------------------------------------------------------------------------------
250,000 BPB Industries PLC (Building Materials) 1,157,879
- -----------------------------------------------------------------------------------------
1,800,000 Burton Group PLC (Retail-Stores) 1,929,275
- -----------------------------------------------------------------------------------------
200,000 Imperial Chemical Industries PLC (Chemicals) 9,300,000
- -----------------------------------------------------------------------------------------
1,100,000 Morrison (Wm.) Supermarkets PLC (Retail-Food and Drug) 2,426,850
- -----------------------------------------------------------------------------------------
126,000 Pearson PLC (Conglomerate) 1,098,139
- -----------------------------------------------------------------------------------------
96,000 Peninsular & Oriental Steam Navigation Co. (The) 916,288
(Transportation)
- -----------------------------------------------------------------------------------------
323,200 Rank Organisation PLC (Leisure and Recreation) 2,113,872
- -----------------------------------------------------------------------------------------
67,420 Thorn EMI PLC (Leisure and Recreation) 1,091,315
- -----------------------------------------------------------------------------------------
Total United Kingdom 23,630,872
- -----------------------------------------------------------------------------------------
Total Foreign Common Stocks 143,017,698
- -----------------------------------------------------------------------------------------
PREFERRED STOCKS-0.56%
OIL AND GAS-0.26%
200,000 Atlantic Richfield Co.-$2.2275 Conv. Pfd. DECS 5,225,000
- -----------------------------------------------------------------------------------------
FINLAND-0.30%
42,000 Nokia Corp., FIM Preferred (Telecommunications) 6,187,420
- -----------------------------------------------------------------------------------------
Total Preferred Stocks 11,412,420
- -----------------------------------------------------------------------------------------
Total Investments (excluding short-term investments) 1,487,601,589
- -----------------------------------------------------------------------------------------
</TABLE>
F-131
<PAGE> 350
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
<S> <C> <C>
U.S. TREASURY SECURITIES-15.73%
U.S. TREASURY BILLS-6.92%(b)
$ 17,000,000 4.94%, 01/12/95 $ 16,983,000
- -----------------------------------------------------------------------------------------
84,000,000 5.29%, 02/16/95 83,496,840
- -----------------------------------------------------------------------------------------
41,000,000 5.40%, 02/23/95 40,703,570
- -----------------------------------------------------------------------------------------
Total U.S. Treasury Bills 141,183,410
- -----------------------------------------------------------------------------------------
U.S. TREASURY NOTES-8.81%
28,000,000 7.75%, 2/15/95 28,074,480
- -----------------------------------------------------------------------------------------
100,000,000 3.875%, 02/28/95 99,750,000
- -----------------------------------------------------------------------------------------
52,000,000 3.875%, 03/31/95 51,813,320
- -----------------------------------------------------------------------------------------
Total U.S. Treasury Notes 179,637,800
- -----------------------------------------------------------------------------------------
Total U.S. Treasury Securities 320,821,210
- -----------------------------------------------------------------------------------------
MASTER NOTE AGREEMENT-3.61%
73,560,000 Morgan (J.P.) & Co. Inc., 6.20% 01/19/95 73,560,000
- -----------------------------------------------------------------------------------------
TIME DEPOSITS-4.02%
82,000,000 State Street Bank & Trust-Cayman, 4.625%, 01/03/95 82,000,000
- -----------------------------------------------------------------------------------------
Total Time Deposits 82,000,000
- -----------------------------------------------------------------------------------------
Total Investments (excluding repurchase agreements) 1,963,982,799
- -----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT-0.51%(d)
10,464,200 Daiwa Securities America Inc., 3.50%, 01/03/95(e) 10,464,200
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS-96.84% 1,974,446,999
- -----------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-3.16% 64,396,822
- -----------------------------------------------------------------------------------------
NET ASSETS-100.00% $2,038,843,821
=========================================================================================
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) U.S. Treasury Bills are traded on a discount basis. In such cases the interest rate
shown represents the rate of discount paid or received at the time of purchase by the
Fund.
(c) Master Note Purchase Agreement may be terminated by either party upon thirty business
days written notice. Interest rates on master notes are redetermined periodically.
Rate shown is the rate in effect on December 31, 1994.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest in joint
repurchase agreements, is taken into possession by the Fund upon entering into the
repurchase agreement. The collateral is marked to market daily to ensure its market
value as being 102% of the sales price of the repurchase agreement.
(e) Joint repurchase agreement entered into 12/30/94 with a maturing value of
$391,353,115. Collateralized by $426,987,000 U.S. Treasury Obligations, 4.75% to
9.25% due 11/15/96 to 11/15/24. The aggregate market value of collateral at 12/31/94
was $399,025,510. The Fund's pro-rata interest in the collateral was $10,673,498.
</TABLE>
See Notes to Financial Statements.
F-132
<PAGE> 351
FINANCIALS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $1,855,034,108) $1,963,982,799
- ----------------------------------------------------------------------------------------
Repurchase agreements (cost $10,464,200) 10,464,200
- ----------------------------------------------------------------------------------------
Foreign currencies, at market value (cost $7,175,989) 7,188,288
- ----------------------------------------------------------------------------------------
Receivables for:
Investments sold 49,207,239
- ----------------------------------------------------------------------------------------
Fund shares sold 19,977,274
- ----------------------------------------------------------------------------------------
Dividends and interest 4,955,196
- ----------------------------------------------------------------------------------------
Investment for deferred compensation plan 12,127
- ----------------------------------------------------------------------------------------
Other assets 67,072
- ----------------------------------------------------------------------------------------
Total assets 2,055,854,195
- ----------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 9,595,836
- ----------------------------------------------------------------------------------------
Fund shares reacquired 2,979,146
- ----------------------------------------------------------------------------------------
Deferred compensation plan 12,127
- ----------------------------------------------------------------------------------------
Variation margin 1,300,000
- ----------------------------------------------------------------------------------------
Accrued advisory fees 1,060,651
- ----------------------------------------------------------------------------------------
Accrued administrative service fees 11,455
- ----------------------------------------------------------------------------------------
Accrued distribution fees 1,367,540
- ----------------------------------------------------------------------------------------
Accrued filing fees 193,304
- ----------------------------------------------------------------------------------------
Accrued transfer agent fees 334,747
- ----------------------------------------------------------------------------------------
Accrued trustees' fees 3,255
- ----------------------------------------------------------------------------------------
Accrued operating expenses 152,313
- ----------------------------------------------------------------------------------------
Total liabilities 17,010,374
- ----------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $2,038,843,821
========================================================================================
NET ASSETS:
Class A $1,358,724,515
========================================================================================
Class B $ 680,119,306
========================================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 64,258,401
========================================================================================
Class B 32,184,017
========================================================================================
CLASS A:
Net asset value and redemption price per share $ 21.14
========================================================================================
Offering price per share:
(Net asset value of $21.14 / 94.50%) $ 22.37
========================================================================================
CLASS B:
Net asset value and offering price per share $ 21.13
========================================================================================
</TABLE>
See Notes to Financial Statements.
F-133
<PAGE> 352
FINANCIALS
STATEMENT OF OPERATIONS
For the year ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 13,264,589
- ---------------------------------------------------------------------------------------
Interest 14,185,438
- ---------------------------------------------------------------------------------------
Total investment income 27,450,027
- ---------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 6,674,684
- ---------------------------------------------------------------------------------------
Custodian fees 298,874
- ---------------------------------------------------------------------------------------
Distribution fees-Class A 2,712,116
- ---------------------------------------------------------------------------------------
Distribution fees-Class B 3,596,079
- ---------------------------------------------------------------------------------------
Administrative service fees 884,123
- ---------------------------------------------------------------------------------------
Trustees' fees 17,321
- ---------------------------------------------------------------------------------------
Professional fees 72,555
- ---------------------------------------------------------------------------------------
Transfer agent fees-Class A 1,395,998
- ---------------------------------------------------------------------------------------
Transfer agent fees-Class B 866,880
- ---------------------------------------------------------------------------------------
Filing fees 344,071
- ---------------------------------------------------------------------------------------
Printing expenses 544,235
- ---------------------------------------------------------------------------------------
Other 101,660
- ---------------------------------------------------------------------------------------
Total expenses 17,508,596
- ---------------------------------------------------------------------------------------
Net investment income 9,941,431
- ---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES, FOREIGN
CURRENCIES, FUTURES AND OPTIONS CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities (2,556,904)
- ---------------------------------------------------------------------------------------
Foreign currencies 81,427
- ---------------------------------------------------------------------------------------
Futures contracts (4,320,231)
- ---------------------------------------------------------------------------------------
Options contracts (7,377,140)
- ---------------------------------------------------------------------------------------
(14,172,848)
- ---------------------------------------------------------------------------------------
Unrealized appreciation of:
Investment securities 32,532,683
- ---------------------------------------------------------------------------------------
Foreign currencies 450,569
- ---------------------------------------------------------------------------------------
Futures contracts 3,874,718
- ---------------------------------------------------------------------------------------
36,857,970
- ---------------------------------------------------------------------------------------
Net gain on investment securities, foreign currencies, futures and
options contracts 22,685,122
- ---------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 32,626,553
=======================================================================================
</TABLE>
See Notes to Financial Statements.
F-134
<PAGE> 353
FINANCIALS
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 9,941,431 $ 1,372,604
- -------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities, foreign currencies, futures and options
contracts (14,172,848) 38,340,252
- -------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, and futures contracts 36,857,970 40,732,910
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 32,626,553 80,445,766
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net investment
income:
Class A (9,726,386) (1,150,611)
- -------------------------------------------------------------------------------------------
Class B -- (42,261)
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains
on investment securities:
Class A (12,282,372) (26,369,362)
- -------------------------------------------------------------------------------------------
Class B (6,028,782) (1,625,610)
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A 585,993,203 474,199,915
- -------------------------------------------------------------------------------------------
Class B 619,742,029 63,398,259
- -------------------------------------------------------------------------------------------
Net increase in net assets 1,210,324,245 588,856,096
- -------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 828,519,576 239,663,480
- -------------------------------------------------------------------------------------------
End of period $2,038,843,821 $828,519,576
===========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,946,314,139 $740,578,907
- -------------------------------------------------------------------------------------------
Undistributed net investment income 243,165 28,120
- -------------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities, foreign currencies, futures and options
contracts (20,565,172) 11,918,830
- -------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, and futures contracts 112,851,689 75,993,719
- -------------------------------------------------------------------------------------------
$2,038,843,821 $828,519,576
===========================================================================================
</TABLE>
See Notes to Financial Statements.
F-135
<PAGE> 354
FINANCIALS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Value Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of nine separate series portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers two different classes of shares: the Class A shares and the
Class B shares. Class A shares are sold with a front-end sales charge. Class B
shares are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. Security Valuations-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. 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 Trust's officers
in a manner specifically authorized by the Board of Trustees. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value.
B. Foreign Currency Translations-Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts-A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward contract to attempt to minimize the
risk to the Fund from adverse changes in the relationship between currencies.
The Fund may also enter into a forward contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of that security. The Fund could be exposed to risk if
counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
D. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
E. Stock Index Futures Contracts-The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contract is open, changes in the value of the
contract are recognized as unrealized gains or losses by "marking to market"
on a daily basis to reflect the market value of the contract at the end of
each day's trading. Variation margin payments are made or received depending
upon whether unrealized gains or losses are incurred. When the contract is
closed, the Fund records a realized gain or loss equal to the difference
between the proceeds from (or cost of) the closing transaction and the Fund's
basis in the contract. Risks include the possibility of an illiquid market
and the change in the value of the contract may not correlate with changes in
the securities being hedged.
F. Covered Call Options-The Fund may write call options, but only on a covered
basis; that is, the Fund will own the underlying security. Options written by
the Fund normally will have expiration dates between three and nine months
from the date written. The exercise price of a call option may be below,
equal to, or above the current market value of the underlying security at the
time the option is written. When the Fund writes a
F-136
<PAGE> 355
FINANCIALS
NOTE 1-(continued)
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to-market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price, or in the absence of a sale, the mean between the last bid and asked
prices on that day. If a written call option expires on the stipulated
expiration date, or if the Fund enters into a closing purchase transaction,
the Fund realizes a gain (or a loss if the closing purchase transaction
exceeds the premium received when the option was written) without regard to
any unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a written option is exercised, the
Fund realizes a gain or a loss from the sale of the underlying security and
the proceeds of the sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written. The Fund will
not write a covered call option if, immediately thereafter, the aggregate
value of the securities underlying all such options, determined as of the
dates such options were written, would exceed 5% of the net assets of the
Fund.
G. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed to
shareholders. Therefore, no provision for federal income taxes is recorded in
the financial statements.
H. Expenses-Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g. advisory fees, are allocated between them. Expenses of the
Trust which are not directly attributable to the operations of any class of
shares or portfolio of the Trust are prorated among the classes to which the
expense relates based upon the relative net assets of each class.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $150 million. This agreement
requires AIM to reduce its fees or, if necessary, make payments to the Fund to
the extent required to satisfy any expense limitations imposed by the securities
laws or regulations thereunder of any state in which the Fund's shares are
qualified for sale. The master investment advisory agreement was amended on
November 14, 1994 with respect to the Fund. The amendment to the master
investment advisory agreement was approved by the Fund's shareholders at a
special meeting which was originally scheduled for September 28, 1994, but which
was adjourned until November 14, 1994 due to lack of a quorum. Of the 37,410,248
shares voted at the meeting, 25,360,315 shares voted for the amendment,
9,686,807 voted against the amendment, and 2,363,126 shares abstained. Under the
previous terms, the Fund paid an advisory fee to AIM at the annual rate of 0.60%
of the first $200 million of the Fund's average daily net assets, plus 0.50% of
the Fund's average daily net assets in excess of $200 million to and including
$500 million, plus 0.40% of the Fund's average daily net assets in excess of
$500 million to and including $1 billion, plus 0.30% of the Fund's average daily
net assets in excess of $1 billion.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting and shareholder services to the Fund. During the year ended December
31, 1994, AIM was reimbursed $884,123 for such services. Effective November 1,
1994, A I M Fund Services, Inc. ("AFS") became the transfer agent for the Fund
and was paid $349,810 for such services during the two months ended December 31,
1994.
F-137
<PAGE> 356
FINANCIALS
NOTE 2-(continued)
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares (the
"Class B Plan")(collectively, the "Plans"). The Fund, pursuant to the Class A
Plan, pays AIM Distributors compensation at an annual rate of 0.25% of the
average daily net assets attributable to the Class A shares. The Class A Plan is
designed to compensate AIM Distributors for certain promotional and other sales
related costs, and to implement a program which provides periodic payments to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own Class A shares of
the Fund. The Fund, pursuant to the Class B Plan, pays AIM Distributors
compensation at an annual rate of 1.00% of the average daily net assets
attributable to the Class B shares. Of this amount, the Fund may pay a service
fee of 0.25% of the average daily net assets of the Class B shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own Class B shares of the Fund. Any
amounts not paid as a service fee under such Plans would constitute an
asset-based sales charge. The Plans also impose a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the year ended December 31, 1994, the Class A shares and the
Class B shares paid AIM Distributors $2,712,116 and $3,596,079, respectively, as
compensation pursuant to the Plans.
AIM Distributors received commissions of $3,063,899 from sales of the Class A
shares of the Fund during the year ended December 31, 1994. Such commissions are
not an expense of the Fund. They are deducted from, and are not included in, the
proceeds from sales of Class A shares. During the year ended December 31, 1994,
AIM Distributors received $584,611 in contingent deferred sales charges imposed
on redemptions of Class B shares. Certain officers and trustees of the Trust are
officers and directors of AIM, AIM Distributors and AFS.
During the year ended December 31, 1994, the Fund paid legal fees of $2,858
for services rendered by Reid & Priest as counsel to the Board of Trustees.
Effective September 1994, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel was
appointed as counsel to the Board of Trustees. The Fund paid legal fees of $658
for services rendered by that firm as counsel. A member of that firm is a
trustee of the Trust.
NOTE 3-TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of the Trust. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1994 was
$2,428,926,850 and $1,411,142,878, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1994 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $134,397,552
- --------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (28,233,398)
- --------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $106,164,154
======================================================================================
Cost of investments for tax purposes is $1,868,282,845.
</TABLE>
F-138
<PAGE> 357
FINANCIALS
NOTE 5-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
1994 1993
----------------------------- ---------------------------
SHARES VALUE SHARES VALUE
---------- ------------- --------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 44,842,263 $ 956,547,274 28,361,322 $571,325,129
- -------------------------- ----------------------------- ---------------------------
Class B* 30,585,526 650,657,626 3,036,128 63,454,624
- -------------------------- ----------------------------- ---------------------------
Issued as reinvestment of
dividends:
Class A 1,002,453 20,670,601 1,080,088 21,661,686
- -------------------------- ----------------------------- ---------------------------
Class B* 289,906 5,707,603 64,488 1,294,270
- -------------------------- ----------------------------- ---------------------------
Reacquired:
Class A (18,339,133) (391,224,672) (5,826,056) (118,786,900)
- -------------------------- ----------------------------- ---------------------------
Class B* (1,727,299) (36,623,200) (64,732) (1,350,635)
- -------------------------- ------------------------------ ---------------------------
56,653,716 $1,205,735,232 26,651,238 $537,598,174
========================== ============================== ===========================
</TABLE>
* Sales of Class B shares commenced on October 18, 1993.
NOTE 6-OPEN FUTURES CONTRACTS
On December 31, 1994, $180,685,000 principal amount of U.S. Treasury securities
were pledged as collateral to cover margin requirements for open futures
contracts:
Open futures contracts at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT NO. OF CONTRACTS/MONTH/COMMITMENT APPRECIATION
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index 800 contracts/March/Buy $3,874,718
- -------------------------------------------------------------------------------------------------
</TABLE>
F-139
<PAGE> 358
FINANCIALS
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a Class A share
outstanding during each of the years in the ten-year period ended December 31,
1994 and for a Class B share outstanding during the year ended December 31, 1994
and the period October 18, 1993 (date sales commenced) through December 31,
1993.
<TABLE>
<CAPTION>
1994 1993 1992(a) 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $ 20.82 $ 18.24 $ 17.55 $ 13.75 $ 14.53
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.16 0.04 0.12 0.13 0.26
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net gains (losses) on securities (both realized
and unrealized) 0.52 3.34 2.68 5.73 0.01
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 0.68 3.38 2.80 5.86 0.27
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.16) (0.03) (0.12) (0.14) (0.26)
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Distributions from net realized capital gains (0.20) (0.77) (1.99) (1.92) (0.79)
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total distributions (0.36) (0.80) (2.11) (2.06) (1.05)
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 21.14 $ 20.82 $ 18.24 $ 17.55 $ 13.75
================================================= ========== ========== ========== ========== ==========
Total return(b) 3.28% 18.71% 16.39% 43.45% 1.88%
================================================= ========== ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,358,725 $ 765,305 $ 239,663 $ 152,149 $ 86,565
================================================= ========== ========== ========== ========== ==========
Ratio of expenses to average net assets 0.98%(c) 1.09% 1.16% 1.22% 1.21%(d)
================================================= ========== ========== ========== ========== ==========
Ratio of net investment income to average net
assets 0.92%(c) 0.30% 0.75% 0.89% 1.87%(e)
================================================= ========== ========== ========== ========== ==========
Portfolio turnover rate 127% 177% 170% 135% 131%
================================================= ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $ 12.79 $ 11.47 $ 12.26 $ 12.90 $ 10.88
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.40 0.26 0.25 0.36 0.39
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net gains (losses) on securities (both realized
and unrealized) 3.58 2.07 0.53 0.75 2.04
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 3.98 2.33 0.78 1.11 2.43
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.43) (0.26) (0.39) (0.43) (0.34)
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Distributions from net realized capital gains (1.81) (0.75) (1.18) (1.32) (0.07)
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Total distributions (2.24) (1.01) (1.57) (1.75) (0.41)
- ------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 14.53 $ 12.79 $ 11.47 $ 12.26 $ 12.90
================================================= ========== ========== ========== ========== ==========
Total return(b) 31.54% 20.61% 5.96% 8.80% 22.71%
================================================= ========== ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 76,444 $ 60,076 $ 55,527 $ 46,642 $ 30,684
================================================= ========== ========== ========== ========== ==========
Ratio of expenses to average net assets 1.00%(d) 1.00%(d) 1.00% 1.00%(d) 1.00%(d)
================================================= ========== ========== ========== ========== ==========
Ratio of net investment income to average net
assets 2.65%(e) 1.98%(e) 1.91% 3.15%(e) 4.67%(e)
================================================= ========== ========== ========== ========== ==========
Portfolio turnover rate 152% 124% 219% 134% 46%
================================================= ========== ========== ========== ========== ==========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Total returns do not deduct sales charges.
(c) Ratios are based on average net assets of $1,084,846,358.
(d) Ratios of expenses to average net assets prior to reduction of advisory fees
were 1.23%, 1.09%, 1.08%, 1.05% and 1.25% for 1990-88 and 1986-85,
respectively.
(e) Ratios of net investment income to average net assets prior to reduction of
advisory fees were 1.85%, 2.56%, 1.90%, 3.14% and 4.47% for 1990-88 and
1986-85, respectively.
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS B:
Net asset value, beginning of period $ 20.82 $ 21.80
- ---------------------------------------------------------------------------------------------------- -------- --------
Income from investment operations:
Net investment income -- 0.02
- ---------------------------------------------------------------------------------------------------- -------- --------
Net gains (losses) on securities (both realized and unrealized) 0.51 (0.21)
- ---------------------------------------------------------------------------------------------------- -------- --------
Total from investment operations 0.51 (0.19)
- ---------------------------------------------------------------------------------------------------- -------- --------
Less distributions:
Dividends from net investment income -- (0.02)
- ---------------------------------------------------------------------------------------------------- -------- --------
Distributions from net realized capital gains (0.20) (0.77)
- ---------------------------------------------------------------------------------------------------- -------- --------
Total Distributions (0.20) (0.79)
- ---------------------------------------------------------------------------------------------------- -------- --------
Net asset value, end of period $ 21.13 $ 20.82
==================================================================================================== ======== ========
Total return(a) 2.46% (0.74)%
==================================================================================================== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $680,119 $ 63,215
==================================================================================================== ======== ========
Ratio of expenses to average net assets 1.90%(b) 1.85%(c)
==================================================================================================== ======== ========
Ratio of net investment income (loss) to average net assets 0.00%(b) (0.46)%(c)
==================================================================================================== ======== ========
Portfolio turnover rate 127% 177%
==================================================================================================== ======== ========
</TABLE>
(a) Total returns do not deduct contingent deferred sales charges and for
periods less than one year are not annualized.
(b) Ratios are annualized and based on average net assets of $359,607,861.
(c) Annualized.
