<PAGE> 1
As filed with the Securities and Exchange Commission on November 24, 1997
================================================================================
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
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(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza
Suite 100
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 100 Philadelphia, PA 19103
Houston, TX 77046
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
The securities being registered pursuant to this Registration Statement are
AIM Cash Reserve Shares of Registrant's AIM Money Market Fund series of shares
and the Class A and Class C shares of Registrant's AIM Intermediate Government
Fund series of shares. 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.
It is proposed that this filing will become effective on December 24, 1997
pursuant to Rule 488.
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AIM FUNDS GROUP
Cross Reference Sheet
Pursuant to Rule 481(a) under the Securities Act of 1933
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LOCATION IN COMBINED PROXY
FORM N-14 ITEM NO. STATEMENT AND PROSPECTUS
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PART A
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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 Agreements;
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 Money Market, Intermediate
Government, Cash Management and Income Fund:
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
Money Market, Intermediate Government, Cash
Management and Income Fund; Information
Filed with the Securities and Exchange
Commission
Item 7. Voting Information Prospectus Cover Page; Notice of Special
Meeting of Shareholders; Introduction;
Ownership of Money Market, Intermediate
Government, Cash Management, and Income Fund
Shares
Item 8. Interest of Certain Persons and Experts Not Applicable
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Item 9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
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, Money
Registrant Market and Intermediate Government;
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
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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
AIM ADVISOR FUNDS, INC.
AIM Advisor Cash Management Fund
AIM Advisor Income Fund
11 Greenway Plaza, Suite 100
Houston, TX 77046
January 2, 1998
Dear Shareholder:
Enclosed is a combined proxy statement and prospectus seeking approval of a
proposed combination of AIM Advisor Cash Management Fund ("Cash Management") of
AIM Advisor Funds, Inc., with AIM Money Market Fund ("Money Market") of AIM
Funds Group ("AFG"), and a proposed combination of AIM Advisor Income Fund
("Income Fund") of AAFI with AIM Intermediate Government Fund ("Intermediate
Government") of AFG.
As discussed in the accompanying document, it is proposed that these funds
be combined in order to achieve greater efficiency of operation, economies of
scale and possible cost savings for shareholders. The Board of Directors of
AAFI concluded that it was desirable to eliminate the duplication of services
of Cash Management and Income Fund that have similar investment goals as Money
Market and Intermediate Government, respectively. The accompanying document
describes the proposed transaction and compares the policies and expenses of
the above funds for your evaluation.
Both reorganizations have been structured as tax-free transactions. No
sales charges will be imposed in connection with these transactions.
Shareholders are being asked to approve an Agreement and Plan of
Reorganization of their respective fund. After careful consideration, the Board
of Directors of AAFI has unanimously approved this proposal and recommends that
you read the enclosed materials carefully and then vote FOR the proposal.
Your vote is important. Please take a moment now to sign and return your
proxy cards in the enclosed postage paid return envelope. If we do not hear
from you after a reasonable amount of time you may receive a telephone call
from our proxy solicitor, Shareholder Communications Corporation, reminding you
to vote your shares.
Thank you for your cooperation and continued support.
Sincerely,
Charles T. Bauer
Chairman
<PAGE> 5
YOUR VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
ENCLOSED YOU WILL FIND ONE OR TWO PROXY CARDS RELATING TO EACH OF THE FUNDS
FOR WHICH YOU ARE ENTITLED TO VOTE. PLEASE INDICATE YOUR VOTING INSTRUCTIONS
ON EACH OF THE ENCLOSED PROXY CARDS, DATE AND SIGN THEM, AND RETURN THEM IN THE
ENVELOPE PROVIDED. IF YOU SIGN, DATE AND RETURN A PROXY CARD BUT GIVE NO VOTING
INSTRUCTIONS, YOUR SHARES WILL BE VOTED "FOR" THE PROPOSALS INDICATED ON THE
CARDS. IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN MAILING IN YOUR PROXY CARDS PROMPTLY. UNLESS PROXY CARDS
ARE SIGNED BY THE APPROPRIATE PERSONS AS INDICATED IN THE INSTRUCTIONS BELOW,
THEY WILL NOT BE VOTED.
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense involved in validating your vote if you fail
to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Account: Either party may sign, but the name of the party signing
should conform exactly to the name shown in the registration on the proxy
card.
3. All Other Accounts: The capacity of the individual signing the proxy card
should be indicated unless it is reflected in the form of registration. For
example:
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Registration Valid Signature
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Trust Accounts
(1) ABC Trust Account. . . . . . . . . . . . . . . . . . . . . . . Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee u/t/d 12/28/78. . . . . . . . . . . . . . Jane B. Doe
Partnership Accounts
(1) The XYZ Partnership. . . . . . . . . . . . . . . . . . . . . . Jane B. Smith, Partner
(2) Smith and Jones, Limited Partnership . . . . . . . . . . . . . Jane B. Smith, General
Partner
Custodial or Estate Accounts
(1) John B. Smith, Cust. f/b/o John B. Smith, Jr.