F-140
<PAGE> 359
APPENDIX II
AIM Income Semi-Annual Report
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT MARKET VALUE
<S> <C> <C> <C>
U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS
& NOTES-62.54%
ADVERTISING/BROADCASTING-0.41%
Comcast Corp.,
Sr. Sub. Deb., 9.50% 01/15/08 $ 1,000,000 $ 997,500
- ------------------------------------------------------------------------------------------------
AIRLINES-3.08%
Delta Air Lines,
Deb., 10.375% 02/01/11 1,500,000 1,738,155
- ------------------------------------------------------------------------------------------------
Equipment Trust Certificates, 10.50% 04/30/16 5,000,000 5,808,950
- ------------------------------------------------------------------------------------------------
7,547,105
- ------------------------------------------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-3.10%
General Motors Corp.,
Deb., 8.80% 03/01/21 6,700,000 7,588,956
- ------------------------------------------------------------------------------------------------
AUTOMOBILE/TRUCKS PARTS & TIRES-0.41%
Pronet,
Sr. Sub. Notes., 11.875% (acquired 06/12/95;
cost $1,053,260)(a) 06/15/05 1,000,000 1,007,500
- ------------------------------------------------------------------------------------------------
BUILDING MATERIALS-0.41%
Triangle Pacific Corp.,
Sr. Notes, 10.50% 08/01/03 1,000,000 1,017,500
- ------------------------------------------------------------------------------------------------
CABLE TELEVISION-2.24%
Heartland Wireless Communications,
Sr. Notes, 13.00% (acquired 04/20/95-04/21/95;
cost $1,211,250)(a) 04/15/03 1,200,000 1,272,000
- ------------------------------------------------------------------------------------------------
Marcus Cable Operating Co.,
Sr. Disc. Notes, 13.50%(b) 08/01/04 5,000,000 3,162,500
- ------------------------------------------------------------------------------------------------
Videotron Ltd.,
Yankee Sr. Sub. Notes, 10.625% 02/15/05 1,000,000 1,052,500
- ------------------------------------------------------------------------------------------------
5,487,000
- ------------------------------------------------------------------------------------------------
CONTAINERS-1.59%
Ivex Packaging Inc.,
Sr. Sub. Notes, 12.50% 12/15/02 1,500,000 1,612,500
- ------------------------------------------------------------------------------------------------
Owens-Illinois Inc.,
Sr. Sub. Notes, 10.00% 08/01/02 2,000,000 2,035,000
- ------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 360
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT MARKET VALUE
<S> <C> <C> <C>
CONTAINERS-(continued)
Venture Holdings,
Sr. Sub. Notes, 9.75% 04/01/04 $ 290,000 $ 242,150
- ------------------------------------------------------------------------------------------------
3,889,650
- ------------------------------------------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-12.54%
Associates Corp.,
Deb., 7.95% 02/15/10 6,000,000 6,525,000
- ------------------------------------------------------------------------------------------------
GMAC,
Notes, 5.50%(c) 10/15/02 3,425,000 3,803,565
- ------------------------------------------------------------------------------------------------
GPA Delaware Inc.,
Deb., 8.75% 12/15/98 2,000,000 1,700,000
- ------------------------------------------------------------------------------------------------
ITT Corp.,
Deb., 8.85% 07/15/05 6,500,000 7,583,290
- ------------------------------------------------------------------------------------------------
Loehmann's Holdings,
Sr. Sub. Notes, 13.75% 02/15/99 1,235,000 1,210,300
- ------------------------------------------------------------------------------------------------
Olympic Financial Ltd.,
Deb., 13.00% 05/01/00 1,000,000 1,025,000
- ------------------------------------------------------------------------------------------------
Sea Containers,
Sr. Sub. Deb., 12.50% 12/01/04 2,000,000 2,180,000
- ------------------------------------------------------------------------------------------------
Westinghouse Credit Corp.,
Deb., 8.875% 06/14/14 6,000,000 6,660,000
- ------------------------------------------------------------------------------------------------
30,687,155
- ------------------------------------------------------------------------------------------------
FOOD PROCESSING-3.36%
ConAgra Inc.,
Sub. Notes, 9.75% 03/01/21 4,000,000 4,851,520
- ------------------------------------------------------------------------------------------------
Curtice-Burns,
Sr. Sub. Notes., 12.25% 02/01/05 1,300,000 1,378,000
- ------------------------------------------------------------------------------------------------
Fleming Companies Inc.,
Sr. Notes, 10.625% 12/15/01 1,000,000 1,052,500
- ------------------------------------------------------------------------------------------------
Pilgrim's Pride Corp.,
Sr. Sub. Notes, 10.875% 08/01/03 1,000,000 942,500
- ------------------------------------------------------------------------------------------------
8,224,520
- ------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT-3.22%
Province of Manitoba,
Yankee Bond, 7.75% 07/17/16 7,500,000 7,887,675
- ------------------------------------------------------------------------------------------------
GAMING-1.50%
Showboat Inc.,
First Mortgage Notes, 9.25% 05/01/08 4,000,000 3,670,000
- ------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 361
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT MARKET VALUE
<S> <C> <C> <C>
HOMEBUILDING-0.41%
Continental Homes Holdings,
Sr. Notes, 12.00% 08/01/99 $ 1,000,000 $ 1,005,000
- ------------------------------------------------------------------------------------------------
HOTELS/MOTELS-0.51%
John Q. Hammons Hotels,
Gtd. First Mortgage Notes, 8.875% 02/15/04 1,300,000 1,261,000
- ------------------------------------------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.69%
American Life Holding,
Sr. Sub. Notes, 11.25% 09/15/04 1,300,000 1,352,000
- ------------------------------------------------------------------------------------------------
Americo Life Inc.,
Sr. Sub. Notes, 9.25% 06/01/05 3,000,000 2,775,000
- ------------------------------------------------------------------------------------------------
4,127,000
- ------------------------------------------------------------------------------------------------
INSURANCE (MULTI-LINE/PROPERTY)-0.41%
Terra Nova Holdings,
Yankee Sr. Notes, 10.75% 07/01/05 1,000,000 1,007,500
- ------------------------------------------------------------------------------------------------
LEISURE & RECREATION-3.44%
Icon Health & Fitness, Sr. Sub. Notes, 13.00%
(acquired 11/04/94-12/07/94; cost
$1,475,133)(a) 07/15/02 1,500,000 1,552,500
- ------------------------------------------------------------------------------------------------
Stratosphere Corp.,
First Mortgage Notes, 14.25% 05/15/02 1,000,000 1,020,000
- ------------------------------------------------------------------------------------------------
Time Warner Entertainment,
Notes, 10.15% 05/01/12 5,000,000 5,843,700
- ------------------------------------------------------------------------------------------------
8,416,200
- ------------------------------------------------------------------------------------------------
MACHINERY (HEAVY)-2.71%
Caterpillar Inc.,
Deb., 9.375% 08/15/11 5,000,000 6,016,400
- ------------------------------------------------------------------------------------------------
Primeco Inc.,
Sr. Sub. Notes, 12.75% 03/01/05 600,000 612,000
- ------------------------------------------------------------------------------------------------
6,628,400
- ------------------------------------------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-1.42%
AM General Corp.,
Sr. Notes, 12.875% (acquired 04/21/95;
cost $1,492,005)(a) 05/01/02 1,500,000 1,425,000
- ------------------------------------------------------------------------------------------------
Interlake Corp.,
Sr. Notes, 12.00% 11/15/01 1,000,000 1,015,000
- ------------------------------------------------------------------------------------------------
MVE Inc.,
Sr. Sec. Notes, 12.50% 02/15/02 1,000,000 1,040,000
- ------------------------------------------------------------------------------------------------
3,480,000
- ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 362
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT MARKET VALUE
<S> <C> <C> <C>
MEDICAL (PATIENT SERVICES)-0.45%
OrNda Healthcorp,
Sr. Sub. Notes, 11.375% 08/15/04 $ 1,000,000 $ 1,092,500
- ------------------------------------------------------------------------------------------------
NATURAL GAS PIPELINE-2.01%
Transco Energy Co.,
Deb., 9.875% 06/15/20 4,000,000 4,914,160
- ------------------------------------------------------------------------------------------------
OIL & GAS-3.27%
Petroleum Heat & Power,
Sub. Deb., 12.25% 02/01/05 1,370,000 1,452,200
- ------------------------------------------------------------------------------------------------
Sun Company,
Deb., 9.00% 11/01/24 4,000,000 4,570,840
- ------------------------------------------------------------------------------------------------
Talisman Energy,
Yankee Deb., 7.125% 06/01/07 2,000,000 1,985,000
- ------------------------------------------------------------------------------------------------
8,008,040
- ------------------------------------------------------------------------------------------------
RETAIL (FOOD & DRUG)-1.40%
Dominick's Finer Foods,
Sr. Sub. Notes, 10.875% (acquired 04/27/95;
cost $750,000)(a) 05/01/05 750,000 761,250
- ------------------------------------------------------------------------------------------------
Penn Traffic Co.,
Sr. Notes, 10.65% 11/01/04 1,580,000 1,655,050
- ------------------------------------------------------------------------------------------------
Ralph's Grocery Co.,
Sr. Notes, 10.45% 06/15/04 1,000,000 1,000,000
- ------------------------------------------------------------------------------------------------
3,416,300
- ------------------------------------------------------------------------------------------------
RETAIL (STORES)-1.53%
Pamida Inc.,
Sr. Sub. Notes, 11.75% 03/15/03 1,000,000 890,000
- ------------------------------------------------------------------------------------------------
Specialty Retail,
Sr. Sub. Notes, 11.00% 08/15/03 2,000,000 1,840,000
- ------------------------------------------------------------------------------------------------
United Stationer Supply,
Sr. Sub. Notes, 12.75% (acquired
04/26/95-05/22/95;
cost $1,005,225)(a) 05/01/05 1,000,000 1,020,000
- ------------------------------------------------------------------------------------------------
3,750,000
- ------------------------------------------------------------------------------------------------
STEEL-0.94%
GS Technologies Inc.,
Sr. Notes, 12.00% 09/01/04 1,000,000 985,000
- ------------------------------------------------------------------------------------------------
Gulf States Steel,
Sr. Notes, 13.50% (acquired 04/12/95;
cost $1,364,500)(a) 04/15/03 1,360,000 1,305,600
- ------------------------------------------------------------------------------------------------
2,290,600
- ------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 363
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT MARKET VALUE
<S> <C> <C> <C>
TELECOMMUNICATIONS-0.44%
Mobile Telecomm Technology,
Sr. Notes, 13.50% 12/15/02 $ 1,000,000 $ 1,072,500
- ------------------------------------------------------------------------------------------------
TEXTILES-2.02%
Consoltex Group,
Sr. Sub. Notes, 11.00% 10/01/03 1,500,000 1,372,500
- ------------------------------------------------------------------------------------------------
Fieldcrest Cannon Inc.,
Sr. Sub. Deb., 11.25% 06/15/04 2,000,000 2,080,000
- ------------------------------------------------------------------------------------------------
Tarkett International,
Sr. Sub. Notes, 9.00% (acquired 02/08/94;
cost $1,500,000)(a) 03/01/02 1,500,000 1,492,500
- ------------------------------------------------------------------------------------------------
4,945,000
- ------------------------------------------------------------------------------------------------
TRANSPORTATION (MISCELLANEOUS)-0.84%
Gearbulk Holdings Ltd,
Sr. Notes, 11.25% 12/01/04 1,000,000 1,060,000
- ------------------------------------------------------------------------------------------------
Trans Ocean Container,
Sr. Sub. Notes, 12.25% 07/01/04 1,000,000 1,010,000
- ------------------------------------------------------------------------------------------------
2,070,000
- ------------------------------------------------------------------------------------------------
UTILITIES-7.19%
California Energy Company, Inc.,
Sr. Disc. Notes, 10.25%(b) 01/15/04 1,500,000 1,275,000
- ------------------------------------------------------------------------------------------------
Indiana-Michigan Power Co.,
Sec. Lease Obligation Bonds, 9.82% 12/07/22 8,991,749 11,076,756
- ------------------------------------------------------------------------------------------------
Kansas Gas & Electric,
Sec. Lease Obligation Bonds, 8.29% 03/29/16 5,000,000 5,239,200
- ------------------------------------------------------------------------------------------------
17,590,956
- ------------------------------------------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes 153,079,717
- ------------------------------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS & NOTES-1.12%
COMPUTER NETWORKING-0.42%
3COM Corp.,
Conv. Sub. Notes, 10.25% (acquired 11/08/94;
cost $800,000)(a) 11/01/01 800,000 1,024,000
- ------------------------------------------------------------------------------------------------
FINANCE-(CONSUMER CREDIT)-0.70%
Henderson Capital,
Conv. Bonds, 4.50% 10/27/96 1,700,000 1,708,500
- ------------------------------------------------------------------------------------------------
Total U.S. Dollar Denominated
Convertible Bonds & Notes 2,732,500
- ------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 364
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT MARKET VALUE
<S> <C> <C> <C>
NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE
BONDS & NOTES(d)-8.33%
CANADA-3.47%
Bell Canada (Telecommunications),
Deb., 10.875% 10/11/04 CAD3,000,000 $ 2,499,818
- ------------------------------------------------------------------------------------------------
Canadian Oil Debco Inc. (Oil & Gas),
Deb., 11.00% 10/31/00 3,200,000 2,577,939
- ------------------------------------------------------------------------------------------------
IPL Energy Inc. (Oil Equipment & Supplies)
Deb., Series A, 9.67% 02/23/00 3,100,000 2,390,171
- ------------------------------------------------------------------------------------------------
Rogers Cablesystem, Inc. (Cable Television),
Sr. Sec. Second Priority Deb., 9.65% 01/15/14 1,750,000 1,032,034
- ------------------------------------------------------------------------------------------------
8,499,962
- ------------------------------------------------------------------------------------------------
GERMANY-4.50%
International Bank for Reconstruction &
Development (Supranational Organization),
Unsub. Global Bonds, 5.875% 11/10/03 DEM7,000,000 4,673,584
- ------------------------------------------------------------------------------------------------
Unsub. Global Bonds, 7.125% 04/12/05 8,800,000 6,330,350
- ------------------------------------------------------------------------------------------------
11,003,934
- ------------------------------------------------------------------------------------------------
ITALY-0.36%
KFW International Finance (Finance-Consumer
Credit), Gtd. Notes, 11.625% 11/27/98 ITL1,430,000,000 873,076
- ------------------------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated
Non-Convertible Bonds & Notes 20,376,972
- ------------------------------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS
& NOTES(d)-5.39%
AUSTRALIA-0.43%
Lion Nathan Ltd.(Beverages)
Conv. Sub. Deb., 11.76% 09/30/00 AUD1,490,300 1,056,132
- ------------------------------------------------------------------------------------------------
CANADA-1.01%
Repap Enterprise (Paper & Forest Products),
Conv. Deb., 9.00% 06/30/98 CAD3,500,000 2,471,787
- ------------------------------------------------------------------------------------------------
UNITED KINGDOM-3.95%
ELF Enterprise Finance PLC (Finance-Consumer
Credit), Gtd. Conv. Bonds, 8.75% 06/27/06 BPS2,900,000 4,543,502
- ------------------------------------------------------------------------------------------------
Lasmo PLC (Oil Equipment & Supplies)
Conv. Deb., 7.75% 10/04/05 3,700,000 5,120,089
- ------------------------------------------------------------------------------------------------
9,663,591
- ------------------------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated
Convertible Bonds & Notes 13,191,510
- ------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 365
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT MARKET VALUE
<S> <C> <C> <C>
NON-U.S. DOLLAR DENOMINATED GOVERNMENT BONDS
& NOTES(d)-10.15%
AUSTRALIA-5.03%
Australia (Commonwealth of)
Gtd. Notes, 6.75% 11/15/06 AUD9,600,000 $ 5,633,092
- ------------------------------------------------------------------------------------------------
Treasury Corp. of Victoria
Gtd. Notes, 10.25% 09/15/99 2,300,000 1,726,962
- ------------------------------------------------------------------------------------------------
Western Australia Treasury Corp.
Gtd. Notes, 8.00% 07/15/03 7,500,000 4,943,710
- ------------------------------------------------------------------------------------------------
12,303,764
- ------------------------------------------------------------------------------------------------
CANADA-1.07%
New Brunswick (Province of),
Deb, 8.94% 01/15/05 CAD3,500,000 2,618,311
- ------------------------------------------------------------------------------------------------
GERMANY-4.05%
Bundesrepublik Deutschland
Deb., 6.75% 07/15/04 DEM5,250,000 3,721,582
- ------------------------------------------------------------------------------------------------
Deb., 6.875% 05/12/05 8,600,000 6,187,100
- ------------------------------------------------------------------------------------------------
9,908,682
- ------------------------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated
Government Bonds & Notes 24,830,757
- ------------------------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C> <C>
EQUITY SECURITIES-0.63%
CONVERTIBLE PREFERRED STOCKS-0.42%
FINANCE (ASSET MANAGEMENT)-0.42%
American General Life Insurance of Delaware-Series A, $3.00
Conv. Pfd. 20,000 1,037,500
- ------------------------------------------------------------------------------------------------
COMMON STOCKS-0.21%
UTILITIES-0.21%
National Power PLC-ADR 24,300 300,713
- ------------------------------------------------------------------------------------------------
Powergen PLC-ADR 17,300 211,925
- ------------------------------------------------------------------------------------------------
512,638
- ------------------------------------------------------------------------------------------------
Total Equity Securities 1,550,138
- ------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
MATURITY AMOUNT
<S> <C> <C> <C>
U.S. TREASURY SECURITIES-2.30%
U.S. Treasury Bonds, 7.625% 02/15/25 $ 5,000,000 5,642,550
- ------------------------------------------------------------------------------------------------
Total U.S. Treasury Securities 5,642,550
- ------------------------------------------------------------------------------------------------
Total Investments (excluding Repurchase Agreement) 221,404,144
- ------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 366
- --------------------------------------------------------------------------------
FINANCIALS
<TABLE>
<CAPTION>
PRINCIPAL MARKET
MATURITY AMOUNT VALUE
<S> <C> <C> <C>
REPURCHASE AGREEMENT-7.12%(e)
Daiwa Securities America Inc., 6.20%(f) 07/03/95 $ 17,426,715 $ 17,426,715
- ------------------------------------------------------------------------------------------------
Total Repurchase Agreements 17,426,715
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 97.58% 238,830,859
- ------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -- 2.42% 5,926,731
- ------------------------------------------------------------------------------------------------
NET ASSETS -- 100.00% $244,757,590
================================================================================================
</TABLE>
Notes to Schedule of Investments:
<TABLE>
<S> <C>
(a) Restricted Securities. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of 1933, as
amended. The valuation of these securities has been determined in accordance with
procedures established by the Board of Trustees. The aggregate market value of
these securities at June 30, 1995 was $8,283,850, which represented 3.38% of the
Fund's net assets.
(b) Discounted bond at purchase. Interest rate represents coupon rate at which the
bond will accrue at a specified future date.
(c) Coupon steps up to 9.00%, effective 10/15/95.
(d) Foreign denominated securities. Par value and coupon are denominated in currency
of country indicated.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest in
joint repurchase agreements, is taken into possession by the Fund upon entering
into the repurchase agreement. The collateral is marked to market daily to ensure
its market value as being 102% of the sales price of the repurchase agreement.
The investments in some repurchase agreements are through participation in joint
accounts with other mutual funds managed by the investment advisor.
(f) Joint repurchase agreement entered into 06/30/95 with a maturing value of
$186,890,118. Collateralized by $195,572,000 U.S. Treasury obligations, 0.00% to
8.375% due 06/27/96 to 08/15/08.
Abbreviations:
ADR - American Depositary Receipt BPS - British Pound Sterling
AUD - Australian Dollar Gtd. - Guaranteed
CAD - Canadian Dollar ITL - Italian Lira
Conv. - Convertible Pfd. - Preferred
Deb. - Debentures Sec. - Secured
DEM - German Deutschemark Sr. - Senior
Disc. - Discounted Sub. - Subordinated
Unsub. - Unsubordinated
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 367
FINANCIALS
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
(Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at market value (cost
$214,841,582) $221,404,144
- --------------------------------------------------------------------------------------
Repurchase agreement (cost $17,426,715) 17,426,715
- --------------------------------------------------------------------------------------
Foreign currencies, at market value (cost $1,239) 1,258
- --------------------------------------------------------------------------------------
Receivables for:
Investments sold 7,167,911
- --------------------------------------------------------------------------------------
Fund shares sold 500,903
- --------------------------------------------------------------------------------------
Interest 5,205,173
- --------------------------------------------------------------------------------------
Investment for deferred compensation plan 60,559
- --------------------------------------------------------------------------------------
Other assets 40,375
- --------------------------------------------------------------------------------------
Total assets 251,807,038
- --------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Forward contracts 148,053
- --------------------------------------------------------------------------------------
Investments purchased 6,091,951
- --------------------------------------------------------------------------------------
Fund shares reacquired 112,518
- --------------------------------------------------------------------------------------
Dividends 320,630
- --------------------------------------------------------------------------------------
Deferred compensation plan 60,559
- --------------------------------------------------------------------------------------
Accrued advisory fees 95,988
- --------------------------------------------------------------------------------------
Accrued distribution fees 154,468
- --------------------------------------------------------------------------------------
Accrued administrative service fees 2,358
- --------------------------------------------------------------------------------------
Accrued transfer agent fees 12,986
- --------------------------------------------------------------------------------------
Accrued trustees' fees 1,289
- --------------------------------------------------------------------------------------
Accrued operating expenses 48,648
- --------------------------------------------------------------------------------------
Total liabilities 7,049,448
- --------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $244,757,590
======================================================================================
NET ASSETS:
Class A $222,189,221
======================================================================================
Class B $22,568,369
======================================================================================
SHARES OUTSTANDING, $.01 PAR VALUE PER SHARE
Class A 28,450,096
======================================================================================
Class B 2,896,529
======================================================================================
Class A:
Net asset value and redemption price per share $ 7.81
======================================================================================
Offering price per share:
(Net asset value of $7.81 / 95.25%) $ 8.20
======================================================================================
Class B:
Net asset value and offering price per share $ 7.79
======================================================================================
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 368
FINANCIALS
STATEMENT OF OPERATIONS
For the six months ended June 30, 1995
(Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 9,709,993
- ----------------------------------------------------------------------------------------
Dividends 46,928
- ----------------------------------------------------------------------------------------
Total investment income 9,756,921
- ----------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 547,210
- ----------------------------------------------------------------------------------------
Custodian fees 28,786
- ----------------------------------------------------------------------------------------
Distribution fees -- Class A 259,657
- ----------------------------------------------------------------------------------------
Distribution fees -- Class B 81,452
- ----------------------------------------------------------------------------------------
Trustees' fees 2,711
- ----------------------------------------------------------------------------------------
Transfer agent fees -- Class A 112,666
- ----------------------------------------------------------------------------------------
Transfer agent fees -- Class B 15,238
- ----------------------------------------------------------------------------------------
Administrative services fees 34,665
- ----------------------------------------------------------------------------------------
Other 77,494
- ----------------------------------------------------------------------------------------
Total expenses 1,159,879
- ----------------------------------------------------------------------------------------
Net investment income 8,597,042
- ----------------------------------------------------------------------------------------
REALIZED & UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FORWARD TRANSACTIONS:
Net realized gain (loss) from:
Investment securities 2,532,791
- ----------------------------------------------------------------------------------------
Foreign currencies 946,509
- ----------------------------------------------------------------------------------------
Forward contracts (338,838)
- ----------------------------------------------------------------------------------------
3,140,462
- ----------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of:
Investment securities 15,689,580
- ----------------------------------------------------------------------------------------
Foreign currencies 54,189
- ----------------------------------------------------------------------------------------
Forward contracts (112,743)
- ----------------------------------------------------------------------------------------
15,631,026
- ----------------------------------------------------------------------------------------
Net realized & unrealized gain from investment securities, foreign
currencies and forward transactions 18,771,488
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $27,368,530
========================================================================================
</TABLE>
See Notes to Financial Statements.
10
<PAGE> 369
FINANCIALS
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1995 and the year ended December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
<S> <C> <C>
OPERATIONS:
Net investment income $ 8,597,042 $17,083,355
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and forward transactions 3,140,462 (18,454,102)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities, foreign currencies and forward transactions 15,631,026 (18,072,358)
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 27,368,530 (19,443,105)
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (8,045,625) (14,029,228)
- -------------------------------------------------------------------------------------------
Class B (551,417) (478,570)
- -------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A (342,979) --
- -------------------------------------------------------------------------------------------
Class B (23,507) --
- -------------------------------------------------------------------------------------------
Distributions to shareholders from capital:
Class A -- (3,123,648)
- -------------------------------------------------------------------------------------------
Class B -- (122,674)
- -------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A -- (360,558)
- -------------------------------------------------------------------------------------------
Class B -- (20,562)
- -------------------------------------------------------------------------------------------
Share transactions-net:
Class A 3,435,585 (6,155,618)
- -------------------------------------------------------------------------------------------
Class B 8,919,284 9,961,208
- -------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 30,759,871 (33,772,755)
- -------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 213,997,719 247,770,474
- -------------------------------------------------------------------------------------------
End of period $244,757,590 $213,997,719
===========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $251,361,742 $239,006,873
- -------------------------------------------------------------------------------------------
Undistributed net investment income (426,545) (60,059)
- -------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from sales of
investment securities, foreign currencies and forward
transactions (12,637,576) (15,778,038)
- -------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities, foreign currencies and forward
transactions 6,459,969 (9,171,057)
- -------------------------------------------------------------------------------------------
$244,757,590 $213,997,719
===========================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE> 370
FINANCIALS
NOTES TO FINANCIAL STATEMENTS
June 30, 1995
(Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Income Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware business trust registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end series
management investment company consisting of nine separate series portfolios,
each having an unlimited number of shares of beneficial interest. The Fund
currently offers two different classes of shares: the Class A shares and the
Class B shares. Class A shares are sold with a front-end sales charge. Class B
shares are sold with a contingent deferred sales charge. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements.
A. Security Valuations - Non-convertible bonds and notes are valued on the basis
of prices provided by an independent pricing service. Prices provided by the
pricing service may be determined without exclusive reliance on quoted
prices, and may reflect appropriate factors such as institution-size trading
in similar groups of securities, developments related to special securities,
yield, quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Investment securities for which prices
are not provided by the pricing service and which are listed or traded on an
exchange (except convertible bonds) are valued at the last sales price on the
exchange where the security is principally traded or, lacking any sales on a
particular day, at the mean between the closing bid and asked prices on that
day unless the Board of Trustees, or persons designated by the Board of
Trustees, determines that the over-the-counter quotations more closely
reflect the current market value of the security. Exchange listed convertible
bonds are valued based at the mean between the closing bid and asked prices
obtained from a broker-dealer. Securities traded in the over-the-counter
market, except (i) securities priced by the pricing service, (ii) securities
for which representative exchange prices are available, and (iii) securities
reported in the NASDAQ National Market System, are valued at the mean between
representative last bid and asked prices obtained from an electronic
quotation reporting system, if such prices are available, or from established
market makers. Each security reported in 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 Trust's officers
in accordance with methods which are specifically authorized by the Board of
Trustees. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. Generally, trading
in foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the 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 Trustees.
B. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities and
income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts - A forward currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a forward contract to attempt to
12
<PAGE> 371
FINANCIALS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a forward contract for the
purchase or sale of a security denominated in a foreign currency in order to
"lock-in" the U.S. dollar price of that security. The Fund could be exposed
to risk if counterparties to the contracts are unable to meet the terms of
their contracts or if the value of the foreign currency changes unfavorably.
Outstanding contracts at June 30, 1995 were as follows:
<TABLE>
<CAPTION>
Contract to Unrealized
Settlement ----------------------------- Appreciation
Date Receive Deliver (Depreciation)
---------- -------------- ---------- --------------
<S> <C> <C> <C>
08/08/95 CAD 10,100,000 $7,345,842 $ (27,532)
08/03/95 DEM 4,200,000 $3,041,639 (10,133)
08/15/95 DEM 4,600,000 $3,332,805 (110,388)
---------
$(148,053)
</TABLE>
D. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date. Dividends
to shareholders are declared daily and are paid monthly.
E. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements. The Fund has a capital loss
carryforward of $12,957,073 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2001. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
F. Expenses - Operating expenses directly attributable to a class of shares are
charged to that class' operations. Expenses which are applicable to both
classes, e.g. advisory fees, are allocated between them.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays AIM an advisory fee at an annual rate of 0.50% of the
first $200 million of the Fund's average daily net assets, plus 0.40% of the
Fund's average daily net assets in excess of $200 million to and including $500
million, plus 0.35% of the Fund's average daily net assets in excess of $500
million to and including $1 billion, plus 0.30% of the Fund's average daily net
assets in excess of $1 billion. This agreement requires AIM to reduce its fees
or, if necessary, make payments to the Fund to the extent required to satisfy
any expense limitations imposed by the securities laws or regulations thereunder
of any state in which the Fund's shares are qualified for sale.
The Fund, pursuant to a master administrative services agreement with AIM, has
agreed to reimburse AIM for certain administrative costs incurred in providing
accounting services to the Fund. During the six months ended June 30, 1995, AIM
was reimbursed $34,665 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency
services to the Fund. During the six months ended June 30, 1995, the Fund paid
AFS $77,354 for such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and the Class B shares of the Fund. The Trust has adopted Plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A
shares (the "Class A Plan") and with respect to the Fund's Class B shares (the
"Class B Plan")(collectively, the "Plans"). The Fund, pursuant to the Class A
Plan, pays AIM Distributors compensation at an annual rate of 0.25% of the
average daily net assets
13
<PAGE> 372
FINANCIALS
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES (continued)
attributable to the Class A shares. The Class A Plan is designed to compensate
AIM Distributors for certain promotional and other sales related costs, and to
implement a program which provides periodic payments to selected dealers and
financial institutions who furnish continuing personal shareholder services to
their customers who purchase and own Class A shares of the Fund. The Fund,
pursuant to the Class B Plan, pays AIM Distributors compensation at an annual
rate of 1.00% of the average daily net assets attributable to the Class B
shares. Of this amount, the Fund may pay a service fee of 0.25% of the average
daily net assets of the Class B shares to selected dealers and financial
institutions who furnish continuing personal shareholder services to their
customers who purchase and own Class B shares of the Fund. Any amounts not paid
as a service fee under such Plans would constitute an asset-based sales charge.
The Plans also impose a cap on the total sales charges, including asset-based
sales charges, that may be paid by the respective classes. During the six months
ended June 30, 1995, the Class A shares and the Class B shares paid AIM
Distributors $259,657 and $81,452, respectively, as compensation under the
Plans.
AIM Distributors received commissions of $54,401 from sales of the Class A
shares of the Fund during the six months ended June 30, 1995. Such commissions
are not an expense of the Fund. They are deducted from, and are not included in,
the proceeds from sales of Class A shares. During the six months ended June 30,
1995, AIM Distributors received $27,547 in contingent deferred sales charges
imposed on redemptions of Fund shares. Certain officers and trustees of the
Trust are officers and directors of AIM, AIM Distributors and AFS.
During the six months ended June 30, 1995 the Fund paid legal fees of $704 for
services rendered by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel as counsel
to the Board of Trustees. A member of that firm is a trustee of the Trust.
NOTE 3 - TRUSTEES' FEES
Trustees' fees represent remuneration paid or accrued to each trustee who is not
an "interested person" of the Trust. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the six months ended June 30, 1995 was
$373,864,163 and $357,900,469, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of June 30, 1995 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 9,382,883
- -----------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,820,321)
- -----------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 6,562,562
===================================================================================
</TABLE>
Cost of investments for tax purposes is $232,268,297.
14
<PAGE> 373
FINANCIALS
NOTE 5 - SHARE INFORMATION
Changes in shares outstanding during the six months ended June 30, 1995 and the
year ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
---------------------- ----------------------
SHARES VALUE SHARES VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Sold:
Class A 2,668,812 $20,120,257 4,265,341 $33,272,800
- ------------------------------------------------------------------------------------ ------------------------
Class B 1,316,662 9,923,523 1,696,358 13,014,930
- ------------------------------------------------------------------------------------ ------------------------
Issued as reinvestment of dividends:
Class A 924,728 6,963,161 1,895,928 14,388,718
- ------------------------------------------------------------------------------------ ------------------------
Class B 46,457 349,288 54,029 403,397
- ------------------------------------------------------------------------------------ ------------------------
Reacquired:
Class A (3,161,872) (23,647,833) (7,025,819) (53,817,136)
- ------------------------------------------------------------------------------------ ------------------------
Class B (181,850) (1,353,527) (462,198) (3,457,119)
- ------------------------------------------------------------------------------------ ------------------------
1,612,937 $12,354,869 423,639 $3,805,590
==================================================================================== ========================
</TABLE>
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the condensed financial highlights for a Class A share
outstanding for the six months ended June 30, 1995 and each of the years in the
nine-year period ended December 31, 1994 and for a Class B share outstanding
during the six months ended June 30, 1995, the year ended December 31, 1994 and
the period September 7, 1993 (date sales commenced) through December 31, 1993.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------------------------------------------------
CLASS A: 1995 1994 1993 1992(A) 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41 $ 7.80 $ 7.53
- ---------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.29 0.58 0.60 0.60 0.61 0.65 0.66
- ---------------------------------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) 0.62 (1.22) 0.61 (0.03) 0.66 (0.39) 0.32
- ---------------------------------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.91 (0.64) 1.21 0.57 1.27 0.26 0.98
- ---------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.30) (0.49) (0.60) (0.61) (0.61) (0.65) (0.71)
- ---------------------------------- -------- -------- -------- -------- -------- -------- --------
Distributions from net realized
capital gains -- (0.01) (0.19) -- -- -- --
- ---------------------------------- -------- -------- -------- -------- -------- -------- --------
Distributions from capital -- (0.11) -- -- -- -- --
- ---------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.30) (0.61) (0.79) (0.61) (0.61) (0.65) (0.71)
================================== ======== ======== ======== ======== ======== ======== ========
Net asset value, end of period $ 7.81 $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41 $ 7.80
================================== ======== ======== ======== ======== ======== ======== ========
Total return(b) 12.87% (7.65)% 15.38% 7.42% 18.00% 3.65% 13.56%
================================== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $222,189 $201,677 $244,168 $218,848 $231,798 $215,987 $229,222
================================== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets 0.97%(c) 0.98% 0.98% 0.99%(d) 1.00%(d) 1.00% 0.96%
================================== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets 7.74%(c) 7.53% 7.01% 7.54%(d) 7.97%(d) 8.73% 8.56%
================================== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 172% 185% 99% 82% 67% 106% 222%
================================== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
CLASS A: 1988 1987 1986
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of
period $ 7.55 $ 8.20 $ 7.53
- ---------------------------------- -------- -------- --------
Income from investment operations:
Net investment income 0.68 0.67 0.71
- ---------------------------------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (0.02) (0.63) 0.60
- ---------------------------------- -------- -------- --------
Total from investment
operations 0.66 0.04 1.31
- ---------------------------------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.68) (0.69) (0.64)
- ---------------------------------- -------- -------- --------
Distributions from net realized
capital gains -- -- --
- ---------------------------------- -------- -------- --------
Distributions from capital -- -- --
- ---------------------------------- -------- -------- --------
Total distributions (0.68) (0.69) (0.64)
- ---------------------------------- -------- -------- --------
Net asset value, end of period $ 7.53 $ 7.55 $ 8.20
================================== ======== ======== ========
Total return(b) 9.01% 0.56% 18.04%
================================== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $218,946 $237,466 $273,121
================================== ======== ======== ========
Ratio of expenses to average net
assets 0.95% 0.84% 0.82%
================================== ======== ======== ========
Ratio of net investment income to
average net assets 8.81% 8.64% 8.93%
================================== ======== ======== ========
Portfolio turnover rate 361% 195% 85%
================================== ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges and for periods less than one year are not
annualized.
(c) Ratios are annualized and are based on average net assets of $209,447,230.
(d) After waiver of advisory fees and expense reimbursements. Ratios of expenses
to average net assets prior to waiver of advisory fees and expense
reimbursements were 1.00% and 1.03% for 1992-1991, respectively. Ratios of
net investment income to average net assets prior to waiver of advisory fees
and expense reimbursements were 7.53% and 7.94% for 1992-1991, respectively.
15
<PAGE> 374
FINANCIALS
NOTE 6 - FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------
CLASS B: 1995 1994 1993
-------- ------- ------
<S> <C> <C> <C>
Net asset value, beginning of period $ 7.18 $ 8.43 $ 8.95
- ---------------------------------------------------------------------------------------- -------- ------- ------
Income from investment operations:
Net investment income 0.26 0.52 0.19
- ---------------------------------------------------------------------------------------- -------- ------- ------
Net gains (losses) on securities (both realized and unrealized) 0.62 (1.23) (0.34)
- ---------------------------------------------------------------------------------------- -------- ------- ------
Total from investment operations 0.88 (0.71) (0.15)
- ---------------------------------------------------------------------------------------- -------- ------- ------
Less distributions:
Dividends from net investment income (0.27) (0.42) (0.18)
- ---------------------------------------------------------------------------------------- -------- ------- ------
Distributions from net realized capital gains -- (0.01) (0.19)
- ---------------------------------------------------------------------------------------- -------- ------- ------
Distributions from capital -- (0.11) --
- ---------------------------------------------------------------------------------------- -------- ------- ------
Total distributions (0.27) (0.54) (0.37)
- ---------------------------------------------------------------------------------------- -------- ------- ------
Net asset value, end of period $ 7.79 $ 7.18 $ 8.43
======================================================================================== ======== ======= ======
Total return(a) 12.41% (8.46)% (0.75)%
======================================================================================== ======== ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,568 $12,321 $3,602
======================================================================================== ======== ======= ======
Ratio of expenses to average net assets 1.84%(b) 1.83%(c) 1.75(c)(d)
======================================================================================== ======== ======= ======
Ratio of net investment income to average net assets 6.87%(b) 6.69%(c) 6.24(c)(d)
======================================================================================== ======== ======= ======
Portfolio turnover rate 172% 185% 99%
======================================================================================== ======== ======= ======
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average net assets of $16,425,336.
(c) After expense reimbursements. Ratios of expenses to average net assets prior
to expense reimbursements were 2.04% and 2.50% (annualized) for 1994 and
1993, respectively. Ratios of net investment income to average net assets
prior to expense reimbursements were 6.48% and 5.49% (annualized) for 1994
and 1993, respectively.
(d) Annualized.
16
<PAGE> 375
APPENDIX III
REPORT OF INDEPENDENT ACCOUNTANTS
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
[Price Waterhouse LLP Logo]
To the Shareholders and Board of Directors
of Baird Quality Bond Fund
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 Quality Bond Fund (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 two years in the period then ended and for the year from October 1, 1992
(commencement of operations) to September 30, 1993, 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
November 2, 1995
1
<PAGE> 376
BAIRD QUALITY BOND FUND
STATEMENT OF NET ASSETS
September 30, 1995
LONG-TERM INVESTMENTS 92.0% (a)
<TABLE>
<CAPTION>
Principal Amortized Quoted
Amount Cost Market Value
- --------- --------- ------------
<S> <C> <C> <C>
CORPORATE BONDS - 39.1%
$300,000 Bankers Trust NY Corp., 8.25%, due 05/01/05 $ 313,143 323,813
200,000 Wal-Mart Stores, 8.875%, due 06/29/11 209,463 210,375
250,000 Southwestern Bell Telephone,
7.375%, due 05/01/12 256,255 247,500
300,000 Paine Webber Group Inc., 7.625%, due 2/15/14 287,054 288,000
400,000 Lehman Brothers Holdings, 8.50%, due 08/01/15 417,277 422,000
400,000 Becton, Dickinson & Co., 9.25%, due 06/01/16 420,174 420,996
300,000 Kraft Inc., 8.50%, due 02/15/17 310,376 311,078
400,000 Torchmark Corp., 8.625%, due 03/01/17 380,679 413,000
357,000 Southern California Edison Co.,
8.875%, due 05/01/23 375,045 374,927
---------- ---------
Total corporate bonds 2,969,466 3,011,689
FEDERAL AGENCIES - 40.5%
100,000 Federal Home Loan Mortgage Corp.,
8.193%, due 12/16/97 99,734 100,406
300,000 Federal Home Loan Bank,
6.95%, due 05/24/99 300,000 300,797
300,000 SALLIEMAE, 7.00%, due 06/26/00 300,000 300,000
500,000 Federal Home Loan Mortgage Corp.,
7.90%, due 04/27/05 507,652 513,203
500,000 Federal National Mortgage Association,
7.61% due 06/06/05 500,000 499,375
900,000 Federal Home Loan Mortgage Corp.,
7.13%, due 09/15/05 900,000 900,510
500,000 Federal Home Loan Bank,
7.40%, due 09/22/05 500,000 500,313
--------- ---------
Total federal agencies 3,107,386 3,114,604
MORTGAGE BACKED SECURITIES - 9.4%
389,156 Drexel Burnham Lambert CMO Trust, Series J Class 2,
8.00%, due 07/01/17 388,201 389,157
250,000 Federal Home Loan Mortgage Corp. 1101M,
6.95%, due 07/15/21 249,782 239,375
100,000 Federal Home Loan Mortgage Corp. 1508G,
6.75%, due 12/15/21 100,790 97,078
--------- ---------
Total mortgage backed securities 738,773 725,610
U.S. TREASURY SECURITIES - 3.0%
600,000 U.S. Principal Strips, 0%, due 11/15/09 230,040 234,040
--------- ---------
Total treasury securities 230,040 234,040
--------- ---------
Total long-term investments 7,045,665 7,085,943
</TABLE>
2
<PAGE> 377
BAIRD QUALITY BOND FUND
STATEMENT OF NET ASSETS (Continued)
September 30, 1995
SHORT-TERM INVESTMENTS 7.7% (a)
<TABLE>
<CAPTION>
Principal Amortized Quoted
Amount Cost Market Value
- ----------- --------- ------------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTES
$ 30,000 General Mills, Inc. $ 30,000 $ 30,000
25,000 Pitney Bowes Credit Corp. 25,000 25,000
380,000 Sara Lee Corp. 380,000 380,000
79,700 Warner-Lambert Company 79,700 79,700
80,000 Wisconsin Electric Power Company 80,000 80,000
------------ ------------
Total short-term investments 594,700 594,700
------------ ------------
Total investments $ 7,640,365 7,680,643
============
Cash and receivables,
less liabilities - 0.3% (a) 20,372
------------
NET ASSETS $ 7,701,015
============
Net Asset Value Per Share
($0.01 par value, 300,000,000
shares authorized), redemption price
($7,701,015 divided by 814,278 shares outstanding) $ 9.46
============
Maximum Offering Price Per Share
(net asset value plus 4.16% of the
net asset value or 4.00% of the
offering price calculated as
$9.46 x 100 divided by 96.00) $ 9.85
============
</TABLE>
(a) Percentages for the various classifications relate to net assets.
The accompanying notes to financial statements are an integral part of this
statement.
3
<PAGE> 378
BAIRD QUALITY BOND FUND
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1995
<TABLE>
<CAPTION>
<S> <C>
INCOME:
Interest $ 638,344
-----------
Total income 638,344
-----------
EXPENSES:
Management fees 42,023
Professional fees 18,612
Distributor fees 15,518
Amortization of organizational expenses 9,451
Registration fees 8,905
Administrative services 8,359
Custodian fees 6,592
Printing and postage expense 3,264
Transfer agent fees 2,765
Other expenses 2,968
-----------
Total expenses before reimbursement 118,457
Less expenses assumed by adviser (68,030)
-----------
Net expenses 50,427
-----------
NET INVESTMENT INCOME 587,917
-----------
NET REALIZED LOSS ON INVESTMENTS (304,002)
NET INCREASE IN UNREALIZED APPRECIATION ON INVESTMENTS 745,322
-----------
NET GAIN ON INVESTMENTS 441,320
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,029,237
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
4
<PAGE> 379
BAIRD QUALITY BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 587,917 $ 541,382
Net realized loss on investments . . . . . . . . . . . . . . . . . . . . . . (304,002) (173,396)
Net increase (decrease) in unrealized appreciation on investments 745,322 (829,284)
----------- -----------
Net increase (decrease) in net assets resulting from operations . . . . . 1,029,237 (461,298)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
($0.64 and $0.67 per share, respectively). . . . . . . . . . . . . . . . (587,917) (541,378)
Distribution from net realized gains
($0.11 per share). . . . . . . . . . . . . . . . . . . . . . . . . . . . - (73,944)
----------- -----------
Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . (587,917) (615,322)
----------- -----------
FUND SHARE ACTIVITIES:
Proceeds from shares issued
(191,884 and 370,441 shares, respectively). . . . . . . . . . . . . . . . 1,728,536 3,667,913
Net asset value of shares issued in distributions
(7,938 and 8,204 shares, respectively). . . . . . . . . . . . . . . . . . 72,434 79,813
Cost of shares redeemed (270,508 and 99,176 shares, respectively) (2,502,561) (949,644)
----------- -----------
Net (decrease) increase in net assets
derived from Fund share activities. . . . . . . . . . . . . . . . . . . . (701,591) 2,798,082
----------- -----------
TOTAL (DECREASE) INCREASE . . . . . . . . . . . . . . . . . . . . . . . . . (260,271) 1,721,462
NET ASSETS AT THE BEGINNING OF THE YEAR . . . . . . . . . . . . . . . . . . 7,961,286 6,239,824
----------- -----------
NET ASSETS AT THE END OF THE YEAR . . . . . . . . . . . . . . . . . . . . . $7,701,015 $7,961,286
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
5
<PAGE> 380
BAIRD QUALITY BOND FUND
FINANCIAL HIGHLIGHTS
(Selected Data for each share of the Fund outstanding throughout each year)
<TABLE>
<CAPTION>
FOR THE YEAR FROM
FOR THE YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992*
------------------------------------ TO SEPTEMBER 30,
1995 1994 1993
--------------- --------------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year $ 9.00 $ 10.31 $ 10.00
Income from investment operations:
Net investment income. . . . . . . 0.64 0.67 0.63
Net realized and unrealized gain
(loss) on investments . . . . . 0.46 (1.20) 0.31
--------- --------- ---------
Total from investment operations . . . 1.10 (0.53) 0.94
Less distributions:
Dividends from net investment
income . . . . . . . . . . . . (0.64) (0.67) (0.63)
Distribution from net realized
gains . . . . . . . . . . . . . - (0.11) -
--------- --------- ---------
Total from distributions . . . . . . . (0.64) (0.78) (0.63)
--------- --------- ---------
Net asset value, end of year . . . . . $ 9.46 $ 9.00 $ 10.31
========= ========= =========
TOTAL INVESTMENT RETURN**** . . . . . . 12.6% (5.4%) 9.8%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in 000's $) . . . . . . . . . 7,701 7,961 6,240
Ratio of expenses (after
reimbursement) to average net
assets** . . . . . . . . . . . 0.6% 0.6% 0.4%
Ratio of net investment income
to average net assets***. . . . 7.0% 7.0% 6.2%
Portfolio turnover rate . . . . . 197.5% 99.6% 124.1%
</TABLE>
* Commencement of Operations.
** Computed after giving effect to adviser's expense limitation undertaking.
If the Fund had paid all of its expenses, the ratios would have been
1.4%, 1.7% and 2.1%, respectively, for the years ended September 30,
1995, 1994 and 1993.
*** The ratio of net investment income prior to adviser's expense limitation
undertaking to average net assets for the years ended September 30, 1995,
1994 and 1993 would have been 6.2%, 5.9% and 4.5%, respectively.
**** Total return does not include the sales load.
The accompanying notes to financial statements are an integral part
of these statements.
6
<PAGE> 381
BAIRD QUALITY BOND FUND
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 Quality Bond Fund (the "Fund"),
which is one portfolio in a series of two portfolios comprising The Baird
Funds, Inc. (the "Company"), which is registered under the Investment Company
Act of 1940. The assets and liabilities of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which the shareholder
owns shares. The Company was incorporated under the laws of Wisconsin on June
26, 1992 and commenced operations on October 1, 1992.
(a) Debt securities are valued on the basis of valuations provided by
broker-dealers (including broker-dealers from whom such securities may
have been purchased) or by a pricing service, approved by the Fund's Board
of Directors, which may utilize information with respect to transactions in
such securities, quotations from dealers, market transactions in comparable
securities, various relationships among securities and yield data in
determining values. Securities for which there are no readily available
market quotations and other assets will be valued at their fair value as
determined in good faith in accordance with policies approved by the Fund's
Board of Directors. Debt securities having a remaining maturity of sixty
days or less when purchased and debt securities originally purchased with
maturities in excess of sixty days but which currently have maturities of
sixty days or less are valued at cost adjusted for amortization of premiums
and accretion of discounts.
(b) Premiums and discounts on securities are amortized to maturity. Investment
transactions are recorded no later than the first business day after the
trade date. Cost amounts, as reported in the statement of net assets, are
the same for Federal income tax purposes.
(c) Net realized gains and losses are computed on the basis of the cost of
specific certificates.
(d) 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. The Fund has $214,202 of net capital
losses which expire September 30, 2003, and $283,586 of 1995 post-October
losses, that may be used to offset capital gains in future years to the
extent provided by tax regulations.
(e) Dividend income (if any) is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis.
7
<PAGE> 382
BAIRD QUALITY BOND FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
September 30, 1995
(f) The Fund has investments in short-term variable rate demand notes,which are
unsecured instruments. The Fund may be susceptible to credit risk with
respect to these notes to the extent the issuer defaults on its payment
obligation. The Fund's policy is to monitor the creditworthiness of
the issuer and does not anticipate nonperformance by these counterparties.
(g) Generally accepted accounting principles require that permanent financial
reporting and tax differences be reclassified to capital stock.
(2) INVESTMENT ADVISER AND MANAGEMENT AGREEMENT AND TRANSACTIONS WITH RELATED
PARTIES -- The Fund has a management agreement with Robert W. Baird & Co.
Incorporated ("RWB"), with whom certain officers and directors of the Fund are
affiliated, to serve as investment adviser and manager. Under the terms of the
agreement, the Fund will pay RWB a monthly management fee at the annual rate of
0.50% of the daily net assets of the Fund. For the year ended September 30,
1995, RWB voluntarily waived approximately $8,405 of the management fees due
from the Fund under the agreement.
RWB reimburses the Fund for annual expenses in excess of the lowest
expense limitation imposed by the states. In addition to the reimbursement
required under the management agreement, RWB has voluntarily reimbursed the
Fund for all expenses over 0.6% for the year ended September 30, 1995 totaling
$56,714. These voluntary reimbursements to the Fund may be modified or
discontinued at any time by RWB.
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. For the year ended September 30,
1995, RWB waived distribution fees in excess of .15%, totaling $2,911.
During the year ended September 30, 1995, the Company was advised that RWB
received $19,586 from investors of the Fund, representing commissions on sales
of Fund shares and the Fund did not pay any brokerage fees to RWB on the
execution of purchases and sales of portfolio securities.
(3) DISTRIBUTION TO SHAREHOLDERS -- Dividends from net investment income for
the Fund are declared daily and paid monthly. Distributions of net realized
gains, if any, for the Fund, will be declared at least once a year.
8
<PAGE> 383
BAIRD QUALITY BOND FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
September 30, 1995
(4) DEFERRED EXPENSES - Organizational expenses were deferred and are being
amortized on a straight-line basis over a period of not more than five years.
These expenses were advanced by RWB who will be reimbursed by the Fund over a
period of not more than five years. The proceeds of any redemption of the
initial shares by the original shareholder will be reduced by a pro-rata
portion of any then unamortized deferred expenses in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of such redemption. The unamortized organizational
expenses for the Fund at September 30, 1995 were $18,902.
(5) INVESTMENT TRANSACTIONS - For the year ended September 30, 1995, purchases
and proceeds of sales of investment securities of the Fund (excluding
short-term securities) were $14,652,497 and $14,637,912, respectively, and
$938,936 and $943,558, respectively for short-term U.S. Government Securities.
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - As of September 30, 1995,
liabilities of the Fund included the following:
<TABLE>
<S> <C>
Redemptions payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,099
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,083
Payable to adviser for management and
distributor fees and deferred expenses . . . . . . . . . . . . . . . . . . . . . 22,351
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,170
</TABLE>
(7) 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. . . . . . . . . . . . . . . . . . . . . . . . . $8,158,525
Net unrealized appreciation on investments. . . . . . . . . . . . . . . . . . . . . 40,278
Accumulated net realized loss on investments. . . . . . . . . . . . . . . . . . . . (497,788)
----------
$7,701,015
==========
</TABLE>
Aggregate net unrealized appreciation as of September 30, 1995
consisted of the following:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation. . . . . . . . . . . . . . . . . . . . . . $ 63,894
Aggregate gross unrealized depreciation. . . . . . . . . . . . . . . . . . . . . . (23,616)
----------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,278
==========
</TABLE>
9
<PAGE> 384
AIM FUNDS GROUP
REGISTRATION STATEMENT ON FORM N-14
PART C
ITEM 15: Indemnification
The Registrant's Agreement and Declaration of Trust, dated May 5,
1993, as amended, provides, among other things, (i) that trustees shall not be
liable for any act or omission or any conduct whatsoever (except for
liabilities to the Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty); (ii)
for the indemnification by the Registrant of the trustees and officers to the
fullest extent permitted by the Delaware Business Trust Act; and (iii) that the
shareholders and former shareholders of the Registrant are held harmless by the
Registrant (or applicable portfolio or class) from personal liability arising
from their status as such, and are indemnified by the Registrant (or applicable
portfolio or class) against all loss and expense arising from such personal
liability in accordance with the Registrant's Bylaws and applicable law.
A I M Advisors, Inc., the Registrant and other investment companies
managed by A I M Advisors, Inc., their respective officers, trustees, directors
and employees are insured under an Investment Advisory Professional and
Directors and Officers Liability Policy, issued by ICI Mutual Insurance
Company, with a $15,000,000 limit of liability.
ITEM 16: Exhibits
(1) - (a) Agreement and Declaration of Trust of Registrant was filed
electronically as Exhibit 1(a) to Post- Effective Amendment
No. 70 to Registrant's Registration Statement on Form N-1A,
File No. 2-27334 (the "Registration Statement") on November
17, 1995, and is hereby incorporated by reference.
- (b) First Amendment to Agreement and Declaration of Trust of
Registrant was filed electronically as Exhibit 1(b) to
Post-Effective Amendment No. 70 to Registrant's Registration
Statement on November 17, 1995, and is hereby incorporated
by reference.
- (c) Second Amendment to the Agreement and Declaration of Trust
of Registrant was filed electronically as Exhibit 1(c) to
Post-Effective Amendment No. 70 to Registrant's Registration
Statement on November 17, 1995, and is hereby incorporated
by reference.
- (d) Third Amendment to the Agreement and Declaration of Trust of
Registrant was filed electronically as Exhibit 1(d) to
Post-Effective Amendment No. 70 to Registrant's Registration
Statement on November 17, 1995, and is hereby incorporated
by reference.
(2) - (a) By-laws of Registrant was filed electronically as Exhibit
2(a) to Post-Effective Amendment No. 70 to Registrant's
Registration Statement on November 17, 1995, and is hereby
incorporated by reference.
C-1
<PAGE> 385
- (b) Amendment to By-laws of Registrant was filed electronically
as Exhibit 2(b) to Post-Effective Amendment No. 70 to
Registrant's Registration Statement on November 17, 1995, and
is hereby incorporated by reference.
- (c) Second Amendment to By-Laws of Registrant was filed
electronically as Exhibit 2(c) to Post-Effective Amendment
No. 70 to Registrant's Registration Statement on November
17, 1995, and is hereby incorporated by reference.
(3) - Voting Trust Agreements - None.
(4) - Form of Agreement and Plan of Reorganization between Registrant and
Baird Mutual Funds,Inc. is included in this Registration Statement
as Appendix II to the Combined Proxy Statement and Prospectus.
(5) - Specimen Certificate for Class A shares of Registrant's AIM Income
Fund was filed as Exhibit 4(a) to Post- Effective Amendment No. 69
to Registrant's Registration Statement on February 28, 1995, and is
hereby incorporated by reference.
(6) - (a) Master Investment Advisory Agreement, dated October 18,
1993, between Registrant and A I M Advisors, Inc. was filed
as Exhibit 5(a)(2) to Post-Effective Amendment No. 69 to
Registrant's Registration Statement on February 28, 1995,
and is hereby incorporated by reference.
- (b) Amendment No. 1, dated as of September 28, 1994, to the
Master Advisory Agreement between Registrant and A I M
Advisors, Inc. was filed as Exhibit 5(a)(4) to
Post-Effective Amendment No. 69 to Registrant's Registration
Statement on February 28, 1995, and is hereby incorporated
by reference.
- (c) Amendment No. 2, dated as of November 14, 1994, to the
Master Advisory Agreement between Registrant and A I M
Advisors, Inc. was filed as Exhibit 5(a)(4) to
Post-Effective Amendment No. 69 to Registrant's Registration
Statement on February 28, 1995, and is hereby incorporated
by reference.
(7) - (a) Master Distribution Agreement, dated October 18, 1993,
between Registrant, on behalf of its Class A and Class C
shares, and A I M Distributors, Inc. was filed as Exhibit
6(a)(4) to Post-Effective Amendment No. 68 to Registrant's
Registration Statement on April 11, 1994, and is hereby
incorporated by reference.
- (b) Master Distribution Agreement, dated October 18, 1993,
between Registrant, on behalf of its Class B shares, and
A I M Distributors, Inc. was filed as Exhibit 6(a)(4) to
Post-Effective Amendment No. 68 to Registrant's Registration
Statement on April 11, 1994, and is hereby incorporated by
reference.
- (c) Amended and Restated Master Distribution Agreement, dated
May 2, 1995, between Registrant (on behalf of its Class B
Shares) and A I M Distributors, Inc. was filed as Exhibit
6(a)(5) to Post-Effective Amendment No. 70 to Registrant's
Registration Statement on November 17, 1995, and is hereby
incorporated by reference.
- (d) Form of Selected Dealer Agreement between A I M
Distributors, Inc. and selected dealers was filed as Exhibit
6(b) to Post-Effective Amendment No. 68 to Registrant's
Registration Statement on April 11, 1994, and is hereby
incorporated by reference.
C-2
<PAGE> 386
(8) - (a) AIM Funds Retirement Plan for Eligible Directors/Trustees
was filed as Exhibit 7(a) to Post-Effective Amendment No. 70
to Registrant's Registration Statement on November 17, 1995,
and is hereby incorporated by reference.
- (b) Form Deferred Compensation Agreement was filed as Exhibit
7(b) to Post-Effective Amendment No. 70 to Registrant's
Registration Statement on November 17, 1995, and is hereby
incorporated by reference.
(9) - (a) Custodian Agreement, dated October 15, 1993, between
Registrant and State Street Bank and Trust Company, and
applicable fee schedule was filed as Exhibit 8 to
Post-Effective Amendment No. 68 to Registrant's Registration
Statement on April 11, 1994, and is hereby incorporated by
reference.
- (b) Subcustodian Agreement, dated September 9, 1994, among the
Registrant, Texas Commerce Bank National Association, State
Street Bank and Trust Company and A I M Fund Services, Inc.
was filed as Exhibit 8(b) to Post-Effective Amendment No. 69
to Registrant's Registration Statement on February 28, 1995,
and is hereby incorporated by reference.
- (c) Custody Agreement, dated October 19, 1995, between
Registrant and The Bank of New York was filed electronically
as Exhibit 8(c) to Post-Effective Amendment No. 70 to
Registrant's Registration Statement on November 17, 1995,
and is hereby incorporated by reference.
(10) - (a) Master Distribution Plan for Registrant's Class A and Class
C shares and related forms were filed as Exhibit 15(a) to
Post-Effective Amendment No. 68 to Registrant's Registration
Statement on April 11, 1994, and are hereby incorporated by
reference.
- (b) Master Distribution Plan for Registrant's Class B shares and
related forms were filed as Exhibit 15(b) to Post-Effective
Amendment No. 68 to Registrant's Registration Statement on
April 11, 1994, and are hereby incorporated by reference.
- (c) Amended and Restated Master Distribution Plan for
Registrant's Class B Shares, and related forms, were filed
electronically as Exhibit 15(c) to Post-Effective Amendment
No. 70 to Registrant's Registration Statement on November
17, 1995, and is hereby incorporated by reference.
(11) - Opinion of Ballard Spahr Andrews & Ingersoll and consent to its use
is filed herewith electronically as Exhibit 11.
(12) - Opinion of Ballard Spahr Andrews & Ingersoll and consent to its use
is filed herewith electronically as Exhibit 12.
(13) - (a) Form of Transfer Agency and Registrar Agreement between the
Registrant and The Shareholder Services Group, Inc. was
filed as Exhibit 9(n) to Post-Effective Amendment No. 65 to
Registrant's Registration Statement on July 16, 1993 and is
hereby incorporated by reference.
- (b) Transfer Agency and Service Agreement, dated as of November
1, 1994, between the Registrant and A I M Fund Services,
Inc. was filed electronically as Exhibit 9(a)(2) to
Post-Effective Amendment No. 70 to Registrant's Registration
Statement on November 17, 1995, and is hereby incorporated
by reference.
C-3
<PAGE> 387
- (c) Master Administrative Services Agreement, dated October 18,
1993, between the Registrant and A I M Advisors, Inc. was
filed as Exhibit 9(b)(2) to Post-Effective Amendment No. 68
to Registrant's Registration Statement on April 11, 1994,
and is hereby incorporated by reference.
- (d) Administrative Services Agreement, dated October 18, 1993,
between A I M Advisors, Inc., on behalf of the Registrant's
portfolios and A I M Fund Services, Inc. was filed as
Exhibit 9(b)(3) to Post- Effective Amendment No. 68 to
Registrant's Registration Statement on April 11, 1994, and
is hereby incorporated by reference.
- (e) Amendment No. 1 to Administrative Services Agreement, dated
May 11, 1994, between A I M Advisors, Inc., on behalf of
Registrant's portfolios, and A I M Fund Services, Inc. was
filed as Exhibit 9(b)(4) to Post-Effective Amendment No. 69
to Registrant's Registration Statement on February 28, 1995,
and is hereby incorporated by reference.
- (f) Amendment No. 2 to Administrative Services Agreement, dated
July 1, 1994, between A I M Advisors, Inc., on behalf of
Registrant's portfolios, and A I M Fund Services, Inc. was
filed as Exhibit 9(b)(5) to Post-Effective Amendment No. 69
to Registrant's Registration Statement on February 28, 1995,
and is hereby incorporated by reference.
- (g) Form of Amendment No. 3 to Administrative Services
Agreement, dated September 16, 1994, between A I M Advisors,
Inc., on behalf of Registrant's portfolios, and A I M Fund
Services, Inc. was filed as Exhibit 9(b)(6) to
Post-Effective Amendment No. 69 to Registrant's Registration
Statement on February 28, 1995, and is hereby incorporated
by reference.
(14) - (a) Consent of KPMG Peat Marwick LLP is filed herewith
electronically as Exhibit 14(a).
- (b) Consent of Price Waterhouse LLP is filed herewith
electronically as Exhibit 14(b).
- (c) Consents of Ballard Spahr Andrews & Ingersoll are included
in its opinions filed herewith as Exhibits 11 and 12.
(15) - Financial Statements - None.
(16) - Powers of attorney are included on the signature page hereof.
(17) - (a) Form of Proxy is filed herewith electronically as
Exhibit 17(a).
(b) Copy of Registant's Declaration under Rule 24f-2 is filed
herewith electronically as Exhibit 17(b).
- (c) Prospectus of Baird Quality Bond Fund dated January 31, 1995
is filed herewith electronically as Exhibit 17(c).
ITEM 17: Undertakings
(1) The undersigned registrant agrees that prior to any
public reoffering of the securities registered through the use of a prospectus
which is a part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the Securities
Act of 1933, the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
C-4
<PAGE> 388
(2) The undersigned registrant agrees that every
prospectus that is filed under paragraph (1) above will be filed as a part of
an amendment to the registration statement and will not be used until the
amendment is effective, and that, in determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement for the securities offered therein, and the offering
of the securities at that time shall be deemed to be the initial bona fide
offering of them.
(3) The Registrant undertakes to furnish each person to
whom a Proxy Statement/Prospectus is delivered a copy of each of Baird Quality
Bond Fund and AIM Income Fund's latest annual report to shareholders, upon
request and without charge.