UGMA/UTMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . John B. Smith
(2) Estate of John B. Smith . . . . . . . . . . . . . . . . . . . John B. Smith, Jr., Executor
Corporate Accounts
(1) ABC Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . ABC Corp.
John Doe, Treasurer
(2) ABC Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . John Doe, Treasurer
(3) ABC Corp., c/o John Doe, Treasurer. . . . . . . . . . . . . . John Doe
(4) ABC Corp. Profit Sharing Plan . . . . . . . . . . . . . . . . John Doe, Trustee
</TABLE>
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AIM ADVISOR FUNDS, INC.
AIM ADVISOR CASH MANAGEMENT FUND
AIM ADVISOR INCOME FUND
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 17, 1998
TO THE SHAREHOLDERS OF AIM Advisor Cash Management Fund and AIM Advisor Income
Fund portfolios of AIM Advisor Funds, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of AIM
Advisor Cash Management Fund ("Cash Management") and AIM Advisor Income Fund
("Income Fund"), both investment portfolios of AIM Advisor Funds, Inc.
("AAFI"), will be held at 11 Greenway Plaza, Suite 100, Houston, Texas on
February 17, 1998, at 3:00 p.m., local time, for the following purposes:
1. For Cash Management, to approve an Agreement and Plan of
Reorganization (the "Cash Management Agreement") between AAFI, on
behalf of Cash Management and AIM Funds Group ("AFG"), on behalf of
its portfolio, AIM Money Market Fund ("Money Market"), and the
consummation of the transactions contemplated therein ("Cash
Management Reorganization"). The Cash Management Agreement and the
Cash Management Reorganization will result in the combination of
Cash Management and Money Market. Pursuant to the Cash Management
Agreement, substantially all of the assets of Cash Management will
be transferred to Money Market. Upon such transfer, AFG will issue
directly to Cash Management's Class A and Class C shareholders, AIM
Cash Reserve Shares ("Cash Reserve shares") of Money Market having
an aggregate net asset value equal to the value of the Cash
Management assets transferred to Money Market. It is expected that
the value of each shareholder's account with Money Market
immediately after the Cash Management Reorganization will be the
same as the value of such shareholder's account with Cash
Management immediately prior to the Cash Management Reorganization.
The Cash Management Reorganization has been structured as a
tax-free transaction . No sales charge will be imposed in
connection with the Cash Management Reorganization.
2. For Income Fund, to approve an Agreement and Plan of Reorganization
(the "Income Fund Agreement") between AAFI, on behalf of Income
Fund and AFG, on behalf of its portfolio, AIM Intermediate
Government Fund ("Intermediate Government"), and the consummation
of the transactions contemplated therein (the "Income Fund
Reorganization"). The Income Fund Agreement and the Income Fund
Reorganization will result in the combination of Income Fund and
Intermediate Government. Pursuant to the Income Fund Agreement,
substantially all of the assets of Income Fund will be transferred
to Intermediate Government. Upon such transfer, AFG will issue,
directly to Income Fund's Class A shareholders, Intermediate
Government Class A shares having an aggregate net asset value equal
to the value of the Income Fund assets attributable to the Income
Fund Class A shares transferred to Intermediate Government, and AFG
will issue directly to Income Fund's Class C shareholders,
Intermediate Government Class C shares having an aggregate net
asset value equal to the value of the Income Fund assets
attributable to the Income Fund Class C shares transferred to
Intermediate Government. It is expected that the
<PAGE> 7
value of each shareholder's account with Intermediate Government
immediately after the Income Fund Reorganization will be the same
as the value of such shareholder's account with Income Fund
immediately prior to the Income Fund Reorganization. The Income
Fund Reorganization has been structured as a tax-free transaction.
No sales charge will be imposed in connection with the Income Fund
Reorganization.
3. 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.
Each of the Cash Management Reorganization and the Income Fund
Reorganization (collectively, the "Reorganizations") is described in the
attached Combined Proxy Statement and Prospectus.
Shareholders of record as of the close of business on December 10, 1997,
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY WHICH IS BEING SOLICITED BY THE MANAGEMENT OF
AAFI. 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 AAFI AT ANY TIME BEFORE THE PROXY IS EXERCISED OR BY
VOTING IN PERSON AT THE SPECIAL MEETING.