C-5
<PAGE> 389
SIGNATURES
As required by the Securities Act, this Registration Statement has
been signed on behalf of the Registrant, in the City of Houston and State of
Texas, on the 29th day of December, 1995.
AIM FUNDS GROUP
By: /s/ Robert H. Graham
------------------------------------
Robert H. Graham , President and
Trustee
As required by the Securities Act, this Registration has been
signed by the following persons in the capacities and on the dates indicated.
Each person whose signature appears below in so signing also
makes, constitutes and appoints Robert H. Graham his true and lawful
attorney-in-fact, with full power of substitution, for him in any and all
capacities, to execute and cause to be filed with the Securities and Exchange
Commission any and all amendments and post-effective amendments to this
Registration Statement, with exhibits thereto and other documentation in
connection therewith, and hereby ratifies and confirms all that said
attorney-in-fact or his substitute or substitutes may do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles T. Bauer Chairman and Trustee December 29, 1995
- ------------------------------
Charles T. Bauer
/s/ Robert H. Graham President and Trustee December 29, 1995
- ------------------------------ (Principal Executive Officer)
Robert H. Graham
/s/ Bruce L. Crockett Trustee December 29, 1995
- ------------------------------
Bruce L. Crockett
/s/ Owen Daly II Trustee December 29, 1995
- ------------------------------
Owen Daly II
/s/ Carl Frischling Trustee December 29, 1995
- -------------------------------
Carl Frischling
/s/ John F. Kroeger Trustee December 29, 1995
- ------------------------------
John F. Kroeger
/s/ Lewis F. Pennock Trustee December 29, 1995
- ------------------------------
Lewis F. Pennock
/s/ Ian W. Robinson Trustee December 29, 1995
- ------------------------------
Ian W. Robinson
/s/ Louis S. Sklar Trustee December 29, 1995
- ------------------------------
Louis S. Sklar
/s/ John J. Arthur Senior Vice President December 29, 1995
- ------------------------------ and Treasurer
John J. Arthur (Principal Financial
and Accounting Officer)
</TABLE>
<PAGE> 390
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
11 Opinion of Ballard Spahr Andrews & Ingersoll and consent to its use
12 Opinion of Ballard Spahr Andrews & Ingersoll and consent to its use
14(a) Consent of KPMG Peat Marwick LLP
14(b) Consent of Price Waterhouse LLP
17(a) Form of Proxy
17(b) Copy of Registrant's Declaration under Rule 24f-2
17(c) Baird Quality Bond Fund's Prospectus dated January 31, 1995
</TABLE>
<PAGE> 1
LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL
December 29, 1995
AIM Funds Group
11 Greenway Plaza
Suite 1919
Houston, TX 77046
Re: Shares of Beneficial Interest
AIM Funds Group
Gentlemen:
We have acted as counsel to AIM Funds Group, a Delaware
business trust (the "Trust"), in connection with the proposed Agreement and
Plan of Reorganization (the "Agreement") between the Trust and The Baird Funds,
Inc., a Wisconsin corporation ("BFI"), and the consummation of the transactions
contemplated therein. The Agreement contemplates the acquisition of
substantially all of the assets of Baird Quality Bond Fund, a portfolio of BFI
("Baird Bond"), by the Trust in exchange for Class A shares of beneficial
interest of AIM Income Fund, a portfolio of the Trust, which shares will be
issued directly by the Trust to the shareholders of Baird Bond (the
"Transaction"). Each shareholder of Baird Bond will receive that number of
shares of beneficial interest of AIM Income Fund (the "Shares") representing
interests with an aggregate net asset value equal to the aggregate net asset
value of his or her shares of Baird Bond.
The opinion expressed below is based on the assumption that a
Registration Statement on Form N-14 with respect to the Shares will have been
filed by the Trust with the Securities and Exchange Commission and will have
become effective before the Transaction occurs.
Based on the foregoing, we are of the opinion that the Shares,
when issued by the Trust directly to the shareholders of Baird Bond in
accordance with the terms and conditions of the Agreement, will be legally
issued, fully paid and nonassessable.
<PAGE> 2
AIM Funds Group
December 29, 1995
Page 2
Both the Delaware Business Trust Act and the Trust's Agreement
and Declaration of Trust, as amended (the "Trust Agreement"), provide that
shareholders of the Trust shall be entitled to the same limitation on personal
liability as is extended under the Delaware General Corporation Law to
stockholders of private corporations for profit. There is a remote
possibility, however, that, under certain circumstances, shareholders of a
Delaware business trust may be held personally liable for that trust's
obligations to the extent that the courts of another state which does not
recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. The Trust Agreement also requires that
notice of such disclaimer of shareholder liability be given in each note, bond,
contract or other undertaking made or issued by the Trustees or Officers of the
Trust. Such disclaimer is contained in the Agreement. The Trust Agreement
also provides for indemnification out of Trust property for all loss and
expense of any shareholder held personally liable for the obligations of the
Trust. Therefore, the risk of any shareholder incurring financial loss beyond
his investment due to shareholder liability is limited to circumstances in
which the Trust is unable to meet its obligations and the express disclaimer of
shareholder liabilities is determined not to be effective.
We consent to the filing of this opinion as Exhibit 11 to the
Trusts Registration Statement on Form N-14 and to the references to this firm
in such Registration Statement.
Very truly yours,
BALLARD SPAHR ANDREWS & INGERSOLL
<PAGE> 1
LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL
December 29, 1995
Baird Quality Bond Fund
The Baird Funds, Inc.
777 Wisconsin Avenue
Milwaukee, Wisconsin 53202
AIM Income Fund
AIM Funds Group
11 Greenway Plaza
Suite 1919
Houston, TX 77046-1173
RE: PROPOSED TRANSFER OF ASSETS --
FEDERAL INCOME TAX CONSEQUENCES
Gentlemen:
You have requested our opinion regarding certain federal
income tax consequences to (1) Baird Quality Bond Fund (the "Baird Fund"), a
portfolio of The Baird Funds, Inc. ("BFI") and (2) AIM Income Fund (the "AIM
Fund"), a portfolio of AIM Funds Group ("AFG"), in connection with the proposed
transfer of substantially all of the properties of the Baird Fund to the AIM
Fund in exchange solely for voting shares of the AIM Fund (the "Shares"),
followed by the actual or constructive distribution of the Shares received by
the Baird Fund and of any money and other property of the Baird Fund in
complete liquidation and termination of the Baird Fund (the "Transaction"), all
pursuant to the Agreement and Plan of Reorganization made December 20, 1995 by
and between BFI on behalf of the Baird Fund and AFG on behalf of the AIM Fund
(the "Agreement").
For purposes of this opinion, we have examined and rely upon
the Agreement, the description of the transaction set forth in the Registration
Statement on Form N-14 filed by AFG on or about December 29, 1995 with the
Securities and Exchange
<PAGE> 2
The Baird Funds, Inc.
AIM Funds Group
December 29, 1995
Page 2
Commission (the "Filing"), and such other documents and instruments as we have
deemed necessary or appropriate.
This opinion is based upon the assumptions that, as has been
represented to us, (a) there is no plan or intention on the part of the
shareholders of the Baird Fund to sell, exchange, transfer by gift or otherwise
dispose of a number of shares of the AIM Fund received in the Transaction that
would, when aggregated with transfers of shares of the Baird Fund prior to the
Closing Date (as defined in the Agreement) that are made in contemplation of
the Transaction, reduce the ownership by the shareholders of the Baird Fund to
a number of shares of the AIM Fund having a value, as of the Closing Date, of
less than fifty percent (50%) of the total value of all the shares of the Baird
Fund outstanding immediately prior to the Transaction; and (b) the AIM Fund and
the Baird Fund will each separately qualify and be treated as regulated
investment companies under Subchapter M of Chapter 1 of the Internal Revenue
Code of 1986, as amended (the "Code") for their respective taxable years that
include the Closing Date. If these assumptions are not correct, the
Transaction may not qualify as a tax-free reorganization and, therefore, our
opinion could be altered. For purposes of rendering this opinion, we have not
been requested to undertake, nor have we undertaken, any investigation or
inquiry as to whether these assumptions are and will be correct.
This opinion is based upon the Code, United States Treasury
regulations, judicial decisions and administrative rulings and pronouncements
of the Internal Revenue Service, all as in effect on the date hereof. This
opinion is conditioned upon (a) the Transaction taking place in the manner
described in the Agreement and (b) there being no change in the Code, United
States Treasury regulations, judicial decisions, or administrative rulings and
pronouncements of the Internal Revenue Service between the date hereof and the
Closing Date.
This opinion is further conditioned upon our receiving such
executed letters of representation as we shall request. We have not been asked
to, nor have we undertaken to, verify the accuracy of any representations made
to us and the inaccuracy of any representation could alter our opinion. This
opinion shall be effective only at such time as we receive those letters and
confirm our opinion in writing on the Closing Date, and in the absence of such
confirmation, will be deemed to have been withdrawn.
Based upon and subject to the foregoing, it is our opinion
that, for federal income tax purposes:
<PAGE> 3
The Baird Funds, Inc.
AIM Funds Group
December 29, 1995
Page 3
1. The transfer of the assets of the Baird Fund to the
AIM Fund in exchange for the Shares, and the constructive distribution of the
Shares to the shareholders of the Baird Fund in complete liquidation of the
Baird Fund, as provided in the Agreement, will constitute a "reorganization"
within the meaning of Section 368(a) of the Code and the Baird Fund and the AIM
Fund will each be "a party to a reorganization" within the meaning of Section
368(b) of the Code;
2. In accordance with Section 361(a) and Section
361(c)(1) of the Code, no gain or loss will be recognized by the Baird Fund as
a result of such transaction;
3. In accordance with Section 354(a)(1) of the Code, no
gain or loss will be recognized by the shareholders of the Baird Fund on the
constructive distribution to them by the Baird Fund of the Shares in exchange
for their shares of the Baird Fund;
4. In accordance with Section 358(a) of the Code, a
shareholder's basis for the Shares constructively distributed to him will be
the same as his basis for the shares of the Baird Fund surrendered in exchange
therefor;
5. In accordance with Section 1223(1) of the Code, a
shareholder's holding period for the Shares constructively distributed to him
will be determined by including such shareholder's holding period for the
shares of the Baird Fund exchanged therefor, provided that the shareholder held
such shares of the Baird Fund as a capital asset;
6. In accordance with Section 1032 of the Code, no gain
or loss will be recognized by the AIM Fund upon the receipt of assets of the
Baird Fund in exchange for the Shares;
7. In accordance with Section 362(b) of the Code, the
basis to the AIM Fund of the assets of the Baird Fund transferred to it will
be, in each instance, the same as the basis of such assets in the hands of the
Baird Fund immediately prior to the exchange;
8. In accordance with Section 1223(2) of the Code, the
holding period of the AIM Fund with respect to the assets of the Baird Fund
transferred to it will include the holding period for such assets in the hands
of the Baird Fund; and
9. In accordance with Section 381(a)(2) of the Code, the
AIM Fund will succeed to and take into account the items of the Baird Fund
described in Section 381(c) of the Code, subject
<PAGE> 4
The Baird Funds, Inc.
AIM Funds Group
December 29, 1995
Page 4
to the conditions and limitations specified in Sections 381 through 384 of the
Code and the Treasury regulations thereunder.
We express no opinion as to the tax consequences of the
Transaction except as expressly set forth above, or as to any transaction
except the Transaction.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement on Form N-14 referred to above and filed by AFG
with the Securities and Exchange Commission.
Very truly yours,
BALLARD SPAHR ANDREWS & INGERSOLL
<PAGE> 1
EXHIBIT 14(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees
AIM Funds Group
We consent to the use of our report on AIM Income Fund (a portfolio of AIM
Funds Group) dated February 3, 1995 included herein and to the references to
our firm under the headings "Financial Information" in the Prospectus and
"Audit Reports" in the Statement of Additional Information.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Houston, Texas
December 28, 1995
<PAGE> 1
EXHIBIT 14(b)
CONSENT OF INDEPDENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this registration statement on Form N-14
(the "Registration Statement") of our report dated November 2, 1995, relating
to the financial statements and financial highlights of Baird Quality Bond
Fund, which appears in such Statement of Additional Information, and to the
incorporation by reference of our report into the Prospectus which constitutes
part of this Registration Statement. We also consent to the reference to us
under the heading "Financial Information" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
December 27, 1995
<PAGE> 1
EXHIBIT 17(a)
THE BAIRD FUNDS, INC.
BAIRD QUALITY BOND FUND
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
REVOCABLE PROXY FOR SPECIAL MEETING OF SHAREHOLDERS OF BAIRD QUALITY BOND FUND TO BE HELD ON MARCH 15, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Marcus L. Low, Jr. and Glen F. Hackmann, and each of them individually, as proxy, with full power of
substitution, to represent and vote, as designated below, all shares of the Baird Quality Bond Fund ("Baird Bond"), a portfolio of
The Baird Funds, Inc. ("BFI"), that the undersigned is entitled to vote at the Special Meeting of Shareholders of Baird Bond, to be
held at the University Club, 924 East Wells Street, Milwaukee, Wisconsin 53202, at 10:00 a.m., Central Time, on March 15, 1996, or
at any adjournment thereof, with respect to the matters set forth below and described in the accompanying Notice of Special Meeting
and Proxy Statement/Prospectus, receipt of which is hereby acknowledged.
Please place an "X" in the desired box for each item.
Shares represented by this Proxy will be voted as directed by the shareholder.
IF NO DIRECTION IS SUPPLIED, THE PROXY WILL BE VOTED FOR PROPOSAL 1.
---
1. PROPOSAL TO APPROVE an Agreement and Plan of Reorganization (the "Agreement") FOR [ ] AGAINST [ ] ABSTAIN [ ]
between BFI and AIM Funds Group ("AFG") and the consummation of the transactions
contemplated therein (the "Transaction"). Pursuant to the Agreement, substantially
all of the assets of Baird Bond will be transferred to AIM Income Fund
("AIM Income"), an existing portfolio of AFG. Upon such transfer, AFG will
issue Class A shares of AIM Income directly to the shareholders of Baird Bond.
Shareholders of Baird Bond will receive shares of AIM Income with an aggregate
net asset value equal to the aggregate net value of the Baird Bond assets
transferred in connection with the Transaction. It is expected that the value of
each shareholder's account with AIM Income immediately after the Transaction would
be the same as the value of such shareholder's account with Baird Bond immediately
prior to the Transaction.
2. In their discretion, on such other matters as may properly come before the meeting
or any adjournment thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL 1.
---
(TO BE DATED AND SIGNED ON THE REVERSE SIDE)
[FRONT]
</TABLE>
<PAGE> 2
DATE: ______________________________________________________________, 1996
(If this account is owned by more than one person, all owners should sign.
Persons signing as executors, administrators, trustees or in similar
capacities should so indicate.)
**************************************************************************
* *
* *
* *
* *
**************************************************************************
(Please sign exactly as name appears at left)
[BACK]
<PAGE> 1
EXHIBIT 17(b)
RULE 24f-2 NOTICE
AIM Funds Group
Reg. No. 2-27334 Dated: February 16, 1995
The fiscal year for which this Notice is being filed ended December 31,
1994.
There were no shares registered during such fiscal year pursuant to
Section 270.24e-2.
There were 3,694,144 shares of the AIM Growth Fund series of the issuer
which previously had been registered under the Securities Act of 1933 pursuant
to Section 270.24e-2 and which remained unsold at the beginning of such fiscal
year.
There were 2,951,123,245 shares sold during such fiscal year. The
aggregate sale price of these shares was $5,311,328,731. Of those shares sold,
2,949,977,481 shares were sold during this fiscal year in reliance upon
registration pursuant to Section 270.24f-2, and 1,145,764 shares were sold in
reliance upon registration pursuant to Section 270.24e-2. There were
2,661,691,766 shares repurchased or redeemed during such fiscal year. The
aggregate redemption price of these shares was $3,596,600,275.
Calculation of the required fee is as follows (pursuant to Section 6(b)
of the Securities Act of 1933):
$ 5,311,328,731 Aggregate sale price of shares sold during
fiscal year
$ 3,596,600,275 Aggregate redemption price of shares
repurchased or redeemed during fiscal year
$ 12,374,255 Aggregate sale price of shares sold pursuant
to definite registration
$ 1,702,354,201 x.00034483
$ 587,022.80 Total fee due with this Notice
No redeemed or repurchased shares have been previously applied by the
issuer pursuant to Section 270.24e-2(a) in filings made pursuant to Section
270.24e-1 under the Investment Company Act for such period.
This Rule 24f-2 Notice is accompanied by the required opinion of
counsel furnished by Ballard Spahr Andrews & Ingersoll, legal counsel to the
issuer.
/s/ DANA R. SUTTON
------------------
Dana R. Sutton
Assistant Treasurer
<PAGE> 1
EXHIBIT 17(c)
BAIRD QUALITY BOND FUND
A SERIES OF THE BAIRD FUNDS, INC.
SUPPLEMENT DATED DECEMBER 21, 1995 TO
PROSPECTUS DATED JANUARY 31, 1995
On December 20, 1995, following unanimous approval by the Board of
Directors of The Baird Funds, Inc., acting on behalf of the Baird Quality Bond
Fund (the "BQB Fund"), the BQB Fund entered into an Agreement and Plan of
Reorganization pursuant to which the BQB Fund would transfer substantially all
of its net assets to the AIM Income Fund, an existing portfolio of AIM Funds
Group. In the transaction, shareholders of the BQB Fund would receive, in
exchange for their BQB Fund shares, that number of shares of the AIM Income
Fund having an aggregate net asset value equal to the aggregate value of the
BQB Fund assets transferred in connection with the transaction. BQB Fund
Shareholders would not pay any load or sales commission on the shares of the
AIM Income Fund they receive. The transaction would be structured to qualify
as a tax-free reorganization, and if it so qualifies BQB Fund Shareholders
would not recognize any taxable gain or loss as a result of the exchange of
their shares.
The transaction is subject to normal and customary closing conditions and
to approval by the shareholders of the BQB Fund at a special meeting to be
called and held for that purpose during Spring 1996. Shareholders will receive
a separate proxy statement/prospectus in connection with the special meeting.
The AIM Income Fund is managed by A I M Advisors, Inc. ("AIM"). AIM was
organized in 1976 and presently serves as manager or advisor to 38 separate
investment company portfolios. As of November 30, 1995, the total net assets
of the investment company portfolios advised or managed by AIM or its
affiliates were approximately $41.1 billion. AIM is a wholly-owned subsidiary
of A I M Management Group Inc. AIM's principal executive offices are located
at 11 Greenway Plaza, Suite 1919, Houston, Texas 77046-1173.
The investment objective of the AIM Income Fund is to achieve a high level
of current income consistent with reasonable concern for safety of principal,
by investing primarily in fixed rate corporate debt and U.S. Government
obligations. In attempting to achieve its objective, the AIM Income Fund is
permitted to invest up to 35% of its net assets in non-investment grade debt
securities. AIM believes this practice, together with other differences
between the investment programs and policies of the AIM Income Fund and the BQB
Fund, offer shareholders of the AIM Income Fund an opportunity for higher
yields, but also involve risks that are different in magnitude and/or nature
than risks associated with an investment in the BQB Fund. For a more complete
discussion of the investment policies and restrictions of the AIM Income Fund,
please read the AIM Income Fund Prospectus accompanying this Supplement.
The BQB Fund's current investment advisor and distributor has announced
that, for calendar year 1996, it will waive fees and/or reimburse expenses as
necessary to limit the BQB Fund's total annual operating expenses at a ratio of
1.00% of average net assets. The total operating expenses of the AIM Income
Fund as a percentage of average net assets for its fiscal year ended December
31, 1994 were 0.98%.
<PAGE> 2
BAIRD BLUE CHIP FUND, INC.
SUPPLEMENT DATED DECEMBER 21, 1995 TO
PROSPECTUS DATED JANUARY 31, 1995
On December 20, 1995, following unanimous approval by the Board of
Directors of Baird Blue Chip Fund, Inc. (the "BBC Fund"), the BBC Fund entered
into an Agreement and Plan of Reorganization pursuant to which the BBC Fund
would transfer substantially all of its net assets to the AIM Blue Chip Fund, a
newly-created portfolio of AIM Equity Funds, Inc. In the transaction,
shareholders of the BBC Fund would receive, in exchange for their BBC Fund
shares, an equal number of shares of the AIM Blue Chip Fund. BBC Fund
shareholders would not pay any load or sales commission on the shares of the
AIM Blue Chip Fund they receive. The transaction would be structured to
qualify as a tax-free reorganization, and if it so qualifies BBC Fund
Shareholders would not recognize any taxable gain or loss as a result of the
exchange of their shares.
The transaction is subject to normal and customary closing conditions and
to approval by the shareholders of the BBC Fund at a special meeting to be
called and held for that purpose during Spring 1996. Shareholders will receive
a separate proxy statement/ prospectus in connection with the special meeting.
Following the transaction, the assets of the new AIM Blue Chip Fund would
be managed by A I M Advisors, Inc. ("AIM"). AIM was organized in 1976 and
presently serves as manager or advisor to 38 separate investment company
portfolios. As of November 30, 1995, the total net assets of the investment
company portfolios advised or managed by AIM or its affiliates were
approximately $41.1 billion. AIM is a wholly-owned subsidiary of A I M
Management Group Inc. AIM's principal executive offices are located at 11
Greenway Plaza, Suite 1919, Houston, Texas 77046-1173.
The AIM Blue Chip Fund will seek long-term growth of capital (with current
income being a secondary objective) by investing primarily in dividend paying
stocks of "Blue Chip" companies. While the AIM Blue Chip Fund's investment
program and policies are expected to be similar to those of the BBC Fund, the
AIM Blue Chip Fund may employ techniques and strategies which are somewhat
different from those used by the BBC Fund. These strategies and techniques are
intended by AIM to facilitate achieving the AIM Blue Chip Fund's objective, and
may involve market risks that are different in nature and/or magnitude from
those associated with an investment in the BBC Fund.
If the transaction is consummated, AIM has committed that, during the two-
year period immediately following the consummation of the proposed transaction,
it will reimburse expenses or waive fees as necessary so that the AIM Blue Chip
Fund's total operating expense ratio during those two years will not exceed the
BBC Fund's expense ratio for the fiscal year ended September 30, 1995 (after
giving effect to expense reimbursements and fee waivers), or 1.31% of average
net assets.
<PAGE> 3
BAIRD CAPITAL DEVELOPMENT FUND, INC.
SUPPLEMENT DATED DECEMBER 21, 1995 TO
PROSPECTUS DATED JANUARY 31, 1995
On December 20, 1995, following unanimous approval by the Board of
Directors of Baird Capital Development Fund, Inc. (the "BCD Fund"), the BCD
Fund entered into an Agreement and Plan of Reorganization pursuant to which the
BCD Fund would transfer substantially all of its net assets to AIM Capital
Development Fund, a newly-created portfolio of AIM Equity Funds, Inc. In the
transaction, shareholders of the BCD Fund would receive, in exchange for their
BCD Fund shares, an equal number of shares of AIM Capital Development Fund.
BCD Fund Shareholders would not pay any load or sales commission on the shares
of AIM Capital Development Fund they receive. The transaction would be
structured to qualify as a tax-free reorganization, and if it so qualifies BCD
Fund Share- holders would not recognize any taxable gain or loss as a result of
the exchange of their shares.
The transaction is subject to normal and customary closing conditions and
to approval by the shareholders of the BCD Fund at a special meeting to be
called and held for that purpose during Spring 1996. Shareholders will receive
a separate proxy statement/ prospectus in connection with the special meeting.
Following the transaction, the assets of the new AIM Capital Development
Fund would be managed by A I M Advisors, Inc. ("AIM"). AIM was organized in
1976 and presently serves as manager or advisor to 38 separate investment
company portfolios. As of November 30, 1995, the total net assets of the
investment company portfolios advised or managed by AIM or its affiliates were
approximately $41.1 billion. AIM is a wholly-owned subsidiary of A I M
Management Group Inc. AIM's principal executive offices are located at 11
Greenway Plaza, Suite 1919, Houston, Texas 77046-1173.
The AIM Capital Development Fund will seek to produce long-term capital
appreciation through investing in common stocks, convertible securities and
bonds issued primarily by small and medium-sized companies which, based upon
factors considered by AIM, AIM believes are underpriced relative to the
company's future growth prospects. While the AIM Capital Development Fund's
investment program and policies are expected to be similar to those of the BCD
Fund, the AIM Capital Development Fund may employ certain strategies and
techniques that are different from those used by the BCD Fund. Such strategies
and techniques are intended by AIM to facilitate achieving the AIM Capital
Development Fund's objective, and may involve risks that are different in
magnitude and/or nature from the risks associated with an investment in the BCD
Fund.
If the transaction is consummated, AIM has committed that, during the two-
year period immediately following the consummation of the proposed transaction,
it will reimburse expenses or waive fees as necessary to assure that the AIM
Capital Development Fund's total operating expense ratio during those two years
will not exceed the BCD Fund's expense ratio for the fiscal year ended
September 30, 1995 (after giving effect to expense reimbursements and fee
waivers), or 1.34% of average net assets.
<PAGE> 4
PROSPECTUS
BAIRD CAPITAL
DEVELOPMENT FUND
BAIRD BLUE
CHIP FUND
BAIRD QUALITY
BOND FUND
(Baird Logo)
PROSPECTUS
January 31, 1995
BAIRD CAPITAL DEVELOPMENT FUND
BAIRD BLUE CHIP FUND
BAIRD QUALITY BOND FUND
The Baird Mutual Funds consist of three separate open-end diversified
management investment companies, the Baird Capital Development Fund, Inc., the
Baird Blue Chip Fund, Inc. and the Baird Quality Bond Fund.
BAIRD CAPITAL DEVELOPMENT FUND. The primary investment objective of the Baird
Capital Development Fund is to produce long-term capital appreciation. This
Fund will invest principally in common stocks believed by the Fund's investment
adviser to be underpriced relative to future growth prospects. Current income
is a secondary objective.
BAIRD BLUE CHIP FUND. The primary investment objective of the Baird Blue Chip
Fund is to produce long-term growth of capital and income. This Fund will
invest principally in dividend paying common stocks rated A+, A or A- by
Standard & Poor's Corporation. Current income is a secondary objective.
BAIRD QUALITY BOND FUND. The investment objective of the Baird Quality Bond
Fund is to provide a high level of current income. This Fund will invest
principally in a diversified portfolio of investment grade debt securities.
There can be no assurance that the Baird Mutual Funds will meet their
respective investment objectives and investment in the Funds involves certain
risks. See ''Investment Objectives and Policies'' and ''Portfolio Securities
and Investment Practices.''This Prospectus sets forth concisely the information
about the Baird Mutual Funds that prospective investors should know before
investing. Investors are advised to read this Prospectus and retain it for
future reference. This Prospectus does not set forth all of the information
included in the Registration Statements and Exhibits thereto with respect to
the Baird Mutual Funds which has been filed with the Securities and Exchange
Commission. Statements of Additional Information, dated January 31, 1995,
which are a part of such Registration Statements, are incorporated by reference
in this Prospectus. Copies of the Statements of Additional Information will be
provided without charge to each person to whom a Prospectus is delivered upon
written or oral request made to the Funds' Distributor, Robert W. Baird & Co.
Incorporated, by writing to 777 East Wisconsin Avenue, Milwaukee, Wisconsin
53202 or calling (414) 765-3500.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(Baird Logo)
MUTUAL FUNDS
<PAGE> 5
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the
Statements of Additional Information dated January 31, 1995 and, if given or
made, such information or representations may not be relied upon as having been
authorized by the Baird Mutual Funds or Robert W. Baird & Co. Incorporated.
This Prospectus does not constitute an offer to sell securities in any state or
jurisdiction in which such offering may not lawfully be made.
TABLE OF CONTENTS
Expense Information.................................................. 1
Financial Highlights................................................. 2
Performance Information.............................................. 4
Management's Discussion of Performance of the Funds.................. 6
Introduction......................................................... 7
Investment Objectives and Policies................................... 7
Portfolio Securities and Investment Practices........................ 11
Management of the Funds.............................................. 19
Determination of Net Asset Value..................................... 21
Purchase of Shares................................................... 21
Redemption and Repurchase of Shares.................................. 24
Reinstatement Privilege.............................................. 26
Dividend Reinvestment................................................ 27
Directed Reinvestment................................................ 27
Systematic Withdrawal Plan........................................... 27
Automatic Exchange Plan.............................................. 28
Exchange Privileges.................................................. 28
Individual Retirement Account and Simplified Employee Pension Plan... 29
Defined Contribution Retirement and 401(k) Plan...................... 30
Dividends, Distributions and Taxes................................... 30
Capital Structure.................................................... 31
Shareholder Reports.................................................. 32
Account Application.................................................. 33
Automatic Investment Plan Application................................ 35
<PAGE> 6
EXPENSE INFORMATION
The following information is provided in order to assist the investor in
understanding the various costs and expenses that investors in the Baird Mutual
Funds bear directly or indirectly. The Baird Capital Development Fund, Inc. is
hereinafter referred to as the ''BCD Fund'', the Baird Blue Chip Fund, Inc. is
hereinafter referred to as the ''BBC Fund'' and the Baird Quality Bond Fund is
hereinafter referred to as the ''BQB Fund.'' The BCD Fund, BBC Fund and BQB
Fund are sometimes individually referred to herein as the ''Fund'' or a ''Baird
Mutual Fund''and collectively as the ''Funds'' or the ''Baird Mutual Funds''.
SHAREHOLDER TRANSACTION EXPENSES*<F1>
<TABLE>
<CAPTION>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)
<S> <C>
BCD Fund 5.75%
BBC Fund 5.75%
BQB Fund 4.00%
</TABLE>
*<F1>The Baird Mutual Funds do not charge redemption fees or exchange fees.
Broker-dealers, including Baird, may charge a service fee for redemptions or
repurchases of shares effected through them. See ''Redemption and Repurchase of
Shares.''The Baird Mutual Funds charge a 1% contingent deferred sales load in
certain limited situations as described under ''Redemption and Repurchase of
Shares'', none of which involve purchases where a sales load is charged.
Reinvested dividends are exempt from the sales loads.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
Total Operating
Management Other Expenses
Fee 12b-1 Fee Expenses (Net of Waivers and
Fund (Net of Waiver) (Net of Waiver)(After Reimbursement) After Reimbursement)
<S> <C> <C> <C> <C>
BCD Fund .74% .32% .36% 1.42%
BBC Fund .74% .31% .31% 1.36%
BQB Fund .39% .15% .06% .60%
</TABLE>
The information in the chart indicates actual expenses incurred during the
fiscal year ended September 30, 1994. Without waivers and reimbursements, the
Management Fee, 12b-1 Fee, Other Expenses and Total Operating Expenses for the
BQB Fund would have been, .50%, .45%, 0.72% and 1.67%, respectively.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
Period (in years)
Fund 1 3 5 10
<S> <C> <C> <C> <C>
BCD Fund $72 $102 $135 $228
BBC Fund $71 $101 $132 $221
BQB Fund $46 $ 59 $ 73 $115
</TABLE>
The Example is based on the Annual Fund Operating Expenses described above.
Please remember that the Example should not be considered a representation of
past or future expenses and that actual expenses may be greater or less than
those shown. The Example assumes a 5% annual rate of return and the
reinvestment of all dividends and distributions pursuant to requirements of the
Securities and Exchange Commission. This hypothetical rate of return is not
intended to be representative of past or future performance of the Baird Mutual
Funds.
1
<PAGE> 7
FINANCIAL HIGHLIGHTS
(Selected Data for each share of each Fund outstanding throughout each period)
The following information has been audited by Price Waterhouse LLP,
independent accountants, whose unqualified report thereon is included in the
Statement of Additional Information. The Financial Highlights should be read in
conjunction with the financial statements and notes thereto also included in
the Statement of Additional Information.
BAIRD CAPITAL DEVELOPMENT FUND, INC.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning
of year.................................. $23.27 $21.67 $21.35 $15.38 $19.16 $14.81 $18.50 $15.44 $13.33 $11.20
Income from investment operations:
Net investment income (loss) 0.04 0.04 0.11 0.13 0.19 0.14 (0.03) (0.04) (0.12) (0.15)
Net realized and unrealized
gains (losses) on investments**<F3>..... 0.80 3.54 2.17 6.77 (3.86) 4.21 (2.54) 3.19 4.28 2.33
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 0.84 3.58 2.28 6.90 (3.67) 4.35 (2.57) 3.15 4.16 2.18
Less distributions:
Dividends from net investment
income ................................. (0.04) (0.08) (0.10) (0.20) (0.11) - - - - (0.05)
Distributions from net realized
gains .................................. (0.53) (1.90) (1.86) (0.73) - - (1.12) (0.09) (2.05) -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from distributions................... (0.57) (1.98) (1.96) (0.93) (0.11) - (1.12) (0.09) (2.05) (0.05)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year............... $23.54 $23.27 $21.67 $21.35 $15.38 $19.16 $14.81 $18.50 $15.44 $13.33
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT
RETURN***<F4>............................ 3.7% 17.9% 11.6% 47.8% (19.3%) 29.4% (12.8%) 20.6% 35.8% 19.6%
Ratios/Supplmental Data
Net assets, end of year
(in 000's) ............................. 53,807 52,169 38,236 26,713 18,454 21,372 18,868 23,052 10,233 176
Ratio of expenses to average
net assets*<F2>......................... 1.4% 1.4% 1.6% 1.7% 1.7% 1.7% 2.3% 2.5% 2.1% 3.0%
Ratio of net investment income
(loss) to average net assets ........... 0.2% 0.2% 0.5% 0.7% 1.1% 0.3% (0.6%) (0.4%) (0.5%) (1.2%)
Portfolio turnover rate .................. 29.5% 25.2% 47.7% 64.1% 63.8% 50.5% 55.6% 80.1% 41.9% 64.5%
</TABLE>
*<F2>Includes a 1% distribution fee through December 12, 1985, a .75%
distribution fee from June 21, 1986 through September 30, 1988 and a .45%
distribution fee beginning October 1, 1988.
**<F3>On a per share basis this amount may not agree with the net realized and
unrealized gains (losses) experienced on the portfolio securities for the
period because of the timing of sales and repurchases of the Fund's shares in
relation to fluctuating market values of the portfolio.
***<F4>Total return does not include the sales load.
2
<PAGE> 8
BAIRD BLUE CHIP FUND, INC.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1994 1993 1992 1991 1990 1989 1988 1987+<F5>
------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period....... $18.89 $18.24 $16.77 $13.60 $13.82 $11.48 $13.10 $10.00
Income from investment operations:
Net investment income .................... 0.15 0.19 0.20 0.23 0.25 0.24 0.12 0.01
Net realized and unrealized gains
(losses) on investments ................ 1.24 0.63 1.48 3.19 (0.20) 2.25 (1.68) 3.09
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations 1.39 0.82 1.68 3.42 0.05 2.49 (1.56) 3.10
Less distributions:
Dividends from net
investment income ...................... (0.21) (0.17) (0.21) (0.25) (0.27) (0.15) (0.02) -
Distributions from net
realized gains ......................... (0.85) - - - - - (0.04) -
------ ------ ------ ------ ------ ------ ------ ------
Total from distributions................... (1.06) (0.17) (0.21) (0.25) (0.27) (0.15) (0.06) -
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period............. $19.22 $18.89 $18.24 $16.77 $13.60 $13.82 $11.48 $13.10
====== ====== ====== ====== ====== ====== ===== ======
TOTAL INVESTMENT RETURN***<F8>............. 7.7% 4.5% 10.1% 25.5% 0.3% 22.0% (11.8%) 13.5%*<F6>
Ratios/Supplmental Data
Net assets, end of period (in 000's) ..... 60,115 65,112 61,601 46,958 31,706 21,170 18,681 16,917
Ratio of expenses to average
net assets**<F7> ....................... 1.4% 1.3% 1.4% 1.5% 1.6% 1.7% 2.2% 2.6%*<F6>
Ratio of net investment income
to average net assets .................. 0.8% 1.0% 1.2% 1.6% 2.0% 1.9% 3.3% 0.2%*<F6>
Portfolio turnover rate .................. 12.7% 24.9% 5.4% 8.8% 12.2% 14.8% 14.8% 9.0%
</TABLE>
+<F5>For the period from December 31, 1986 (commencement of operations) to
September 30, 1987.
*<F6>Annualized.
**<F7>Includes a .75% distribution fee from December 31, 1986 through September
30, 1988 and a .45% distribution fee beginning October 1, 1988.
***<F8>Total return does not include the sales load.
BAIRD QUALITY BOND FUND
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE YEAR FROM
SEPTEMBER 30, OCTOBER 1, 1992*<F9>
1994 TO SEPTEMBER 30, 1993
------------ ---------------------
<S> <C> <C>
Per Share Operating Performance
Net asset value, beginning of year........ $10.31 $10.00
Income from investment operations:
Net investment income ................... 0.6698 0.6314
Net realized and unrealized (loss)
gain on investments ..................... (1.1975) 0.3100
-------- --------
Total from investment operations......... .(0.5277) 0.9414
Less distributions:
Dividends from net investment income ... .(0.6698) (0.6314)
Distribution from net realized gains .... (0.1125) -
-------- --------
Total from distributions.................. (0.7823) (0.6314)
-------- --------
Net asset value, end of year.............. $ 9.00 $10.31
======== ========
TOTAL INVESTMENT RETURN****<F12>......... (5.4%) 9.8%
Ratios/Supplmental Data
Net assets, end of year (in 000's) ...... 7,961 6,240
Ratio of expenses (after reimbursement)
to average net assets**<F10>........... 0.6% 0.4%
Ratio of net investment income
to average net assets***<F11>............ 7.0% 6.2%
Portfolio turnover rate ................. 99.6% 124.1%
</TABLE>
*<F9> Commencement of Operations.
**<F10>Computed after giving effect to adviser's expense limitation
undertaking. If the Fund had paid all of its expenses, the ratios would have
been 1.7% and 2.1%, respectively, for the years ended September 30, 1994 and
1993.
***<F11>The ratio of net investment income prior to adviser's expense
limitation undertaking to average net assets for the years ended September
30, 1994 and 1993 would have been 5.9% and 4.5%, respectively.
****<F12>Total return does not include the sales load.
3
<PAGE> 9
PERFORMANCE INFORMATION
The Baird Mutual Funds may provide from time to time in advertisements, reports
to shareholders and other communications with shareholders their average annual
compounded rates of return. An average annual compounded rate of return refers
to the rate of return which, if applied to an initial investment at the
beginning of a stated period and compounded over the period, would result in
the redeemable value of the investment at the end of the stated period assuming
reinvestment of all dividends and distributions and reflecting the effect of
all recurring fees. In addition, the BQB Fund may provide yield data from time
to time in advertisements, reports to shareholders and other communications
with shareholders. The yield of the BQB Fund is determined by dividing the
Fund's net investment income for a 30-day (or one month) period by the average
number of shares of the Fund outstanding during the period, and expressing the
result as a percentage of the Fund's share price on the last day of the 30-day
or one month period. This percentage is then annualized. Capital gains and
losses are not included in the yield calculation. The yield of the BQB Fund
will be affected if the BQB Fund experiences a net inflow of new money which is
invested at interest rates different from those being earned on its
then-current investments. An investor's principal in the BQB Fund and the BQB
Fund's net asset value and return are not guaranteed and will fluctuate. Yield
information may be useful in reviewing the performance of the BQB Fund and for
providing a basis for comparison with other investment alternatives. However,
since net investment income of the BQB Fund changes in response to fluctuations
in interest rates and the BQB Fund's expenses, any given yield quotation should
not be considered representative of the BQB Fund's yield for any future period.
An investor should also be aware that there are differences in investments
other than yield.
The foregoing total return information includes changes in share price and
reinvestment of dividends and capital gains as well as the maximum sales load
imposed on purchases (5.75% for the BCD Fund and the BBC Fund and 4.00% for the
BQB Fund).
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
BAIRD CAPITAL DEVELOPMENT FUND AND NASDAQ COMPOSITE INDEX
<TABLE>
<CAPTION>
Date Baird Capital Development Fund Nasdaq Composite Index
<S> <C> <C>
9/30/84 9,425 10,000
9/30/85 10,622 11,220
9/30/86 14,425 14,036
9/30/87 17,396 17,784
9/30/88 15,169 15,508
9/30/89 19,629 18,904
9/30/90 15,841 13,762
9/30/91 23,413 21,042
9/30/92 26,129 23,315
9/30/93 30,806 30,519
9/30/94 31,945 30,580
</TABLE>
Average Annual Total Return
1-Year -2.3%
5-Year +8.9%
10-Year +13.0%
Past performance is not predictive of future performance.
4
<PAGE> 10
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
BAIRD BLUE CHIP FUND AND S&P 500 INDEX
<TABLE>
<CAPTION>
Date Baird Blue Chip Fund S&P 500 Index
<S> <C> <C>
2/4/87*<F20> 9,425 10,000
9/30/87 10,867 11,710
9/30/88 9,585 10,235
9/30/89 11,693 13,581
9/30/90 11,728 12,318
9/30/91 14,719 16,186
9/30/92 16,206 17,983
9/30/93 16,935 20,321
9/30/94 18,239 21,052
</TABLE>
Average Annual Total Return
1-Year +1.5%
5-Year +8.0%
Since Inception 2/4/87 +8.2%
*<F20>Inception date
Past performance is not predictive of future performance.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN BAIRD QUALITY BOND FUND,
MERRILL DOMESTIC MASTER INDEX AND MORNINGSTAR GOVERNMENT BOND MUTUAL
FUND/CORPORATE BOND, GENERAL
<TABLE>
<CAPTION>
Baird Quality Bond Fund Baird Quality Bond Fund Merrill Domestic Master Index Morningstar Government Bond
(At Public Offering Price (At Net Asset Value) Mutual Fund/Corporate Bond,
Date 4% Sales Charge) General
<S> <C> <C> <C> <C>
10/1/92*<F21> $9,600 $10,000 $10,000 $10,000
10/31/92 $9,350 $9,742 $9,874 $9,854
11/30/92 $9,333 $9,725 $9,871 $9,855
12/31/92 $9,520 $9,920 $10,024 $9,995
1/31/93 $9,747 $10,156 $10,214 $10,187
2/28/93 $9,934 $10,351 $10,392 $10,382
3/31/93 $9,953 $10,371 $10,442 $10,441
4/30/93 $9,990 $10,410 $10,518 $10,515
5/31/93 $9,971 $10,390 $10,526 $10,529
6/30/93 $10,203 $10,632 $10,721 $10,725
7/31/93 $10,268 $10,699 $10,783 $10,795
8/31/93 $10,453 $10,892 $10,977 $10,997
9/30/93 $10,537 $10,979 $11,017 $11,038
10/31/93 $10,576 $11,020 $11,060 $11,094
11/30/93 $10,497 $10,938 $10,968 $11,001
12/31/93 $10,566 $11,009 $11,029 $11,052
1/31/94 $10,728 $11,178 $11,175 $11,199
2/28/94 $10,568 $11,012 $10,973 $11,006
3/31/94 $10,285 $10,716 $10,724 $10,755
4/30/94 $10,151 $10,578 $10,628 $10,648
5/31/94 $10,072 $10,495 $10,630 $10,630
6/30/94 $10,003 $10,423 $10,610 $10,604
7/31/94 $10,207 $10,635 $10,805 $10,753
8/31/94 $10,191 $10,619 $10,822 $10,783
9/30/94 $9,970 $10,388 $10,670 $10,665
</TABLE>
Average Annual Total Return
1-Year -9.2%
Since Inception*<F21> 10/1/92 -0.2%
*<F21>Inception Date
Past performance is not predictive of future performance.
5
<PAGE> 11
The results below show the value of an assumed initial investment of $10,000
made in each of the Baird Mutual Funds for the period shown through December
31, 1994, assuming the applicable sales charge (see page 1) and reinvestment of
all dividends and distributions.
<TABLE>
<CAPTION>
BCD BBC BQB
-------------------------- ------------------------- -------------------------
VALUE OF VALUE OF VALUE OF
OF $10,000 CUMULATIVE OF $10,000 CUMULATIVE OF $10,000 CUMULATIVE
DECEMBER 31 INVESTMENT % CHANGE INVESTMENT % CHANGE INVESTMENT % CHANGE
----------- ----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1984 $10,291*<F13> +2.9%*<F13>
1985 14,264 +42.6
1986 16,301 +63.0
1987 15,274 +52.7 $8,954*<F13> -10.5%*<F13>
1988 17,788 +77.9 9,622 -3.8
1989 22,116 +121.2 12,242 +22.4
1990 20,394 +103.9 12,611 +26.1
1991 29,916 +199.2 16,434 +64.3
1992 34,094 +240.9 16,868 +68.7 $9,520*<F13> -4.8%*<F13>
1993 38,023 +280.2 17,644 +76.4 10,566 +5.7%
1994 37,923 +279.2 18,468 +84.7 10,017 +0.2
</TABLE>
*<F13>The BCD Fund commenced operations on July 2, 1984. The BBC Fund
commenced operations on February 4, 1987. The BQB Fund commenced operations
on October 1, 1992.
The foregoing performance results are based on historical earnings and should
not be considered as representative of the performance of a Fund in the future.
An investment in a Fund will fluctuate in value and at redemption its value may
be more or less than the initial investment. The Baird Mutual Funds may compare
their performance to other mutual funds with similar investment objectives and
to the industry as a whole, as reported by Lipper Analytical Services, Inc.,
Morningstar, Inc., Money, Forbes, Business Week and Barron's magazines and The
Wall Street Journal. (Lipper Analytical Services, Inc. and Morningstar, Inc.
are independent ranking services that rank mutual funds based upon total return
performance.) The Baird Mutual Funds may also compare their performance to the
Dow Jones Industrial Average, Nasdaq Composite Index, Nasdaq Industrials Index,
Value Line Composite Index, the Standard & Poor's 500 Stock Index, the Merrill
Lynch Domestic Master Index and the Consumer Price Index.
MANAGEMENT'S DISCUSSION OF PERFORMANCE OF THE FUNDS
BAIRD CAPITAL DEVELOPMENT FUND - The principal economic factors affecting the
stock and bond markets during the fiscal year ended September 30, 1994 were the
rise in short- and long-term interest rates and the strengthening economic
recovery. Rising interest rates negatively impacted equity valuation levels
while rising earnings served as a support for stock prices. The result was a
generally sideways market for most of the year. The Fund's equity investments
have risen slightly in this environment.
BAIRD BLUE CHIP FUND - The Fund's total return without giving effect to the
5.75% front-end sales load was 7.7% which exceeded the 3.7% return of the
Standard & Poor's 500 Index. This return placed the Fund's performance 30th of
317 growth and income funds, the performance of which over the same period was
measured by Morningstar, Inc. (The Morningstar, Inc. ranking of the Fund's
performance over the one-year period ended December 31, 1994 was 13th out of
343 growth and income funds and over the five-year period ended December 31,
1994 was 59th out of 176 growth and income funds.)
6
<PAGE> 12
This strong relative performance was due in part to market conditions: the
high-quality stocks of well-established, industry-leading corporations
traditionally outperform in difficult market periods. Similarly, the Fund
outperformed the S&P 500 Index and other stock mutual funds in the recession
year of 1990 and the crash year of 1987. Equally important, the Fund benefitted
from economic recovery in Europe and Japan and continued rapid expansion in the
emerging economies. As of September 30, 1994, 22 of the 36 companies in the
Fund derived more than 35% of their total sales from international (non U.S.)
markets, and their stocks were among the best performing in the Fund during the
fiscal year.
BAIRD QUALITY BOND FUND - The rise in interest rates that began in February
sparked a decline in bond prices of extreme severity. As a result, the fixed
income markets recorded among the poorest total returns in over fifty years.
The performance of the BQB Fund, which invests primarily in U.S.
non-convertible bonds and debentures, was adversely affected by these market
conditions.
INTRODUCTION
The BCD Fund was incorporated under the laws of Wisconsin on February 21, 1984.
The BBC Fund was incorporated under the laws of Wisconsin on October 16, 1986.
The Baird Funds, Inc., of which the BQB Fund is a portfolio, was incorporated
under the laws of Wisconsin on June 26, 1992. The BCD Fund, BBCFund and The
Baird Funds, Inc. are open-end, diversified management investment companies
registered under the Investment Company Act of 1940. As open-end investment
companies they obtain their assets by continuously selling shares of their
common stock to the public. Proceeds from such sales are invested by the Funds
in securities of other companies. In this manner, the resources of many
investors are combined and each individual investor has an interest in every
one of the securities owned by the Fund in which he has invested. The Funds
provide each individual investor with diversification by investing in the
securities of many different companies in a variety of industries and furnish
experienced management to select and watch over its investments. As open-end
investment companies, the Baird Mutual Funds will redeem any of their
outstanding shares on demand of the owner at their net asset values.
Shares of each Fund will be sold by the Funds' Distributor, Robert W. Baird &
Co. Incorporated (''Baird''), in accordance with both Distribution Plans and
related Distribution Assistance Agreements adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the ''1940 Act''), and
Distribution Agreements between each of the Baird Mutual Funds and Baird.
Pursuant to the Distribution Agreements investors may purchase shares of any
Baird Mutual Fund's common stock at net asset value plus a maximum sales charge
ranging from 4.00% to 5.75% of the offering price. Reduced sales charges apply
to purchases of $50,000 or more for the BCD Fund and the BBC Fund and $100,000
or more for the BQB Fund with no sales charges applicable to certain purchases.
See ''Purchase of Shares.''
INVESTMENT OBJECTIVES AND POLICIES
BAIRD CAPITAL DEVELOPMENT FUND - The primary investment objective of the
BCDFund is long-term capital appreciation, and securities will be selected for
its portfolio primarily on this basis. It is anticipated that the major portion
of the BCDFund's portfolio will ordinarily be invested in common stocks.
Fiduciary Management, Inc. (''FMI''), the BCDFund's investment adviser,
purchases those common stocks which it believes to be underpriced relative to
the issuing corporation's future growth prospects. Such common stocks
frequently will be issued by smaller and medium capitalization companies in the
growth stage of development. See ''Portfolio Securities and Investment
Practices.'' The BCD Fund will also purchase common stocks where the price is
significantly below the estimated market value of the issuing corporation's
assets less its liabilities on a per share basis. In making a determination
that the above criteria is met with respect to a particular common stock, FMI
generally will study the financial statements
7
<PAGE> 13
of the issuing corporation and other companies in the same industry, market
trends and economic conditions in general. FMI is assisted by Baird which acts
as the BCD Fund's sub-adviser. See ''Management of the Funds.'' Since current
income is only a secondary objective in the selection of investments, a
particular issuer's dividend history is not a primary consideration. As a
consequence shares of the BCD Fund are not suitable investments for investors
needing current income. There can be no assurance that the primary objective of
the BCD Fund will be realized or that any income will be earned. There can be no
assurance that the BCD Fund's portfolio will not decline in value and the BCD
Fund's net asset value likely will be more volatile than that of a fund that
invests primarily in common stocks of larger, more established companies or in
investment grade income securities.
Although it is anticipated that the major portion of the BCD Fund's portfolio
will ordinarily be invested in common stocks, no minimum or maximum percentage
of the BCD Fund's assets is required to be invested in common stocks or any
other type of security. When FMI believes securities other than common stocks
offer opportunity for long-term capital appreciation, the BCD Fund may invest in
publicly distributed corporate bonds and debentures, preferred stocks,
particularly those which are convertible into or carry rights to acquire common
stocks, and warrants. See ''Portfolio Securities and Investment Practices.'' The
BCD Fund will limit its investments in corporate bonds and debentures to those
which have been assigned one of the highest three ratings of either Standard &
Poor's Corporation (''S&P'') or Moody's Investors Service, Inc. (''Moody's'')
and will invest in corporate bonds and debentures only when FMI believes
interest rates on such investments may decline thereby potentially increasing
the market value of the corporate bonds and debentures purchased by the BCD
Fund. A description of the foregoing ratings is set forth in the Statement of
Additional Information under the caption ''Description of Bond Ratings.'' Under
normal market conditions, the BCD Fund expects at all times to have at least
65% of its total assets invested in securities which FMI believes offer
opportunity for growth of capital.
The BCD Fund may invest up to 10% of its assets in securities of foreign
issuers. See ''Portfolio Securities and Investment Practices.''
BAIRD BLUE CHIP FUND - The primary investment objective of the BBC Fund is to
produce long-term growth of capital and income. Current income is a secondary
objective. It is anticipated that the major portion of the BBC Fund's portfolio
will ordinarily be invested in dividend-paying common stocks. Baird, the BBC
Fund's investment adviser, will purchase common stocks of issuers which it
believes to have superior fundamental characteristics which may include:
an experienced and tested management
a superior and pragmatic growth strategy
leadership positions in their market
proprietary products, processes or services
an above-average record of dividend consistency and growth
a strong balance sheet
In determining that the above characteristics are present with respect to
specific investments, Baird generally will study the financial statements of
the issuing corporations and other companies in the same industry, the issuing
corporation's reports to shareholders and analysts and general economic and
industry reports of brokers. In determining whether an issuer has an above-
average record of dividend consistency and growth Baird will generally compare
the dividend record of the issuer in question with the dividend record of
similarly sized issuers over a period of time which Baird believes covers the
full peak-to-peak range of a business cycle. The BBC Fund, under normal market
conditions, will have at least 65% of its total assets invested in common
stocks rated A+, A or A- by S&P. Baird considers common stocks so rated to be
''blue chip'' stocks. Up to 10% of the BBC Fund's portfolio of common stocks may
be unrated or rated below B+ by S&P.
8
<PAGE> 14
In rating common stocks S&P primarily considers stability of earnings and
dividends over the most recent 10 years. The dividends and earnings records of
issuers are compared and then aligned with the following order of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D Reorganization
A- Above Average B- Lower
An S&P common stock rating is not a forecast of future market price performance
as it is basically an appraisal of past performance of earnings and dividends,
and relative current standing. The ratings cannot take into account potential
effects of management changes, internal company policies not yet fully
reflected in the earnings and dividend record, public relations standing,
recent competitive shifts, and other factors which may be relevant to
investment status and decisions. Common stocks may be unrated because of
insufficient data or because they are not amenable to the ranking process (i.e.
publicly traded for less than 10 years). A more detailed description of the S&P
common stock ratings as well as a description of the other securities ratings
referred to below is set forth in the Statement of Additional Information under
the caption ''Description of Securities Ratings.''
The investment philosophy employed by Baird seeks to avoid strategies which
pursue aggressive growth through short-term investment techniques or high-risk
speculation. Substantial emphasis is placed on the fundamental investment
quality (i.e. the earnings, dividends and operations of an issuer) of the
securities purchased. The portfolio will be diversified among securities issued
by different companies and will not be concentrated in any single industry.
Since current income is only a secondary objective of the BBC Fund, shares of
the BBC Fund may not be an appropriate investment for investors needing current
income. Notwithstanding the foregoing there can be no assurances that the BBC
Fund's investment objectives will be achieved. There can be no assurance that
the BBC Fund's portfolio will not decline in value and the BBC Fund's net asset
value likely will be more volatile than that of a fund that invests primarily
in investment grade income securities.
When Baird believes securities other than common stocks offer opportunity for
long-term growth of capital and income, the BBC Fund may invest in United
States government securities, publicly distributed corporate bonds and
debentures and convertible preferred stocks and debt securities. See
''Portfolio Securities and Investment Practices.'' The BBC Fund will limit its
investments in non-convertible corporate bonds and debentures to those which
have been assigned one of the highest three ratings of either S&P or Moody's.
The BBC Fund will invest in United States government securities and corporate
bonds and debentures when Baird believes interest rates on such investments may
decline thereby potentially increasing the market value of the United States
government securities and corporate bonds and debentures purchased by the BBC
Fund or to meet the additional investment objective of producing current
income. The BBC Fund will limit its investments in convertible securities to
those which have been assigned one of the highest three ratings of S&P or
Moody's and in which the underlying common stock is a suitable investment for
the BBC Fund. Under normal market conditions, the BBC Fund expects at all
times to have at least 80% of its total assets invested in securities which
Baird believes offer opportunity for long-term growth of capital and income.
BAIRD QUALITY BOND FUND - The investment objective of the BQB Fund is to
provide a high level of current income. The BQB Fund will seek to achieve its
investment objective through investments in a diversified portfolio of
investment grade debt securities. Investment grade securities are (i) bonds,
debentures, notes and other debt instruments rated at least BBB by S&P or Baa
by Moody's at the time of acquisition; (ii) commercial paper and cash
equivalents rated A-1 by S&P or Prime-1 by Moody's at the time of acquisition;
and (iii) any type of unrated debt security which Baird determines at the time
of acquisition to be of a quality comparable to the foregoing. A description of
the foregoing ratings is set forth in the BQB Fund's Statement of Additional
Information under the caption ''Description of Securities Ratings.'' It is
anticipated that at least 80% of the BQB Fund's assets, under normal market
conditions will be invested in the following:
9
<PAGE> 15
U.S. non-convertible debt securities issued by corporations and
municipalities including bonds, debentures and notes;
Debt securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities (''U.S. government securities'');
Mortgage-backed securities, collateralized mortgage obligations and other
asset-backed securities;
Commercial paper, repurchase agreements, certificates of deposit, bankers
acceptances and other cash equivalents.
Investments in mortgage-backed securities, collateralized mortgage obligations
and other asset-backed securities must be rated at least either AA by S&P or Aa
by Moody's or unrated but determined by Baird to be of comparable quality. The
BQB Fund has adopted an investment policy pursuant to which it will invest,
under normal market conditions, at least 65% of its total assets in U.S. non-
convertible bonds and debentures issued by corporations or municipalities,
their agencies or instrumentalities or issued or guaranteed by the U.S.
government or its agencies or instrumentalities. See ''Portfolio Securities and
Investment Practices.''
The values of the securities in the BQB Fund are subject to price fluctuations
resulting from various factors, including rising or declining interest rates
(''market risks'') and the ability of the issuers of such investments to make
scheduled interest and principal payments (''financial risks''). Baird attempts
to manage these risks when selecting investments by taking into account
interest rates, terms and marketability of obligations, as well as such factors
as the capitalization, earnings, liquidity and other indicators of the issuer's
financial condition. The BQB Fund's intention to invest only in investment
grade securities (determined at the time of acquisition) will also limit to
some degree financial risks. Obligations rated BBB by S&P and Baa by Moody's,
although investment grade, do exhibit speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher-rated obligations. Unrated securities, while not necessarily of lower
quality than rated securities, may not have as broad a market as rated
securities. In addition, there may be less publicly available information with
respect to unrated securities and, to the extent that the BQB Fund invests in
unrated securities, it will be more dependent on the research and analyses
performed by Baird. The BQB Fund will not acquire a security rated BBB by S&P or
Baa by Moody's or an unrated security which is determined by Baird to be of
comparable quality if after such acquisition more than 35% of the BQB Fund's
total assets would be invested in such securities. The BQB Fund may retain up
to 5% of its net assets in securities whose ratings or quality have been
downgraded to below investment grade subsequent to their acquisition. Such
securities should be regarded as speculative and may be in default in the
payment of interest or principal.
The value of fixed-income securities generally will tend to decrease when
interest rates rise and increase when interest rates fall. The BQB Fund's share
price generally will react similarly. When Baird believes interest rates will
decline significantly, the BQB Fund generally will emphasize longer-term
securities. Conversely, when interest rates are expected to rise significantly,
the BQB Fund generally will emphasize shorter-term securities. Shorter-term
securities, while offering lower yields, generally provide greater price
stability than longer-term securities and are less affected by changes in
interest rates. The BQB Fund has the flexibility to invest in fixed income
securities without restriction upon the average maturity of the BQB Fund's
securities. To the extent that the BQB Fund invests to a significant degree in
longer-term securities, the net asset value of the BQB Fund may be more
volatile.
The BQB Fund is also authorized to engage in certain futures and option
transactions, although it has no intention of doing so during its fiscal year
ending September 30, 1995. See the BQB Fund's Statement of Additional
Information for a discussion of such transaction and some of the associated
risks.
CERTAIN ADDITIONAL POLICIES OF THE BAIRD MUTUAL FUNDS - Under certain
circumstances each of the BCD Fund, the BBC Fund and the BQB Fund may (a)
temporarily borrow money from banks for emergency or extraordinary
10
<PAGE> 16
borrowings, (b) pledge its assets to secure borrowings and (c) purchase
securities of other investment companies. Additionally the BCD Fund may (d)
invest in warrants and (e) invest in securities of issuers which have a record
of less than three years of continuous operations. A more complete discussion of
the circumstances in which the Baird Mutual Funds may engage in these activities
is included in their Statements of Additional Information. Except for the
investment policies discussed in this paragraph, the primary investment
objective and the other policies described under this caption are not
fundamental policies and may be changed without shareholder approval.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES - A change in a Baird Mutual
Fund's investment objective may result in a Baird Mutual Fund having investment
objectives different from the objectives which the shareholder considered
appropriate at the time of investment in such Baird Mutual Fund. At least 30
days prior to any change by a Baird Mutual Fund in its investment objectives,
the Baird Mutual Fund will provide written notice to all of its shareholders
regarding the proposed change.
PORTFOLIO SECURITIES AND INVESTMENT PRACTICES
Below is a brief description of the primary types of securities and investment
practices in which the Baird Mutual Funds may invest and engage, together with
a brief discussion of certain of the risks inherent in such investments.
COMMON STOCKS - The BCD Fund and the BBC Fund ordinarily will invest in common
stocks. Common stocks represent the residual ownership interest in the issuer
and are entitled to the income and increase in the value of the assets and
business of the entity after all of its obligations and preferred stocks are
satisfied. Common stocks generally have voting rights. Common stocks fluctuate
in price in response to many factors including historical and prospective
earnings of the issuer, the value of its assets, general economic conditions,
interest rates, investor perceptions and market liquidity.
SMALLER CAPITALIZATION AND LESS SEASONED COMPANIES - The BCD Fund may invest in
smaller capitalization companies in the earlier stages of development. Smaller
growth companies may offer greater potential for capital appreciation than
larger companies. Smaller growth companies frequently have new products or
technologies, new distribution methods, rapid changes in industry conditions
due to regulatory or other developments, changes in management or similar
characteristics that may result not only in growth in revenues but in an
accelerated or above average rate of earnings growth. In addition, because they
are less actively followed by stock analysts and less information is available
on which to base stock price evaluations, the market may overlook favorable
trends in particular smaller growth companies, and then adjust its valuation
more quickly once investor interest is developed.
On the other hand, higher market risks are often associated with smaller growth
companies. They may have limited product lines, markets, market share and
financial resources, or they may be dependent on a small or inexperienced
management team. In addition, their stocks may trade less frequently and in
more limited volume and be subject to greater and more abrupt price swings than
stocks of larger companies.
PREFERRED STOCK - The BCD Fund and the BBC Fund may invest in preferred stocks.
Preferred stock has a preference over common stock in liquidation (and
generally dividends as well) but is subordinated to the liabilities of the
issuer in all respects. As a general rule the market value of preferred stock
with a fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk, while the market price of convertible
preferred stock generally also reflects some element of conversion value.
Because preferred stock is junior to debt securities and other obligations of
the issuer, deterioration in the credit quality of the issuer will cause
greater changes in the value of a preferred stock than in a more senior debt
security with similar stated yield characteristics. Unlike interest payments on
debt securities, preferred stock dividends are payable
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only if declared by the issuer's board of directors. Preferred stock also may be
subject to optional or mandatory redemption provisions.
WARRANTS - The BCD Fund may invest in warrants, which are securities
permitting, but not obligating, their holders to subscribe for other
securities. Warrants do not carry with them the right to dividends or voting
rights with respect to the securities that they entitle their holder to
purchase, and they do not represent any rights in the assets of the issuer. As
a result, an investment in warrants may be considered to be more speculative
than certain other types of investments. In addition, the value of a warrant
does not necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to its expiration
date.
CONVERTIBLE SECURITIES - The BCD Fund and the BBC Fund each may invest in
convertible securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock or other equity security of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities have characteristics similar to nonconvertible income
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable nonconvertible
securities. Convertible securities may be subject to redemption at the option
of the issuer at a price established in the convertible security's governing
instrument.
FOREIGN SECURITIES - The BCD Fund and the BBC Fund may invest in securities of
foreign issuers. These securities may be U.S. dollar-denominated or
denominated in foreign currencies. Investments in securities of foreign issuers
involve risks which are in addition to the usual risks inherent in domestic
investments. In many countries, there is less publicly available information
about issuers than is available in the reports and ratings published about
companies in the United States. Additionally, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards. Foreign
markets may be subject to less regulation, may be less liquid and of smaller
capitalization than U.S. markets and frequently are subject to greater
volatility. Dividends and interest on foreign securities may be subject to
foreign withholding taxes which would reduce a Fund's income without providing
a tax credit for the Fund shareholders. Although the Funds intend to invest in
securities of foreign issuers domiciled in nations in which their respective
investment advisers consider as having stable and friendly governments, there
is a possibility of expropriation, confiscatory taxation, currency blockage or
political or social instability which could affect investments in those
nations. With respect to securities denominated in foreign currencies, the
value of such foreign securities will rise or fall because of changes in
currency exchange rates and the Funds may incur certain costs in converting
securities denominated in foreign securities to U.S. dollars. The Fund's
custodian, Firstar Trust Company, may retain one or more subcustodians to
retain custody of all or a portion of each Fund's foreign securities.
Investment in foreign securities also typically involves greater expenses than
investment in U.S. securities.
In an effort to manage exposure to currency fluctuations, the BCD Fund's and
BBC Fund's investment advisers may enter into forward currency exchange
contracts (agreements to exchange one currency for another at a future date)
and may diversify currencies. Currency exchange contracts allow a Fund to fix a
definite price in dollars for securities it has agreed to buy or sell or can be
used to hedge a Fund's foreign investments against adverse exchange rate
changes. These strategies may require a Fund to set aside liquid high grade
debt securities in a segregated custodial account to cover its obligations.
This segregated account will be required whenever the liabilities under
contracts involving currencies exceed the value of securities denominated in
that currency.
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Each Fund has no specific limitation on the percentage of assets it may commit
to foreign currency exchange contracts, except that a Fund will not enter into
a foreign currency exchange contract if the amount of assets set aside to cover
the contract in the investment adviser's view would impede portfolio management
or a Fund's ability to meet redemption requests.
The BCD Fund and the BBC Fund may hold securities of U.S. and foreign issuers
in the form of American Depositary Receipts (''ADRs''), American Depositary
Shares (''ADSs'') or European Depositary Receipts (''EDRs''). These securities
may not necessarily be denominated in the same currency as the securities for
which they may be exchanged. ADRs and ADSs typically are issued by an American
bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation. Generally, ADRs and ADSs in registered form are designed
for use in U.S. securities markets. For purposes of the Funds' investment
policies, the Funds' investments in ADRs and ADSs will be deemed to be
investments in equity securities representing the securities of foreign issuers
into which they may be converted.
EDRs, which sometimes are referred to as Continental Depositary Receipts
(''CDRs''), are receipts issued in Europe, typically by foreign banks and trust
companies, that evidence ownership of either foreign or U.S. securities.
Generally, EDRs and CDRs, in bearer form, are designed for use in European
securities markets.
CORPORATE DEBT SECURITIES - Each of the Baird Mutual Funds may invest in
corporate debt securities. Corporations issue debt securities of various types,
including bonds and debentures (which are long-term), notes (which may be
short- or long-term), certificates of deposit (unsecured borrowings by banks),
bankers acceptances (indirectly secured borrowings to facilitate commercial
transactions) and commercial paper (short-term unsecured notes). These
securities typically provide for periodic payments of interest, which may be
fixed or adjustable rate with payment of principal upon maturity and are
generally not secured by assets of the issuer or otherwise guaranteed. The
values of fixed rate income securities tend to vary inversely with changes in
interest rates, with longer-term securities generally being more volatile than
shorter-term securities. Corporate securities frequently are subject to call
provisions that entitle the issuer to repurchase such securities at a
predetermined price prior to their stated maturity. In the event that a
security is called during a period of declining interest rates, a Fund may be
required to reinvest the proceeds in securities having a lower yield. In
addition, in the event that a security was purchased at a premium over the call
price, a Fund will experience a capital loss if the security is called.
Adjustable rate corporate debt securities may have interest rate caps and
floors as well as other features similar to those of mortgage-backed securities
discussed below.
None of the Baird Mutual Funds will invest in corporate debt securities rated
below investment grade by S&P and Moody's or in unrated corporate debt
securities believed by the Fund's investment adviser to be below investment
grade quality. Securities rated in the four highest long-term rating categories
by S&P and Moody's are considered to be ''investment grade.'' S&P's fourth
highest long-term rating category is ''BBB'', with BBB-being the lowest
investment grade rating. Moody's fourth highest long-term rating category is
''Baa'', with Baa3 being the lowest investment grade rating. Publications of
S&P indicate that it assigns securities to the ''BBB'' rating category when
such securities are ''regarded as having an adequate capacity to pay interest
and repay principal. [Such securities] normally exhibit adequate protection
parameters, but adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay,'' whereas securities rated AAA by
S&P are regarded as having ''capacity to pay interest and repay principal
[that] is extremely strong.'' Publications of Moody's indicate that it assigns
securities to the ''Baa'' rating category when such securities ''are considered
as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment
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<PAGE> 19
characteristics and in fact have speculative characteristics as well,'' whereas
securities rated Aaa by Moody's ''are judged to be of the best quality'' and
''carry the smallest degree of investment risk.''
U.S. GOVERNMENT SECURITIES - All of the Baird Funds may invest in securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. These include Treasury securities (bills, notes, bonds and
other debt securities) which differ only in their interest rates, maturities
and times of issuance. U.S. government agency and instrumentality securities
include securities which are supported by the full faith and credit of the
U.S., securities that are supported by the right of the agency to borrow from
the U.S. Treasury, securities that are supported by the discretionary
authority of the U.S. government to purchase certain obligations of the agency
or instrumentality and securities that are supported only by the credit of such
agencies. While the U.S. government may provide financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it always will do so. The U.S. government, its agencies and
instrumentalities do not guarantee the market value of their securities and
consequently the values of such securities fluctuate.
ZERO COUPON, DEEP DISCOUNT AND PAYMENT-IN-KIND SECURITIES - Each of the Baird
Mutual Funds may invest in ''zero coupon'' and other deep discount securities
of governmental or private issuers. Zero coupon securities generally pay no
cash interest (or dividends in the case of preferred stock) to their holders
prior to maturity. Each of the BCD Fund and the BBC Fund may invest in
payment-in-kind securities, which allow the issuer, at its option, to make
current interest payments on such securities either in cash or in additional
securities. Accordingly, such securities usually are issued and traded at a
deep discount from their face or par value and generally are subject to greater
fluctuations of market value in response to changing interest rates than
securities of comparable maturities and credit quality that pay cash interest
(or dividends in the case of preferred stock) on a current basis.
Although a Fund will receive no payments on its zero coupon securities, and may
receive no cash payments on its payment-in-kind securities, prior to their
maturity or disposition, it will be required for federal income tax purposes
generally to include in its dividends each year an amount equal to the annual
income that accrues on its zero coupon securities and any non-cash ''interest''
it receives on its payment-in-kind securities. Such dividends will be paid from
the cash assets of the Fund, from borrowings or by liquidation of portfolio
securities, if necessary, at a time that the Fund otherwise would not have done
so. To the extent the proceeds from any such dispositions are used by the Fund
to pay distributions, the Fund will not be able to purchase additional income-
producing securities with such proceeds, and as a result its current income
ultimately may be reduced.
STRIPPED INCOME SECURITIES - Each of the Baird Mutual Funds may invest in
stripped income securities. Stripped income securities or obligations represent
an interest in all or a portion of the income or principal components of an
underlying or related security, a pool of securities or other assets. In the
most extreme case, one class will receive all of the interest, while the other
class will receive all of the principal. The market values of stripped income
securities tend to be more volatile in response to changes in interest rates
than are those of conventional income securities.
PREMIUM SECURITIES - Each of the Baird Mutual Funds may at times invest in
securities bearing coupon rates higher than prevailing market rates. Such
''premium'' securities are typically purchased at prices greater than the
principal amounts payable on maturity. If an issuer were to call or redeem
securities held by a Fund during a time of declining interest rates, the Fund
may not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed. If securities purchased by a Fund
at a premium are called or sold prior to maturity, the Fund generally will
recognize a capital loss to the extent the call or sale price is less than
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the Fund's adjusted tax basis in such securities. Similarly, the Fund generally
will recognize a capital loss in the event that such securities are held to
maturity.
ADJUSTABLE AND FLOATING RATE SECURITIES - Each of the Baird Mutual Funds may
invest in adjustable and floating rate securities. Adjustable and floating rate
securities are securities having interest rates or dividends which are adjusted
or reset at periodic intervals ranging, in general, from one day to several
years, based on a spread over or under a specific interest rate or interest
rate index or on the results of periodic auctions. Adjustable and floating rate
securities allow a Fund to participate in increases in interest rates through
periodic upward adjustments of the coupon rates of such securities, resulting
in higher yields. During periods of declining interest rates, however, coupon
rates may readjust downward resulting in lower yields. Adjustments in coupon
rates on such securities may, however, lag changes in market rates of interest.
Adjustable and floating rate securities may be subject to caps above which
their interest rates may not be adjusted and floors below which their interest
rates may not be adjusted.
MUNICIPAL SECURITIES - The BQB Fund may invest in debt obligations issued by or
on behalf of the governments of states, territories or possessions of the
United States, the District of Columbia and their political subdivisions,
agencies and instrumentalities, certain interstate agencies and certain
territories of the United States. The BQB Fund may invest in both taxable and
federal income tax-exempt municipal securities, although it expects that its
investments in municipal securities ordinarily will be taxable. The two
principal classifications of municipal securities are ''general obligation''
and ''revenue'' securities. ''General obligation'' securities are secured by
the issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. ''Revenue'' securities are usually payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise tax or other specific revenue
source. Industrial development bonds are usually revenue securities, the credit
quality of which is normally directly related to the credit standing of the
industrial user involved. Within these principal classifications of municipal
securities, there are a variety of categories of municipal securities,
including fixed and variable rate securities, municipal bonds, municipal notes,
municipal leases, custodial receipts and participation certificates. Certain of
the municipal securities in which the BQB Fund may invest represent relatively
recent innovations in the municipal securities markets. Because the BQB Fund
does not intend to invest a substantial amount of its assets in municipal
securities, the interest on which is exempt from federal income tax, the BQB
Fund does not expect to be entitled to pass through to its shareholders the
tax-exempt nature of any interest income attributable to investments in
municipal securities.
MORTGAGE-BACKED SECURITIES - The BQB Fund may invest in mortgage-backed
securities. Mortgage-backed securities are securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans secured by real property. Mortgage-backed securities include
guaranteed government agency mortgage-backed securities, which represent
participation interests in pools of residential mortgage loans originated by
U.S. governmental or private lenders and guaranteed, to the extent provided in
such securities, by the U.S. Government or one of its agencies or
instrumentalities. Guaranteed government agency mortgage-backed securities in
which the Funds may invest include those issued or guaranteed by the Government
National Mortgage Association (''Ginnie Mae''), the Federal National Mortgage
Association (''Fannie Mae'') and the Federal Home Loan Mortgage Corporation
(''Freddie Mac''). Mortgage-backed securities also include privately issued
mortgage-backed securities, which are not guaranteed by any agency or
instrumentality of the U.S. government. Such securities generally are issued
with some form of credit support. Securities issued by entities other than
governmental entities may offer a higher yield but also may be subject to
greater price fluctuations and credit risk than securities issued by
governmental entities. Mortgage-backed securities may
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<PAGE> 21
represent ownership interests in the underlying mortgage loans and provide for
monthly payments that are a ''pass-through'' of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans. Mortgage-backed
securities also include collateralized mortgage obligations (''CMOs''). CMOs are
securities collateralized by mortgages or other mortgage-backed securities. In a
CMO, a series of bonds or certificates is issued in multiple classes. Each class
of a CMO, often referred to as a ''tranche,'' is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Interest typically is paid or accrues on classes of the CMO on a monthly,
quarterly or semi-annual basis. Because most CMO tranches typically provide for
the periodic payment of principal and are subject to principal prepayment, the
actual duration of a CMO typically will be significantly less than the stated
maturity or final distribution date. In addition, principal prepayments on the
underlying collateral may cause CMOs to be retired substantially earlier than
their stated maturities or final distribution dates. The principal of and
interest on the underlying collateral may be allocated among the several classes
of a CMO series in innumerable ways, some of which bear substantially more risk
than others. CMOs may be issued by governmental or nongovernmental entities such
as banks and other mortgage lenders.
The yield characteristics of mortgage-backed securities differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently and that principal may be prepaid
at any time because the underlying mortgage loans generally may be prepaid at
any time. As a result, if the BQB Fund purchases a security at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if the BQB Fund purchases
the securities at discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity. Certain
types of derivative mortgage-backed securities are designed to be highly
sensitive to changes in prepayment and interest rates and can subject the
holders thereof to extreme reductions of yield and possibly loss of principal.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors. Generally, however, prepayments
on fixed rate mortgage loans will increase during a period of falling interest
rates and decrease during a period of rising interest rates. Accordingly,
amounts available for reinvestment by the BQB Fund are likely to be greater
during periods of declining interest rates and, as a result, likely to be
reinvested at lower interest rates. Adjustable rate mortgages are subject to
prepayment risks in a manner similar to fixed rate mortgages although to a
lesser degree.
No assurance can be given as to the liquidity of the market for mortgage-backed
securities. Determination as to the liquidity of such securities will be made
in accordance with guidelines established by the BQB Fund's board of directors.
The values of mortgage-backed securities may change for a variety of reasons in
addition to changes in interest and prepayment rates, including changes in the
market's perception of the creditworthiness of the Federal agency that issued
or guaranteed them and changes in market conditions.
ASSET-BACKED SECURITIES - The BQB Fund also may invest in asset-backed
securities. The securitization techniques used to develop mortgage-backed
securities are now also applied to a broad range of assets, primarily
automobile and credit card receivables. Other types of asset-backed securities
may be developed in the future. In general, the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans and is less
likely to experience substantial prepayments. Asset-backed securities present
certain risks that are not presented by mortgage-backed securities. Primarily,
these securities do not have the benefit of the same security interest in the
related collateral as do mortgage-backed securities.
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OTHER DEBT OBLIGATIONS - Bank Obligations - Certificates of deposit are
certificates representing the obligation of a bank to repay funds deposited
with it for a specified period of time. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft drawn on it by a
customer. These instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits
are non-negotiable deposits maintained in a banking institution for a
specified period of time at a stated interest rate. Time deposits which may be
held by the Baird Mutual Funds might not benefit from insurance from the Bank
Insurance Fund or the Savings Association Insurance Fund administered by the
Federal Deposit Insurance Corporation.
Commercial Paper - Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs and includes
commercial paper master notes (which are demand instruments with variable
coupon rates). Commercial paper purchased by the Baird Mutual Funds will
consist of direct obligations issued by domestic entities and will be rated in
one of the two highest rating categories by a nationally recognized rating
organization or will be unrated but determined by the Fund's investment adviser
to be of comparable credit quality.
REPURCHASE AGREEMENTS - Each Baird Mutual Fund may enter into repurchase
agreements with banks and broker-dealers, under which the Fund purchases
securities issued by the U.S. government or its agencies and instrumentalities
or other securities, and agrees to resell the securities at an agreed upon time
and at an agreed upon price. Repurchase agreements may be considered
collateralized loans by a Fund and the difference between the amount the Fund
pays for the securities and the amount it receives upon resale is accrued as
interest and reflected in the Fund's net income. When a Fund enters into
repurchase agreements, it relies on the seller to repurchase the securities.
Failure to do so may result in a loss for the Fund if the market value of the
securities is less than the repurchase price. At the time a Fund enters into a
repurchase agreement, the value of the underlying security including accrued
interest will be equal to or exceed the value of the repurchase agreement and,
for repurchase agreements that mature in more than one day, the seller will
agree that the value of the underlying security including accrued interest will
continue to be at least equal to the value of the repurchase agreement. In
determining whether to enter into a repurchase agreement with a bank or broker-
dealer, a Fund will take into account the creditworthiness of such party. The
Funds will only enter into repurchase agreements with entities which are
primary dealers in United States government securities or are among the top 100
domestic banks measured by assets. In the event of default by such party, a
Fund may not have the right to the underlying security and there may be
possible delays and expenses in liquidating the security purchased, resulting
in a decline in its value and loss of interest. Neither the BCD Fund nor the
BBC Fund will invest over 5% of its respective net assets in repurchase
agreements. The BQB Fund may invest in repurchase agreements having a duration
of seven days or less without limitation. Repurchase agreements that mature in
more than seven days are considered illiquid.
SHORT-TERM INVESTMENTS - Each Baird Mutual Fund may invest without limitation
in short-term instruments as a reserve for expenses or anticipated redemptions
and as a temporary defensive measure when the Fund's investment adviser deems
appropriate. The Baird Mutual Funds are not required to employ temporary
defensive techniques and the Fund's respective investment advisers ordinarily
do not actively seek to predict short- to intermediate-term changes in the
overall securities markets. Accordingly, the Funds will not necessarily employ
these techniques in anticipation of or response to a deterioration in the
markets in which they invest. To the extent that a Fund invests to a
significant degree in these instruments, its ability to achieve its primary
investment objective may be adversely effected. Short-term investments are debt
securities or other instruments having a remaining fixed maturity or time until
demand feature effectiveness of 18 months or less and that are
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issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities or that are rated in one of the two highest rating categories
by a nationally recognized rating organization or unrated but determined by
Baird to be of comparable credit quality. Short-term investments include
treasury bills and other U.S. government and government agency securities, bank
obligations, commercial paper and repurchase agreements.
WHEN-ISSUED SECURITIES - The BQB Fund may purchase securities on a forward
commitment or when-issued basis, where the price of the security is fixed at
the time the commitment is made. Delivery of and payment for such securities
typically occur 15 to 90 days after the commitment to purchase. These
transactions are subject to market fluctuations; the value of the securities at
delivery may be more or less than their purchase price and yields available on
comparable debt securities at the time of delivery may be higher or lower than
those contracted for on the when-issued security. The BQB Fund will make
commitments to purchase when-issued securities only with the intention of
actually acquiring the securities, but the BQB Fund may sell these securities
before the settlement if Baird deems it advisable. The BQB Fund will not accrue
income in respect to a when-issued security prior to its stated delivery date.
When the BQB Fund purchases securities on a when-issued basis it will maintain
in a segregated account with the Fund's custodian cash or marketable securities
having an aggregate value equal to the amount of the purchase commitment until
payment is made. When-issued securities may decline or increase in value during
the period from the investment commitment to the settlement of the purchase and
involve a degree of investment leverage. Such transactions also involve the
risk that the counterparty to the transaction fails to perform.
ILLIQUID SECURITIES - The BCD Fund and the BBC Fund may invest in illiquid
securities, which may include repurchase agreements maturing in more than seven
days and other securities that can not be sold in seven days at approximately
the price at which they are valued. The BCD Fund and the BBC Fund may not
invest in restricted securities. A Fund will not acquire illiquid securities
if, as a result, they would comprise more than 10% of the value of the Fund's
net assets. The Board of Directors of a Fund or its delegate has the ultimate
authority to determine, to the extent permissible under the federal securities
laws, which securities are liquid or illiquid for purposes of this limitation.
Securities that may be resold pursuant to Rule 144A under the Securities Act
may be considered liquid by the Board of Directors. Risks associated with
illiquid securities include the potential inability of a Fund to promptly sell
a portfolio security after its decision to sell, potential difficulties in
valuation and potentially greater market volatility.
PORTFOLIO TURNOVER - Due to the fact the BCD Fund and the BBC Fund do not intend
to place emphasis on short-term trading, and their investment advisers will
consider an issuer's growth prospects over a three to five year period, the BCD
Fund and the BBC Fund expect usually to have an annual portfolio turnover rate
of less than 65%. As with the BCD Fund and the BBC Fund, the portfolio turnover
rate of the BQB Fund will vary from year to year depending on market conditions.
Baird may vary the average maturity of the portfolio of the BQB Fund depending
on its interest rate outlook. Baird anticipates that the annual portfolio
turnover rate of the BQB Fund may exceed 50% but generally will not exceed 100%.
The annual portfolio turnover rate indicates changes in a Fund's portfolio and
is calculated by dividing the lesser of purchases or sales of portfolio
securities (excluding securities having maturities at acquisition of one year or
less) for the fiscal year by the monthly average of the value of the portfolio
securities (excluding securities having maturities at acquisition of one year or
less) owned by the Fund during the fiscal year. The annual portfolio turnover
rate may vary widely from year to year depending upon market conditions and
prospects. High turnover in any year may result in the payment by a Fund of
above average amounts of brokerage commissions or dealer mark-ups.
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MANAGEMENT OF THE FUNDS
As Wisconsin corporations the business and affairs of the Baird Capital
Development Fund, Inc., Baird Blue Chip Fund, Inc. and The Baird Funds, Inc.
are managed by their Boards of Directors who are assisted by the Funds'
officers. The following are the directors and officers of the Baird Mutual
Funds:
DIRECTORS
James D. Bell*<F14> Reverend Albert J. DiUlio, S.J. George C. Kaiser
Managing Director President of Sole Proprietor of
and Chief Marquette University George Kaiser & Co.
Administrative Officer
of Robert W. Baird
& Co., Incorporated
Allan H. Selig Edward J. Zore*<F14> President
and Chief Executive Executive Vice President
Officer of the Milwaukee Brewers of The Northwestern
Baseball Club, Inc. Mutual Life Insurance Co.
OFFICERS
Marcus C. Low, Jr.*<F14>Mary Ann Taylor*<F14> Laura H. Gough*<F14>
President Vice President Vice President
Glen F. Hackmann*<F14>
Secretary and Treasurer
For more information concerning the Directors and Officers of the Baird Mutual
Funds, see each respective Fund's Statement of Additional Information. Persons
indicated by an asterisk (*)<F14> are interested persons of the Funds within
the meaning of the 1940 Act.
BAIRD CAPITAL DEVELOPMENT FUND - Pursuant to an investment advisory agreement
(the ''BCD Advisory Agreement'') with the BCD Fund, FMI, 225 East Mason Street,
Milwaukee, Wisconsin 53202, furnishes continuous investment advisory services
to the BCD Fund. FMI is an investment adviser to individuals and institutional
clients (including investment companies) with substantial investment portfolios
and as of December 31, 1994, managed approximately $900,000,000 in assets. FMI
was organized in 1980 and is wholly owned by Ted D. Kellner and Donald S.
Wilson. Since that time, Mr. Kellner has served as Chairman of the Board and
Chief Executive Officer and Mr. Wilson has served as President and Treasurer of
FMI. Messrs. Kellner and Wilson are primarily responsible for the day-to-day
management of the BCD Fund's portfolio. They have held this responsibility
since the BCD Fund commenced operations on June 22, 1984.
FMI supervises and manages the investment portfolio of the BCD Fund and subject
to such policies as the Board of Directors of the BCD Fund may determine,
directs the purchase or sale of investment securities in the day-to-day
management of the BCD Fund. Under the BCD Advisory Agreement, FMI, at its own
expense and without reimbursement from the BCD Fund, furnishes office space,
and all necessary office facilities, equipment, and executive personnel for the
performance of the services required to be performed by it under the BCD
Advisory Agreement. For the foregoing, FMI receives a monthly fee of 1/12 of
0.4125% (0.4125% per annum) of the daily net assets of the BCD Fund. The
advisory fees paid to FMI in the fiscal year ended September 30, 1994 were
equal to 0.4125% of the BCD Fund's average net assets.
Pursuant to a sub-advisory agreement (the ''Sub-Advisory Agreement'') with the
BCD Fund, Baird furnishes regular advice to FMI regarding the value of
securities and the advisability of the BCD Fund purchasing or selling specific
securities as well as regular analyses and reports to FMI concerning issuers,
industries, securities, economic factors and portfolio strategy. Although Baird
furnishes regular advice to FMI, FMI makes the final decision as to the
securities to be purchased and sold for the BCD Fund and the timing of such
purchases and sales. Baird is an indirect partially-owned subsidiary of The
Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin and is
controlled by such firm. Baird is a securities broker-dealer and investment
adviser providing brokerage, research, investment banking and investment
advisory services to individuals, trusts, estates, corporations and other
institutional clients.
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<PAGE> 25
In addition to the services referred to above, Baird pays the salaries and fees
of all officers and directors of the BCD Fund (except the fees to directors who
are not interested persons of the BCD Fund). For the foregoing Baird receives a
monthly fee of 1/12 of 0.3275% (0.3275% per annum) of the daily net assets of
the BCD Fund. The advisory fees paid to Baird in the fiscal year ended
September 30, 1994 were equal to 0.3275% of the BCD Fund's average net assets.
BAIRD BLUE CHIP FUND AND BAIRD QUALITY BOND FUND - Pursuant to investment
advisory agreements with the BBC Fund (the ''BBC Advisory Agreement'') and the
BQB Fund (the ''BQB Advisory Agreement'') (collectively the ''Advisory
Agreements'') Baird through its Investment Management Services Group, furnishes
continuous investment advisory services to the BBC Fund and the BQB Fund. The
Investment Management Services Group was organized in 1971 and as of December
31, 1994, managed in excess of $1,000,000,000 in assets for individuals,
trusts, estates, corporations, and such other institutional clients as employee
benefit plans and foundations.
Baird supervises and manages the investment portfolio of the BBC Fund and the
BQB Fund and subject to such policies as their respective Boards of Directors
may determine, directs the purchase or sale of investment securities in the
day-to-day management of these Funds. Under the Advisory Agreements, Baird, at
its own expense and without reimbursement from the Funds, furnishes office
space, and all necessary office facilities, equipment, and executive personnel
for managing the Funds and maintaining their organizations. In addition to the
services referred to above, Baird pays the salaries and fees of all officers
and directors of these Funds (except the fees to directors who are not
interested persons of these Funds). For the foregoing, Baird receives a monthly
fee of 1/12 of 0.74% (0.74% per annum) of the daily net assets of the BBC Fund,
and a monthly fee of 1/12 of 0.50% (0.50% per annum) of the daily net assets of
the BQB Fund. The advisory fees paid to Baird in the fiscal year ended
September 30, 1994 were equal to 0.74% of the BBC Fund's average net assets and
.39% of the BQB Fund's average net assets.
Robinson Bosworth III and John T. Evans, Portfolio Managers of the BBC Fund,
are primarily responsible for the day-to-day management of such Fund's
portfolio. They have held this responsibility since the BBC Fund commenced
operations on December 31, 1986. Mr. Bosworth joined Baird in 1971 and is a
Managing Director of Baird's Investment Management Services Group. Mr. Evans
joined Baird in 1977 and is a Senior Vice President in its Investment
Management Services Group.
James Kochan, Portfolio Manager of the BQB Fund, is primarily responsible for
the day-to-day management of the BQB Fund. He has held this responsibility
since such Fund commenced operations on October 1, 1992. Mr. Kochan has served
as First Vice President of Baird's Investment Management Services Group since
August 1990. Prior to that time, he was First Vice President of Merrill Lynch &
Co. from 1980 to 1990.
ADMINISTRATION OF BAIRD MUTUAL FUNDS - Each of the BCD Fund, BBC Fund and The
Baird Funds, Inc. has entered into an administration agreement with FMI
pursuant to which FMI supervises all aspects of each Fund's operations except
those performed by the investment advisers. FMI prepares and maintains the
books, accounts and other documents required by the 1940 Act, determines each
Fund's net asset value, responds to shareholder inquires, prepares the Funds'
financial statements and excise tax returns, prepares reports and filings with
the Securities and Exchange Commission, furnishes statistical and research
data, clerical, accounting and bookkeeping services and stationery and office
supplies, keeps and maintains the Funds' financial accounts and records and
generally assists in all aspects of the Funds' operations other than portfolio
decisions. FMI, at its own expense and without reimbursement from the Funds,
furnishes office space and all necessary office facilities, equipment and
executive personnel for supervising each Fund's operations. For the foregoing,
FMI receives from each of the BCD Fund and the BBC Fund a monthly fee of 1/12
of 0.1% (0.1% per annum) on the first $30,000,000 of each Fund's daily net
assets and 1/12 of 0.05% (0.05% per annum) on the daily net assets over
$30,000,000 and from the BQB Fund a monthly fee of 1/12 of 0.1% (0.1% per
annum) on the first $20,000,000 of the Fund's daily net assets and 1/12 of
0.05% (0.05% per annum) on the daily net assets over $20,000,000.
20
<PAGE> 26
DETERMINATION OF NET ASSET VALUE
The per share net asset value of each Fund is determined by dividing the total
value of its net assets (meaning its assets less its liabilities) by the total
number of its shares outstanding at that time. The net asset values of the BCD
Fund, the BBC Fund and the BQB Fund are determined as of the close of regular
trading (currently 4:00 p.m. Eastern time) on the New York Stock Exchange on
each day the New York Stock Exchange is open for trading. These determinations
are applicable to all transactions in shares of the Funds prior to that time
and after the previous time as of which net asset values were determined.
Equity securities traded on any national securities exchange or quoted on the
Nasdaq National Market System will ordinarily be valued on the basis of the
last sale price on the date of valuation, or, in the absence of any sales on
that date, the most recent bid price. Other equity securities will generally be
valued at the most recent bid price, if market quotations are readily
available. Debt securities will ordinarily be valued on the basis of
valuations provided by broker-dealers (including broker-dealers from whom such
securities may have been purchased) or by a pricing service, approved by the
respective Fund's Board of Directors, which may utilize information with
respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships among securities
and yield data in determining values. Securities for which there are no readily
available market quotations and other assets will be valued at their fair value
as determined in good faith in accordance with policies approved by the
respective Fund's Board of Directors. Debt securities having a remaining
maturity of sixty days or less when purchased and debt securities originally
purchased with maturities in excess of sixty days but which currently have
maturities of sixty days or less are valued at cost adjusted for amortization
of premiums and accretion of discounts. Odd lot differentials and brokerage
commissions will be excluded in calculating values.
PURCHASE OF SHARES
Baird serves as the distributor and principal underwriter of the Baird Mutual
Funds. Baird's principal business address is 777 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202. Shares of each Baird Mutual Fund are purchased from
Baird or other investment dealers, if any, who have entered into sales
agreements with Baird. Account application forms are included at the back of
this Prospectus. Applications are subject to acceptance by the Baird Mutual
Funds, and are not binding until so accepted. The Baird Mutual Funds reserve
the right to reject applications in whole or in part. The offering price per
share is the next determined per share net asset value after receipt of an
application plus a sales charge which is a percentage of the offering price and
varies based on the amount of the combined concurrent purchases of each Baird
Mutual Fund, together with current holdings under rights of accumulation and/or
purchases indicated under a Letter of Intent. The Board of Directors of each
Baird Mutual Fund has established $1,000 as the minimum initial purchase and
$100 as the minimum for any subsequent purchase (except pursuant to the
Automatic Investment Plan where the minimum monthly or quarterly purchase is
$50 or through dividend reinvestment), which minimum amounts are subject to
change at any time.
SALES CHARGES - The following sales charges are applicable to purchases of the
BCD Fund and the BBC Fund:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
PERCENTAGE PERCENTAGE
AMOUNT OF OF OFFERING OF NET
PURCHASE PRICE ASSET VALUE
--------- ----------- -----------
<S> <C> <C>
At least $100 but less than $50,000 5.75% 6.10%
At least $50,000 but less than $100,000 4.50% 4.71%
At least $100,000 but less than $250,000 3.50% 3.63%
At least $250,000 but less than $500,000 2.50% 2.56%
At least $500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 and over 0.00% 0.00%
</TABLE>
21
<PAGE> 27
The following sales charges are applicable to purchases of the BQB Fund:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
PERCENTAGE PERCENTAGE
AMOUNT OF OF OFFERING OF NET
PURCHASE PRICE ASSET VALUE
--------- ----------- -----------
<S> <C> <C>
At least $100 but less than $100,000 4.00% 4.16%
At least $100,000 but less than $250,000 3.50% 3.63%
At least $250,000 but less than $500,000 2.50% 2.56%
At least $500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 and over 0.00% 0.00%
</TABLE>
The Baird Mutual Funds impose a 1% contingent deferred sales charge with
respect to purchases of shares of the BCD Fund, BBC Fund, or the BQB Fund, of
$1,000,000 and over in the event of a redemption transaction occurring within
12 months following such purchase as described under ''Redemption and
Repurchase of Shares.'' In connection with purchases of $1,000,000 and over
Baird pays its investment officers a fee, which is not reimbursable under the
Plan. Baird receives, however, any contingent deferred sales charges paid in
connection with such purchase. Shares purchased at net asset value and subject
to the contingent deferred sales charge must be registered in the name of Baird
as nominee for the shareholder.
Each Baird Mutual Fund receives the net asset value of all of its shares sold.
Baird retains the sales charge from which it may allow discounts from the
applicable public offering price to investment dealers which are uniform for
all dealers. As of the date of this Prospectus, Baird is not party to any
agreement pursuant to which such discounts are allowed. Each Baird Mutual Fund
may pay to Baird a percentage of such Baird Mutual Fund's daily net assets to
reimburse Baird for costs incurred by it in distributing shares of such Baird
Mutual Funds' common stock. See ''Rule 12b-1 Plan'' below.
In effecting purchases and sales of each Baird Mutual Fund's portfolio
securities, FMI or Baird, as the case may be, may place orders with, and pay
brokerage commissions to, Baird or investment dealers, if any, with which Baird
executes sales agreements when they reasonably believe the commissions and the
transaction quality are comparable to that available from other qualified
brokers. In selecting among firms to handle a particular transaction the
investment advisers may take into account whether the firm has sold, or is
selling, shares of any of the Baird Mutual Funds.
RULE 12B-1 PLAN - Each Baird Mutual Fund has adopted a Distribution Plan (the
''Plan'') pursuant to Rule 12b-1 under the 1940 Act. Each Plan provides that
the Baird Mutual Funds may incur certain costs which may not exceed a maximum
monthly percentage of each respective Baird Mutual Funds' daily net assets. The
applicable maximum monthly percentage is 1/12 of 0.45% (0.45% per annum).
Amounts paid under each Plan are paid to Baird as compensation for its services
as distributor of the shares of each Baird Mutual Fund pursuant to Distribution
Assistance Agreements between each Baird Mutual Fund and Baird and may be spent
by Baird on any activities or expenses primarily intended to result in the sale
of shares, including but not limited to, compensation to, and expenses
(including overhead and telephone expenses) of, employees of Baird who engage
in or support distribution of the shares, printing of prospectuses and reports
for other than existing shareholders, advertising and preparation and
distribution of sales literature. Allocation of overhead (rent, utilities,
etc.) and salaries will be based on the percentage of utilization in, and time
devoted to, distribution activities. (The Plans for the BCD Fund and the BBC
Fund permit these Funds to incur distribution costs up to 0.75% per annum but
Baird has determined to limit payments pursuant to such Plans to 0.45% per
annum.) From such amounts Baird will pay to each of its investment officers an
amount equal to 0.25% of the average daily net assets of the BCD, BBC and BQB
Fund attributable to shares of such Funds sold by such investment officer.
Baird will directly bear all sales and promotional expenses of the Baird Mutual
Funds, other than expenses incurred in complying with laws regulating the issue
or sale of securities.
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<PAGE> 28
(The Baird Mutual Funds will indirectly bear sales and promotional expenses to
the extent they make payments under the Plans.) If payments made by Baird for
such activities or expenses during any fiscal year exceed the maximums under
the Distribution Plan for such year, a Fund will not be liable for any such
difference.
NET ASSET VALUE PURCHASES - Shares of each Baird Mutual Fund may be purchased
at net asset value (without a sales charge) by such Baird Mutual Fund's
employees, present and former directors, employees and directors of Baird and
employees and directors of such Baird Mutual Fund's investment adviser, by
licensed investment officers of Baird and by members of the immediate family of
any of the foregoing. The term ''employee'' includes an employee's spouse
(including the surviving spouse of a deceased employee), children of the
employee and retired employees. The term ''members of the immediate family'' is
defined to mean a person's parents, brothers and sisters, children and
grandchildren. Subject to certain limitations, each Baird Mutual Fund may also
issue shares without a sales charge in connection with any merger or
consolidation with, or acquisition of the assets of, any investment company and
pursuant to the exchanges described under ''Exchange Privileges.'' Shares of
each Baird Mutual Fund may also be purchased at net asset value (without a
sales charge) by retirement plans (i.e. plans qualifying under Sections
401(a), 401(k), 403(a) and 457 of the Internal Revenue Code, as amended (the
''Code''), but not Individual Retirement Accounts or Simplified Employee
Pension Plans) which purchase at least $500,000 of shares of the Baird Mutual
Funds.
CONTINGENT DEFERRED SALES CHARGE - The Baird Mutual Funds impose a 1%
contingent deferred sales charge upon the redemption of certain shares
initially purchased without a front-end sales load in the event of a redemption
transaction occurring within 12 months following such purchase. See
''Redemption and Repurchase of Shares'' for a discussion of the application of
the contingent deferred sales charge, including circumstances under which the
contingent deferred sales charge is waived. In connection with purchases
described in the following paragraph on which no front-end sales load is
imposed Baird pays its investment officers a fee, which is not reimbursable
under the Plan. Baird receives, however, any contingent deferred sales charge
paid in connection with such purchases.
No front-end sales load is imposed on purchases of shares of the Baird Mutual
Funds by investment advisory clients (or affiliates of investment advisory
clients) of Baird and by shareholders using the proceeds from the redemption of
shares of an unrelated mutual fund provided the following conditions are met.
If the unrelated mutual fund imposes a front-end sales load, the redemption
must have been made within 90 days of the purchase of the shares of the Baird
Mutual Funds and the account application must be accompanied either by the
redemption check (or a copy of such check) or a copy of the account activity
statement reflecting the redemption. If the unrelated mutual fund does not
impose a front-end sales load, the redemption must have been made within 90
days of the purchase of the shares of the Baird Mutual Funds and the account
application must be accompanied by (i) the redemption check (or a copy of such
check) or a copy of the account activity statement reflecting the redemption,
and (ii) an account activity statement or statements or other evidence
indicating (A) that the shareholder had previously owned the unrelated mutual
fund, if other than a money market fund, for at least 60 days or (B) if the
unrelated mutual fund is a money market fund, that the shares of the money
market fund were purchased with the proceeds of a mutual fund, other than a
money market fund, that either had been owned by the shareholder for at least
60 days or for which a front-end sales load had been paid. Shares purchased at
net asset value as described above and subject to the contingent deferred sales
charge must be registered in the name of Baird as nominee for the shareholder.
RIGHT OF ACCUMULATION - Reduced sales charges are applicable through a right
of accumulation under which purchasers may add to their investments in the
Baird Mutual Funds by purchasing shares at the offering price applicable to the
total of (a) the dollar amount then being purchased of all Baird Mutual Funds
plus (b) an amount equal to the then current net asset value of the shares of
all Baird Mutual Funds then held by the purchaser. (A ''purchaser'' is defined
to include an individual, as well as certain employee benefit plans for such
individual such as the individual's Individual Retirement Accounts,
individual-type 403(b) plan or a single participant Keogh-type plan, his or her
spouse and their children.)
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<PAGE> 29
LETTER OF INTENT - Reduced sales charges also apply to the aggregate amount of
purchases of shares of the Baird Mutual Funds made by any purchaser within a
13-month period beginning with a date not earlier than 90 days prior to the
date of receipt by Baird of an executed Letter of Intent (''Letter'') provided
by Baird. After execution of the Letter each purchase of shares of any Baird
Mutual Fund will be entitled to the sales charge applicable to the total
investment indicated in the Letter. If the actual total investments under the
Letter exceed the intended amount and thereby qualify for a lower sales charge,
a retroactive price adjustment will be made with respect to each purchase of
shares of any of the Baird Mutual Funds and the difference will be used to
purchase additional shares of such Fund(s). If the total amount of shares
purchased during the thirteen month period does not equal the amount stated in
the Letter, the purchaser will be notified and required to pay within 20 days
of the expiration of the Letter the difference between the sales charge
applicable to the shares of the Baird Mutual Funds purchased at the reduced
rate and the sales charge applicable to the shares actually purchased pursuant
to the Letter. Pursuant to the Letter, which imposes no obligation to purchase
additional shares, the first purchase following execution of the Letter must be
at least 5% of the amount of the intended purchase and 5% of the amount of the
intended purchase will be held in escrow in the form of shares pending
completion of the intended purchase. The escrowed shares may be redeemed to
cover additional sales charges payable if the intended purchases are not
completed and an additional sales charge not paid within the aforementioned 20
day period. (Again a ''purchaser'' is defined to include an individual, as well
as certain employee benefit plans for such individual such as the individual's
Individual Retirement Accounts, individual-type 403(b) plan or a single
participant Keogh-type plan, his or her spouse, and their children.)
DIRECT PURCHASES BY MAIL OR WIRE - An account application is included at the
back of this Prospectus. Additional account applications may be obtained from
Baird. Account applications should be mailed directly to Baird Mutual Funds,
c/o Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. If
using overnight delivery use the following address: Baird Mutual Funds, c/o
Firstar Trust Company, 615 E. Michigan Street, 3rd Floor, Milwaukee, Wisconsin
53202. ALL APPLICATIONS MUST BE ACCOMPANIED BY PAYMENT IN THE FORM OF A CHECK
OR MONEY ORDER MADE PAYABLE TO BAIRD MUTUAL FUNDS, OR BY DIRECT WIRE TRANSFER.
All purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks. Neither cash nor 3rd party checks will be accepted. Firstar Trust
Company will charge a $15 fee against a shareholder's account for any payment
check returned to the custodian. THE SHAREHOLDER WILL ALSO BE RESPONSIBLE FOR
ANY LOSSES SUFFERED BY THE BAIRD MUTUAL FUNDS AS A RESULT. Funds should be
wired to Firstar Bank Milwaukee, N.A., 777 East Wisconsin Avenue, Milwaukee,
Wisconsin, ABA #0750 00022, Firstar Trust Company, Account #112-952-137, for
''name of Baird Mutual Fund'', ''name of shareholder and existing account
number, if any.'' The establishment of a new account by wire transfer should be
preceded by a phone call to Baird, (414) 765-3500, to provide information for
the setting up of the account. A follow up application should be sent for all
new accounts opened by wire transfer. Telephone orders for purchase of shares
may be placed with Baird in which event the purchase will be made at the
offering price next determined after the placement of the order.
AUTOMATIC INVESTMENT PLAN - Each Baird Mutual Fund has in effect an Automatic
Investment Plan pursuant to which shareholders may invest a fixed dollar amount
automatically on or about the 5th day of each month or calendar quarter. The
minimum purchase per transaction is $50. To use this service a shareholder must
authorize Firstar Trust Company to transfer funds from the shareholder's bank
checking or NOW account by completing the Automatic Investment Plan application
included at the back of this Prospectus.
REDEMPTION AND REPURCHASE OF SHARES
A shareholder may require any Baird Mutual Fund to redeem the shareholder's
shares in whole or part at any time. Redemption requests must be made in
writing and directed to: Baird Mutual Funds, c/o Firstar Trust Company, P.O.
Box 701, Milwaukee, Wisconsin 53201-0701. If a redemption request is
inadvertently sent to the Baird Mutual Funds, it will be forwarded to Firstar
Trust Company, but the effective date of redemption will be delayed until the
request is received by Firstar Trust Company. Requests for redemption by
telephone or telegram and requests which
24
<PAGE> 30
are subject to any special conditions or which specify an effective date other
than as provided herein cannot be honored.
Redemption requests should specify the name of the Baird Mutual Fund, the
number of shares or dollar amount to be redeemed, shareholder's name, account
number, and the additional requirements listed below that apply to the
particular account.
<TABLE>
<CAPTION>
TYPE OF REGISTRATION REQUIREMENTS
<S> <C>
Individual, Joint Tenants, Redemption request signed by person(s)
(Uniform Gift to Minors Act), required to sign for the account,
General Partners exactly as it is registered.
Corporations, Associations Redemption request and a corporate
resolution, signed by person(s)
required to sign for the account,
accompanied by signature guarantee(s)
Trusts Redemption request signed by the
trustee(s) with a signature guarantee.
(If the trustee's name is not registered
on the account, a copy of the
trust document certified within the last
60 days is also required.)
</TABLE>
Redemption requests from shareholders in an IRA must include instructions
regarding federal income tax withholding. Unless otherwise indicated, these
redemptions, as well as redemptions of other retirement plans not involving a
direct rollover to an eligible plan, will be subject to federal income tax
withholding.
If a shareholder is not included in any of the above registration categories
(e.g. executors, administrators, conservators or guardians), the shareholder
should call the transfer agent, Firstar Trust Company, (414-765-4124), for
further instructions. Signatures need not be guaranteed unless otherwise
indicated above or the proceeds of redemption are requested to be (a) sent by
wire transfer, (b) sent to a person other than the registered holder or holders
of the shares to be redeemed, or (c) mailed to other than the address of
record, in which cases each signature on the redemption request must be
guaranteed by a commercial bank or trust company in the United States, a member
firm of the New York Stock Exchange or other qualified guarantor. If
certificates have been issued for any of the shares to be redeemed, the
certificates, properly endorsed or accompanied by a properly executed stock
power, must accompany the request for redemption. Redemptions will not be
effective or complete until all of the foregoing conditions, including receipt
of all required documentation by Firstar Trust Company in its capacity as
transfer agent, have been satisfied.
The redemption price is the net asset value next determined after receipt by
Firstar Trust Company in its capacity as transfer agent of the written request
in proper form with all required documentation. The amount received will depend
on the market value of the investments in the Baird Mutual Fund's portfolio at
the time of determination of net asset value, and may be more or less than the
cost of the shares redeemed. A check in payment for shares redeemed will be
mailed to the holder no later than the seventh day (or such lesser period of
time as may be required by applicable regulation) after receipt of the
redemption request in proper form and all required documentation.
The Baird Mutual Funds impose a contingent deferred sales charge upon the
redemption of certain shares initially purchased without a sales charge. A
contingent deferred sales charge is imposed upon the redemption of shares
initially purchased without a sales charge because the purchase was (i)
$1,000,000 or more, (ii) by an investment advisory client (or affiliate of an
investment advisory client) of Baird, or (iii) with the proceeds of a
redemption of shares of an unrelated mutual fund, as described in ''Purchase of
Shares.'' The contingent deferred sales charge is imposed in the event of a
redemption transaction occurring within 12 months following such a purchase.
This contingent deferred sales charge is equal to 1% of the lesser of the net
asset value of such shares at the time of purchase or at the time of
redemption. No contingent deferred sales charge is imposed when an investor
redeems (a) shares held for longer than 12 months, (b) amounts representing an
increase in the value of Baird Mutual Fund shares due to capital appreciation,
or (c) shares purchased through reinvestment of dividends or capital gain
distributions. In
25
<PAGE> 31
determining whether a contingent deferred sales charge is payable, shares that
are not subject to any deferred sales charge are redeemed first, and other
shares are then redeemed in the order purchased.
The contingent deferred sales charge is waived in connection with purchases
described under the captions ''Net Asset Value Purchases'' and ''Reinstatement
Privilege.'' In addition, the contingent deferred sales charge is waived in the
event of (a) the death or disability (as defined in Section 72(m)(7) of the
Code) of the shareholder, (b) a lump sum distribution from a benefit plan
qualified under the Employee Retirement Income Security Act of 1974
(''ERISA''), or (c) systematic withdrawals for ERISA plans if the shareholder
is at least 59-1/2 years old. The Baird Mutual Funds apply the waiver for
death or disability to shares held at the time of death or the initial
determination of disability of either an individual shareholder or one who owns
the shares as a joint tenant with the right of survivorship or as a tenant in
common.
No contingent deferred sales charge is imposed on an exchange of shares
described under ''Exchange Privileges.'' When shares of a Baird Mutual Fund
have been so exchanged, the date of the purchase of the shares of the fund
exchanged into, for purposes of any future deferred sales charge, will be
assumed to be the date on which the shares tendered for exchange were
originally purchased. If the shares being tendered for exchange have been held
for less than 12 months and are still subject to a deferred sales charge, such
charge will carry over to the shares being acquired in the exchange
transaction.
Each Baird Mutual Fund will also repurchase shares through Baird or investment
dealers, if any, with which Baird has executed sales agreements. The Baird
Mutual Funds will normally accept orders to repurchase shares by wire or
telephone from Baird or such other investment dealer at the net asset value
next computed after receipt of the order, provided the request for repurchase
is received prior to the close of business on the New York Stock Exchange. The
Baird Mutual Funds will not charge a fee for this transaction (other than the
contingent deferred sales charge, if applicable) but Baird will charge a $40
service fee. Other investment dealers may also charge service fees, which may
be different from the fee charged by Baird. Written redemption requests in
proper form must be sent to Baird or the investment dealer after making the
repurchase request. A check in payment for shares repurchased will be mailed to
the holder no later than the seventh day after receipt of the redemption
request in proper form and all required documentation.
The right to redeem or repurchase shares of the Baird Mutual Funds will be
suspended for any period during which the New York Stock Exchange is closed
because of financial conditions or any other extraordinary reason and may be
suspended for any period during which (a) trading on the New York Stock
Exchange is restricted pursuant to rules and regulations of the Securities and
Exchange Commission, (b) the Securities and Exchange Commission has by order
permitted such suspension or (c) an emergency, as defined by rules and
regulations of the Securities and Exchange Commission, exists as a result of
which it is not reasonably practicable for the Baird Mutual Funds to dispose of
their securities or fairly to determine the value of their net assets.
Additionally when the Baird Mutual Funds are requested to redeem or repurchase
shares for which they have not received good payment, any Baird Mutual Fund may
delay or cause to be delayed the mailing of a redemption check until it has
assured itself that good payment has been collected for the purchase of such
shares. (It will normally take up to 3 days to clear local personal or
corporate checks and up to 7 days to clear other personal and corporate
checks.)
REINSTATEMENT PRIVILEGE
Former shareholders of any of the Funds may reinvest the proceeds from a
redemption of any of the Funds or a dividend or capital gain distribution from
any of the Funds in shares of any of the Funds at net asset value; provided
such reinvestment is made within 90 days of the redemption, dividend or
distribution. When making a purchase at net asset value pursuant to the
Reinstatement Privilege the former shareholder's account application must be
accompanied by a copy of the account activity statement showing the prior
redemption, dividend or distribution. The tax status of any gain realized on a
redemption will not be affected by exercise of the Reinstatement Privilege,
26
<PAGE> 32
but a loss may be nullified if the former shareholder reinvests in the same Fund
within 30 days. See ''Dividends, Distributions and Taxes'' for additional tax
considerations in exercising the Reinstatement Privilege.
DIVIDEND REINVESTMENT
Each Baird Mutual Fund has in effect a dividend reinvestment plan pursuant to
which shareholders may elect to have all income dividends and/or capital gains
distributions reinvested. Shareholders may also elect to have dividends and/or
capital gains distributions paid in cash. See the account application forms
included at the back of this Prospectus for further information. If the
shareholder does not specify an election, all income dividends and capital
gains distributions will automatically be reinvested in full and fractional
shares, calculated to the nearest 1,000th of a share. Shares are purchased at
the net asset value in effect on the business day after the dividend record
date (without a sales charge) and are credited to the shareholder's account on
the dividend payment date. As in the case of normal purchases, stock
certificates are not issued unless requested. Shareholders will be advised of
the number of shares purchased and the price following each reinvestment. An
election to reinvest or receive dividends and distributions in cash will apply
to all shares registered in the same name, including those previously
purchased. See ''Dividends, Distributions and Taxes'' for a discussion of the
federal income tax consequences of participating in the dividend reinvestment
plan.
A shareholder may change an election at any time by notifying the appropriate
Baird Mutual Fund in writing. If such a notice is received between a dividend
declaration date and payment date, it will become effective on the day
following each payment date. Each Baird Mutual Fund may modify or terminate its
dividend reinvestment program at any time on thirty days' notice to
participants.
DIRECTED REINVESTMENT
In addition to having income dividends and/or capital gains distributions
reinvested in shares of the Baird Mutual Fund from which such distributions are
paid, shareholders may elect the directed reinvestment option and have
dividends and capital gains distributions automatically invested in one or more
of the other Baird Mutual Funds. Distributions can only be directed to an
existing Baird Mutual Fund account (which account must meet the minimum
investment requirement) with a registration identical to the account on which
the distributions are paid. Directed reinvestments may be used to invest funds
from a regular account to another regular account, from a qualified plan
account to another qualified plan account, or from a qualified plan account to
a regular account. Directed reinvestments from a qualified plan account to a
regular account may have adverse tax consequences including imposition of a
penalty tax and therefore shareholders should consult their own advisors before
commencing these transactions.
No service fee is currently charged by Baird for effecting directed
reinvestment transactions. There are also no sales charges payable on directed
reinvestment transactions. Additional information regarding this service may be
obtained from Baird. Directing distributions from either the BCD or BBC Fund to
the BQB Fund will ordinarily not be the most cost effective means to invest in
the BQB Fund because the sales charges applicable to investments in the BCD and
BBC Fund are generally higher than those applicable to investment in the BQB
Fund.
SYSTEMATIC WITHDRAWAL PLAN
Each Baird Mutual Fund has available to shareholders a Systematic Withdrawal
Plan pursuant to which a shareholder who owns shares worth at least $10,000 at
current net asset value may provide that a fixed sum will be distributed to the
shareholder at regular intervals. To participate in the Systematic Withdrawal
Plan, a shareholder deposits shares with the appropriate Baird Mutual Fund and
appoints it as the shareholder's agent to effect redemptions of the shares held
in the account for the purpose of making monthly or quarterly withdrawal
payments of a fixed amount to the shareholder out of the account. To utilize
the Systematic Withdrawal Plan, the shares cannot be held in certificate form.
The Systematic Withdrawal Plan does not apply to shares held in Individual
27
<PAGE> 33
Retirement Accounts or defined contribution retirement plans. An application
for participation in the Systematic Withdrawal Plan is provided in the account
application or may be obtained by writing to the Baird Mutual Funds or by
calling (414) 765-3500.
The minimum amount of a withdrawal payment is $100. These payments will be made
from the proceeds of periodic redemption of shares in the account at net asset
value. Redemptions will be made on the 19th day of each month or, if that day
is a holiday, on the preceding business day. Participation in the Systematic
Withdrawal Plan constitutes an election by the shareholder to participate in
the dividend reinvestment plan and shares acquired pursuant to the reinvestment
of dividends on shares held in the account will be added to such account. The
shareholder may deposit additional shares in the account at any time. However,
the periodic purchase of additional shares while participating in the
Systematic Withdrawal Plan will ordinarily be disadvantageous to the
shareholder because the shareholder will be paying a sales charge on the
purchase of such shares at the same time the shareholder is redeeming shares
upon which a sales charge may have already been paid. Withdrawal payments cannot
be considered as yield or income on the shareholder's investment, since
portions of each payment will normally consist of a return of capital.
Depending on the size or the frequency of the disbursements requested, and the
fluctuation in the value of the applicable Baird Mutual Fund's portfolio,
redemptions for the purpose of making such disbursements may reduce or even
exhaust the shareholder's account. Withdrawals, as in the case of other
redemptions, are sales of shares for federal income tax purposes, and may
result in capital gains or losses. See ''Dividends, Distributions and Taxes.''
The shareholder may vary the amount or frequency of withdrawal payments,
temporarily discontinue them, or change the designated payee or payee's
address, by notifying Firstar Trust Company.
AUTOMATIC EXCHANGE PLAN
Each Baird Mutual Fund also has available to shareholders an Automatic Exchange
Plan pursuant to which a shareholder who owns shares worth at least $10,000 at
current net asset value may provide that a fixed sum will be exchanged from
such Fund to one or more other Baird Mutual Funds at regular intervals. The
Automatic Exchange Plan operates in a manner similar to the Systematic
Withdrawal Plan (See ''Systematic Withdrawal Plan'' above) except that a fixed
sum is exchanged for shares of another Baird Mutual Fund rather than
distributed in cash to the shareholder at regular intervals. The minimum
exchange transaction is $50. Exchanges will be made on the 19th day of each
month, or, if that day is a holiday, on the preceding business day. The
shareholder may deposit additional shares in the shareholder's account of the
Fund from which exchanges are to be made at any time. Exchanging shares
pursuant to the Automatic Exchange Plan from either the BCD or BBC Fund to the
BQB Fund will ordinarily not be the most cost effective means to invest in the
BQB Fund because the sales charges applicable to investments in the BCD and BBC
Fund are generally higher than those applicable to investment in the BQB Fund.
Exchanges may only be made to an existing Baird Mutual Fund Account with a
registration identical to the account from which the exchanges are made.
Exchanges pursuant to the Automatic Exchange Plan may only be made if shares of
the Baird Mutual Fund to which the exchanges are to be made are offered in the
shareholder's state of residence. An exchange transaction is a sale and
purchase of shares for federal income tax purposes and may result in a capital
gain or loss. Both the redemption and purchase of shares will be effected at
the respective net asset values of the Baird Mutual Funds.
EXCHANGE PRIVILEGES
Shareholders of a Baird Mutual Fund may redeem all of their shares or a portion
of their shares having a net asset value of at least $1,000 and use the
proceeds to purchase shares of any other Baird Mutual Fund, if such shares are
offered in the shareholder's state of residence. Both the redemption and
purchase of shares will be effected at the respective net asset values of the
Baird Mutual Funds. An exchange transaction is a sale and purchase of shares
for federal income tax purposes and may result in a capital gain or loss. The
registration of both the account from which the exchange is being made and the
account to which the exchange is made must be identical.
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<PAGE> 34
Exchange requests must be made in writing. Requests should include the account
numbers for both Baird Mutual Funds if an account is already opened, and the
amount of the exchange. If a new account is to be opened by the exchange, the
registration must be identical to that of the original account. If certificates
for shares are held, they must be delivered properly endorsed as described in
''Redemption and Repurchase of Shares.''
Each Baird Mutual Fund reserves the right, at any time without prior notice, to
suspend, limit, modify or terminate this exchange privilege or its use in any
manner by any person or class. In particular, since an excessive number of
exchanges may be disadvantageous to the Baird Mutual Funds, each Baird Mutual
Fund reserves the right to terminate the exchange privilege of any shareholder
who makes more than four exchanges of shares in a year or three in a calendar
quarter (except for exchanges pursuant to the Automatic Exchange Plan).
Each Baird Mutual Fund has entered into an arrangement with Portico Money
Market Fund pursuant to which shareholders may exchange their shares of the
Baird Mutual Funds for those of the Portico Money Market Fund at their net
asset values, and, at a later date, exchange such shares and shares purchased
with reinvested dividends for shares of any Baird Mutual Fund at net asset
value (without a sales charge). The minimum amount of exchange transactions
with the Portico Money Market Fund is $1,000. Exchanges of shares of the Baird
Mutual Funds for shares of Portico Money Market Fund and exchanges of shares of
Portico Money Market Fund for shares of the Baird Mutual Funds may only be made
on days both the New York Stock Exchange is open for trading and the Federal
Reserve Banks' Fedline System is open. Such exchanges must comply with the
applicable initial and subsequent purchase minimums as established by the fund
whose shares are being acquired pursuant to the exchange. Refer to the
prospectus of the Portico Money Market Fund and under the heading ''Purchase of
Shares'' in this prospectus for the current minimum amounts for initial and
subsequent purchases. Additional information about this exchange privilege is
contained in the Statement of Additional Information. Baird receives certain
payments from Portico Money Market Fund in connection with exchanges of shares
of the Baird Mutual Funds for those of the Portico Money Market Fund. Refer to
the prospectus of the Portico Money Market Fund for information regarding these
payments.
INDIVIDUAL RETIREMENT ACCOUNT AND SIMPLIFIED EMPLOYEE PENSION PLAN
INDIVIDUAL RETIREMENT ACCOUNTS - Individual shareholders may establish their
own tax-sheltered Individual Retirement Account (''IRA''). The Baird Mutual
Funds have a prototype IRA plan using IRS Form 5305-A. An individual may
contribute to the IRA an annual amount equal to the lesser of 100% of annual
earned income or $2,000 ($2,250 maximum in the case of a married couple where
one spouse is not working and certain other conditions are met in which event
two IRAs are established).
Earnings on amounts held under the IRA accumulate free of federal income taxes.
Distributions from the IRA may begin at age 59-1/2, and must begin by April 1
following the calendar year end in which a person reaches age 70-1/2. Excess
contributions, certain distributions prior to age 59-1/2 and failure to begin
distributions after age 70-1/2 may result in adverse tax consequences.
Under current IRS regulations an IRA applicant must be furnished a disclosure
statement containing information specified by the IRS. The applicant has the
right to revoke the applicant's account within seven days after receiving the
disclosure statement in accordance with IRS regulations and obtain a full
refund of the applicant's contribution should the applicant so elect. The
custodian may, in its discretion, hold the initial contribution uninvested
until the expiration of the seven-day revocation period. The custodian
anticipates that it will not so exercise its discretion but reserves the right
to do so.
Firstar Trust Company, Milwaukee, Wisconsin, serves as custodian and furnishes
the services provided for in the IRA plan as required by ERISA. The custodian
invests all cash contributions, dividends and capital gains distributions in
shares. For such services, the following fees, which are subject to change,
will be charged against each
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<PAGE> 35
account of the participants: $12.50 annual maintenance fee; $15 for transferring
to a successor trustee; $15 for distribution(s) to a participant; and $15 for
refunding any contribution in excess of the deductible limit.
SIMPLIFIED EMPLOYEE PENSION PLAN - The Baird Mutual Funds' prototype IRA plan
may also be used to establish a Simplified Employee Pension Plan (''SEP/IRA'').
The SEP/IRA is available to employers and employees, including self-employed
individuals, who wish to purchase shares with tax deductible contributions not
exceeding annually for any one participant the lesser of $30,000 or 15% of
earned income; provided that no more than $9,240 annually (as adjusted for
cost-of-living increases) may be contributed through elective deferrals.
Requests for information and forms concerning the IRA and SEP/IRA should be
directed to Baird. Included with the forms is a disclosure statement which the
IRS requires to be furnished to individuals who are considering an IRA or
SEP/IRA. Consultation with a competent financial and tax adviser regarding the
IRA and SEP/IRA is recommended.
DEFINED CONTRIBUTION RETIREMENT AND 401(k) PLAN
A prototype defined contribution retirement plan is available for employers who
wish to purchase shares of the Baird Mutual Funds with tax-deductible
contributions not exceeding annually the lesser of $30,000 or 25% of earned
income. This plan includes a cash or deferred 401(k) arrangement for employers
who wish to allow employees to elect to reduce their compensation and have such
amounts contributed to the plan, not to exceed $9,240 annually (as adjusted for
cost-of-living increases). The Baird Mutual Funds have received an opinion
letter from the Internal Revenue Service that the prototype defined
contribution retirement plan is acceptable for use under Section 401 of the
Code.
Firstar Trust Company, Milwaukee, Wisconsin, serves as custodian and furnishes
the services provided for in the retirement plan. The custodian invests all
cash contributions, dividends and capital gains distributions in shares. For
such services, the following fees, which are subject to change, will be charged
against each account of the participants: $12.50 for annual maintenance fee per
participant account; $15 for a transfer to successor trustee; $15 for
distribution(s) to a participant; and $15 for a refund of an excess
contribution.
Requests for information and forms concerning the retirement plan should be
directed to Baird. Consultation with a competent financial and tax adviser
regarding the retirement plan is recommended.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Baird Mutual Funds intend to qualify annually as, and elect tax treatment
as, a regulated investment company under Subchapter M of the Code. Pursuant to
the requirements of the Code, the Baird Mutual Funds intend to distribute
substantially all of their net investment income and net capital gain, if any,
to their shareholders annually so as not to be required to pay significant
amounts of federal income or excise tax on their net investment income or net
realized capital gain. Net investment income and net realized capital gain will
typically be paid by the BCD Fund and the BBC Fund in October and December. Net
realized capital gain will typically be paid by the BQB Fund in October and
December and net investment income will be paid as described in the following
paragraph. For federal income tax purposes, the amount of the distributions
paid by the Baird Mutual Funds to shareholders, whether invested in additional
shares pursuant to the dividend reinvestment plan or received in cash, will be
taxable to each Baird Mutual Fund's shareholder except those shareholders that
are not subject to tax on their income.
The daily net investment income of the BQB Fund is declared as a dividend each
day to shareholders of record and paid monthly. Shares of the BQB Fund will
begin earning dividends the day the purchase becomes effective and will not
participate in the dividend declared on the date of redemption. For these
purposes, the date of purchase and the date of redemption is the settlement
date of the transaction. If all shares in an account (other than an account
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<PAGE> 36
registered in the name of Baird's nominee) are redeemed, dividends credited to
the account since the beginning of the dividend period through the date of
redemption will be paid with the redemption proceeds. If less than all such
shares are redeemed (or if all shares of an account registered in the name of
Baird's nominee are redeemed), all dividends accrued but unpaid on the redeemed
shares will be distributed on the next payment date. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Income earned on weekends, holidays
and other days on which the net asset value is not calculated will be declared
as a dividend in advance on the preceding business day.
Shareholders will be notified annually as to the sources of dividends and
distributions. For federal income tax purposes, the original cost for a
shareholder's shares constitutes the shareholder's basis in the shares and on
redemption (including redemptions pursuant to the Exchange Privilege and the
Systematic Withdrawal Plan) the shareholder will recognize gain or loss equal
to the difference between such basis and the redemption price; provided, that
if shares of a Baird Mutual Fund are exchanged within 90 days of purchase
pursuant to the Exchange Privilege or redeemed within 90 days of purchase and
the proceeds reinvested pursuant to the Reinstatement Privilege, for federal
income tax purposes (a) the basis of the shares initially purchased will not
include the sales charge paid with respect thereto and (b) such sales charge
will be added to the basis of the shares purchased pursuant to the Exchange
Privilege or the Reinstatement Privilege. Furthermore, any loss recognized on a
sale of shares will be disallowed if the shares sold are replaced within a
61-day period beginning 30 days before and ending 30 days after the disposition
of the shares. In such case, the basis of the acquired shares will be adjusted
to reflect the disallowed loss. Shares purchased pursuant to the dividend
reinvestment plan will have a basis equal to the amount of the dividends and/or
capital gains distributions reinvested. Distributions and redemptions may also
be subject to tax under state or local tax laws the provisions of which may
differ from those of the Code.
CAPITAL STRUCTURE
Each of the BCD Fund and the BBC Fund have authorized capital stock consisting
of 20,000,000 shares of common stock. The authorized capital stock of The Baird
Funds, Inc. consists of 10,000,000,000 shares, of which 300,000,000 are
allocated to the BQB Fund. Shareholders of the BCD Fund and the BBC Fund are
entitled: (i) to one vote per full share of common stock; (ii) to such
distributions as may be declared by the Fund's Board of Directors out of funds
legally available; and (iii) upon liquidation, to participate ratably in the
assets available for distribution. With respect to the BQB Fund, each share
outstanding entitles a holder to one vote. Generally shares of the BQB Fund and
of any other portfolios of The Baird Funds, Inc. are voted in the aggregate and
not by each Fund, except when class voting by the BQB Fund and any such other
portfolios is required by Wisconsin law or the Investment Company Act of 1940
(e.g., change in investment policy or approval of an investment advisory
agreement). The shares of each of the BQB Fund and any such other portfolios
have the same preferences, limitations and rights, except that all
consideration received from the sale of shares of each of the BQB Fund and any
such other portfolios, together with all other income, earnings, profits and
proceeds thereof, belong to the respective fund and are charged with the
liabilities in respect to that fund and of that fund's share of the general
liabilities of The Baird Funds, Inc., in the proportion that the total net
assets of the respective fund bears to the aggregate net assets of The Baird
Funds, Inc. The net asset value per share of each of the BQB Fund and the other
portfolios of The Baird Funds, Inc. is based on the assets belonging to that
fund less the liabilities charged to that fund, and dividends are paid on
shares of each fund only out of lawfully available assets belonging to that
fund. In the event of liquidation or dissolution of The Baird Funds, Inc., the
shareholders of the BQB Fund and the other portfolios of The Baird Funds, Inc.
will be entitled, out of the assets of The Baird Funds, Inc. available for
distribution, to the assets belonging to such fund. As of the date of this
prospectus, The Baird Funds, Inc. consisted of the BQB Fund and one other
portfolio, the Baird Adjustable Rate Income Fund, which is not accepting new
investments.
There are no conversion or sinking fund provisions applicable to the shares of
the Baird Mutual Funds and the holders have no preemptive rights and may not
accumulate their votes in the election of directors. Consequently the
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<PAGE> 37
holders of more than 50% of the shares of the BCD Fund, the BBC Fund and The
Baird Funds, Inc. voting for the election of directors of the respective
corporation can elect the entire Board of Directors of the respective
corporation and in such event the holders of the remaining shares voting for the
election of directors will not be able to elect any person or persons to the
Board of Directors. The Wisconsin Business Corporation Law permits registered
investment companies to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the Investment
Company Act of 1940. The Baird Mutual Funds have adopted the appropriate
provisions in their Bylaws and do not anticipate holding an annual meeting of
shareholders to elect directors unless otherwise required by the Investment
Company Act of 1940. The Baird Mutual Funds have also adopted provisions in
their Bylaws for the removal of directors by their shareholders.
The shares are redeemable and are transferable. All shares issued and sold by
each Baird Mutual Fund will be fully paid and non-assessable except as
provided in Section 180.0622(2)(b) of the Wisconsin Business Corporation Law.
Fractional shares entitle the holder to the same rights as whole shares, on a
proportionate basis. Firstar Trust Company, 615 East Michigan Street,
Milwaukee, Wisconsin 53202 acts as each Baird Mutual Fund's transfer agent and
dividend disbursing agent.
The BCD Fund and the BBC Fund will not issue certificates evidencing shares
purchased unless so requested in writing. Shares of the BQB Fund will be
evidenced only by bookkeeping entries. Where certificates are not issued, the
shareholder's account will be credited with the number of shares purchased,
relieving shareholders of responsibility for safekeeping of certificates and
the need to deliver them upon redemption. Written confirmations are issued for
all purchases. Any shareholder may deliver certificates to Firstar Trust
Company and direct that the shareholder's account be credited with the shares.
A shareholder of the BCD Fund or the BBC Fund may direct Firstar Trust Company
at any time to issue a certificate for the shareholder's shares without charge.
The BCD Fund, the BBC Fund and The Baird Funds, Inc. are separately
incorporated investment companies. Each Baird Mutual Fund is described in this
Prospectus in order to help investors understand the similarities and
differences between the Baird Mutual Funds. Because the Baird Mutual Funds
share this Prospectus there is a possibility that one Baird Mutual Fund might
become liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other Baird Mutual Fund.
SHAREHOLDER REPORTS
Shareholders will be provided at least semi-annually with a report showing the
applicable Baird Mutual Funds' portfolio and other information and annually
after the close of the Baird Mutual Funds' fiscal year, which ends September
30, with an annual report containing audited financial statements. Shareholders
who have questions about the Baird Mutual Funds should call Firstar Trust
Company at (414) 765-4124 or write to Baird Mutual Funds, 777 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, Attention: Corporate Secretary.
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<PAGE> 38
ACCOUNT APPLICATION My Baird Investment Officer is:
Name___________________________
Number_________________________
Check One:
/ / BAIRD CAPITAL DEVELOPMENT FUND
/ / BAIRD BLUE CHIP FUND
/ / BAIRD QUALITY BOND FUND
NAME ACCOUNT REGISTRATION Please print or type
In case of two or more co-owners, the account will be registered ''Joint
Tenants with Right of Survivorship'' unless otherwise specified.
SHAREHOLDER / / / /
- --------------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL SOCIAL SECURITY NO.**<F16> DATE OF BIRTH
CO-OWNER/OTHER / / / /
- --------------------------------------------------------------------------------
LAST NAME FIRST NAME MIDDLE INITIAL SOCIAL SECURITY NO.**<F16> DATE OF BIRTH
- --------------------------------------------------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
STREET
- --------------------------------------------------------------------------------
CITY STATE ZIP CODE
TELEPHONE
- --------------------------------------------------------------------------------
BUSINESS HOME
MAIL TO: FOR OVERNIGHT OR EXPRESS MAIL:
Baird Mutual Funds
c/o Firstar Trust Co. Baird Mutual Funds
P.O. Box 701 c/o Firstar Trust Co.
Milwaukee, Wisconsin 53201-0701 615 East Michigan St., 3rd Floor
(414) 765-4124 Milwaukee, Wisconsin 53202
Enclosed is my check or money order made payable to the ''Baird Mutual Funds''
for $____________ (Initial purchase $1,000 minimum, except for Automatic
Investment Plans, $50 minimum per transaction.) made payable to Baird Capital
Development Fund, Baird Blue Chip Fund or Baird Quality Bond Fund, for the
purchase of shares in accordance with the provisions in the Baird Mutual Funds'
Prospectus, the receipt of which is hereby acknowledged. I represent that I am
of legal age and have legal capacity to make this purchase.
DISTRIBUTION OPTION
If none checked, Option A will be assigned.
o A.Dividends reinvested; capital gains in additional shares.
o B.Dividends in cash; capital gains in additional shares.
o C.Dividends reinvested; capital gains in cash.
o D.Dividends in cash; capital gains in cash.
o E.Reinvest dividends and capital gains into (name of Fund) _________________
Directed reinvestment is available only when the minimum investment requirement
of the receiving Fund has been met.
AUTOMATIC EXCHANGES
Automatic exchanges are available only on account balances of $10,000 or more
at the time automatic exchanges are commenced.
Exchange $______________________($50 minimum)
into (name of Fund)___________________________________________________
Account Number________________________________________________________
from (name of Fund)___________________________________________________
Account Number________________________________________________________
Please make exchanges / / Monthly
/ / Quarterly (M, J, S, D)
Exchanges will be made on the (*)<F15>or preceding business day.
*<F15> Date to be determined by Firstar.
**<F16>The Fund is required to withhold taxes if a Social Security number or
Tax Identification number is not delivered to the Fund within 7 days.
<PAGE> 39
RIGHT OF ACCUMULATION DISCOUNTS ACCOUNT NUMBERS:
/ / I qualify for the Right of Accumulation as
described in the Baird Mutual Funds' Prospectus. -----------------------
Below are listed all the accounts in Baird
Capital Development Fund, Baird Blue Chip Fund and -----------------------
Baird Quality Bond Fund which should be credited
to my Statement of Intention or combined with the -----------------------
account listed above.
-----------------------
LETTER OF INTENT (OPTIONAL)
/ / I agree to be bound by the description of the Letter of Intent in the
Prospectus and to escrow certain of my shares in accordance herewith.
Although I am not obligated to do so, it is my intention to invest over a
13- month period in shares of Baird Capital Development Fund, Baird Blue
Chip Fund and/or Baird Quality Bond Fund an aggregate amount (including
shares currently held) at least equal to that which is checked below:
/ / $50,000 to $99,999 / / $100,000 to $249,999
/ / $250,000 to$499,999 / / $500,000 to $999,999
/ / $1,000,000 or more
If a previous purchase has been made within 90 days, please
check this box and provide account number.
/ / Account number __________________________
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) Systematic withdrawals are available only
on account balances of $10,000 or more at the time systematic withdrawals
are commenced.
/ / Mail a check for $_____________($100 or more) prior to
the last day of each:
/ / Month
/ / Quarter
First check to be mailed in month of ______________________ to person(s) and
address shown in account registration.
SHAREHOLDER AUTHORIZATION AND CERTIFICATION
(Must be certified by first shareholder, signing below)
I authorize any instruction contained herein and
certify, under penalties of perjury
<TABLE>
<S> <C>
1. That the social security or other taxpayer
identification number is correct, and -----------------------------------
Signature of the Shareholder Date
(Strike if not true)
-----------------------------------
2. That I am not subject to backup withholding Signature of Co-Owner (if any)
either because I have not been notified that
I am subject to backup withholding as a -----------------------------------
result of a failure to report all interest Corp. Officer/partner/Trustee Title
or dividends, or I was subject to backup
witholding and the Internal Revenue Service -----------------------------------
has notified me that I am no longer subject Corp. Officer/partner/Trustee Title
to backup withholding.
-----------------------------------
Corp. Officer/partner/Trustee Title
</TABLE>
<PAGE> 40
APPLICATION My Baird Investment Officer is:
Name_________________________
Number_______________________
AUTOMATIC INVESTMENT PLAN
$50 minimum per month or quarter
Use this form to establish your automatic investment plan with The Baird Mutual
Funds. You can purchase shares regularly by requesting electronic transfer of
assets from your checking or NOW account to any of the Baird Mutual Funds.
GUIDELINES
o Your bank must be a member of Automated Clearing House (ACH).
o The application MUST be accompanied by a ''voided'' check.
o Application must be received at least 14 days prior to the initial
transaction.
o Your Baird Mutual Fund account must be established before the Plan goes into
effect. ($50 minimum)
o A $15 service fee will be assessed, if the automatic purchases
cannot be made for any reason.
o The Plan will be terminated upon redemption of all shares. (This includes
exchanges to other Funds.)
o Termination must be in writing to the Firstar Trust Company. Allow 5
business days to become effective.
o All contributions made to a Baird Mutual Fund IRA through the Automatic
Investment Plan will be recorded as current year contributions.
o Contributions will be made on or about the 5th day of each month or quarter
depending on the option selected.
o Complete this form and return to: Baird Mutual Funds, c/o Firstar Trust
Company, P.O. Box 701, Milwaukee, WI 53201-0701
AUTHORIZATION TO MY BANK
I (we) authorize you via the ACH Network to honor all debit entries initiated
by me from time to time through Firstar Bank of Milwaukee, N.A. on behalf of
the Firstar Trust Company. All such debits are subject to sufficient collected
funds in my account to pay the debit when presented.
I (we) agree that your treatment of each entry, and your rights to respect it,
shall be the same as if it were signed personally by me (or either of us). I
(we) further agree that if any such entries are dishonored with good and
sufficient cause, you shall be under no liability whatsoever.
<PAGE> 41
I (we) have read and understand the conditions of The Baird Mutual Fund
Automatic Investment Plan. I (we) also understand that the Plan may be
terminated or modified at any time without notice by The Baird Mutual Funds or
Firstar Trust Company.
MONTHLY OPTION
Monthly amount to be invested $______ ($50 minimum) commencing ________, 199__.
QUARTERLY OPTION (APRIL, JULY, OCTOBER AND JANUARY)
Quarterly amount to be invested $_____ ($50 minimum) commencing ________, 199__.
Check One:
/ / BAIRD CAPITAL DEVELOPMENT FUND / / BAIRD QUALITY BOND FUND
/ / BAIRD BLUE CHIP FUND
- -------------------------------- ------------------------------------
FUND NAME NAME OF YOUR BANK
- -------------------------------- ------------------------------------
ACCOUNT NUMBER NAME(S) ON YOUR BANK OR NOW ACCOUNT
- -------------------------------- ------------------------------------
NAME(S) ON ACCOUNT YOUR BANK ADDRESS
- -------------------------------- ------------------------------------
YOUR ADDRESS CITY STATE ZIP
( )
- -------------------------------- ------------------------------------
CITY STATE ZIP YOUR DAYTIME PHONE NUMBER
- -------------------------------- ------------------------------------
SIGNATURE OF OWNER DATE SIGNATURE OF JOINT OWNER (IF ANY)
DO NOT DETACH
AUTHORIZATION TO MY BANK
- ---------------------------------------------------------------------------
NAME(S) ON YOUR BANK ACCOUNT ACCOUNT NUMBER SIGNATURE(S) OF OWNER
---------------------
SIGNATURE(S) OF OWNER
- ------------------------------------
BANK NAME
- ------------------------------------
BANK ADDRESS
- ------------------------------------
CITY STATE ZIP
<PAGE> 42
DISTRIBUTOR
ROBERT W. BAIRD & CO.
INCORPORATED
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INVESTMENT ADVISERS
INVESTMENT MANAGEMENT
SERVICES GROUP
ROBERT W. BAIRD & CO. INCORPORATED
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
FIDUCIARY MANAGEMENT, INC.
225 East Mason Street
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
CUSTODIAN, TRANSFER,
DIVIDEND DISBURSING AND
SHAREHOLDER SERVICING AGENT
FIRSTAR TRUST COMPANY
615 East Michigan Street
Milwaukee, Wisconsin 53202
414-765-4124
(Baird Logo)
A NORTHWESTERN
MUTUAL COMPANY
Robert W. Baird & Co. Incorporated
777 E. Wisconsin Avenue, Milwaukee, WI 53202
Phone 414-765-3500. Toll Free 1-800-RW-BAIRD
Copyright 1992 Robert W. Baird & Co. Incorporated