Charles T. Bauer
Chairman of the Board of Directors
January 2, 1998
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AIM ADVISOR CASH MANAGEMENT FUND AIM MONEY MARKET FUND
AIM ADVISOR INCOME FUND AIM INTERMEDIATE GOVERNMENT FUND
(PORTFOLIOS OF AIM ADVISOR FUNDS, INC.) (PORTFOLIOS OF AIM FUNDS GROUP)
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated: January 2, 1998
This document is being furnished in connection with the Special
Meeting of Shareholders of AIM Advisor Cash Management Fund ("Cash Management")
and AIM Advisor Income Fund ("Income Fund"), both investment portfolios of AIM
Advisor Funds, Inc. ("AAFI") to be held on February 17, 1998 (the "Special
Meeting"). At the Special Meeting, the shareholders of Cash Management are
being asked to consider and approve a proposed Agreement and Plan of
Reorganization (the "Cash Management Agreement") between AAFI, acting on behalf
of Cash Management and AIM Funds Group ("AFG"), acting on behalf of AIM Money
Market Fund ("Money Market"), a portfolio of AFG, and the consummation of the
transactions contemplated therein (the "Cash Management Reorganization"). THE
BOARD OF DIRECTORS OF AAFI HAS UNANIMOUSLY APPROVED THE CASH MANAGEMENT
AGREEMENT AND CASH MANAGEMENT REORGANIZATION AS BEING FAIR TO, AND IN THE BEST
INTEREST OF, CASH MANAGEMENT SHAREHOLDERS. At the Special Meeting, the
shareholders of Income Fund are being asked to consider and approve a proposed
Agreement and Plan of Reorganization (the "Income Fund Agreement") between
AAFI, acting on behalf of Income Fund and AFG, acting on behalf of AIM
Intermediate Government Fund ("Intermediate Government") a portfolio of AFG,
and the consummation of the transactions contemplated therein (the "Income Fund
Reorganization"). THE BOARD OF DIRECTORS OF AAFI HAS UNANIMOUSLY APPROVED THE
INCOME FUND AGREEMENT AND INCOME FUND REORGANIZATION AS BEING FAIR TO, AND IN
THE BEST INTEREST OF, INCOME FUND SHAREHOLDERS.
Pursuant to the Cash Management Agreement, substantially all of the
assets of Cash Management will be transferred to Money Market. Upon such
transfer, AFG will issue AIM Cash Reserve Shares ("Cash Reserve shares") of
Money Market directly to Class A and Class C shareholders of Cash Management.
Each shareholder of Cash Management will receive that number of Money Market
shares with an aggregate net asset value equal to the aggregate net asset value
of his or her shares of Cash Management. As soon as reasonably practicable
after the closing of the Cash Management Reorganization, Cash Management will
pay or make provision for payment for all of its liabilities, and its status as
a designated series of shares of AAFI will be terminated. It is expected that
the value of each shareholder's account with Money Market immediately after the
Cash Management Reorganization will be the same as the value of such
shareholder's account with Cash Management immediately prior to the Cash
Management Reorganization. The Cash Management Reorganization has been
structured as a tax-free transaction. No sales charge will be imposed in
connection with the Cash Management Reorganization.
Pursuant to the Income Fund Agreement, substantially all of the
assets of Income Fund will be transferred to Intermediate Government. Upon such
transfer, AFG will issue Class A shares of Intermediate Government directly to
Class A shareholders of Income Fund, and Class C shares of Intermediate
Government directly to Class C shareholders of Income Fund. Each shareholder of
Income Fund will receive that number of Intermediate Government shares with an
aggregate net asset value equal to the aggregate net asset value of his or her
shares of Income Fund. As soon as is reasonably practicable after the closing
of the Income Fund Reorganization, Income Fund will pay or make provision for
payment for all of its liabilities, and its status as a designated series of
shares of AAFI will be terminated. It is expected that the value of each
shareholder's account with Intermediate Government immediately after the Income
Fund Reorganization will be the same as the value of such shareholder's account
with Income Fund immediately prior to the Income Fund Reorganization. The
Income Fund Reorganization has been structured as a tax-free transaction. No
sales charge will be imposed in connection with the Income Fund Reorganization.
Money Market and Intermediate Government are each series portfolios
of AFG, an open-end, series management investment company. The investment
objective of Money Market is to provide as high a level of current income as is
consistent with the preservation of capital and liquidity. Money Market's
investment objective is similar to that of Cash Management. Both are money
market funds that invest in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act") which generally restricts each
fund's investments to high quality short-term liquid securities that are
determined to present minimal credit risk, and sets specific limits on the
fund's dollar-weighted average portfolio maturity.
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Money Market and Cash Management are designed as cash management alternatives
for retail shareholders. The investment objective of Intermediate Government 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. Intermediate Government purchases primarily
fixed-rate securities, including but not limited to, high coupon U. S.
Government Agency mortgage backed securities. The fund maintains a
dollar-weighted average portfolio maturity of between three and ten years.
Intermediate Government's investment objective is similar to that of Income
Fund, although the types of securities the two funds purchase to achieve their
objectives differ slightly, and Income Fund is permitted to invest a portion of
its assets in fixed-income corporate obligations that are not backed by the
United States Government. See "Comparison of Investment Objectives and
Policies" and "Risk Factors."
The principal executive offices of AAFI and AFG are located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046 (telephone: (800) 347-4246).
This Combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus") sets forth concisely the information that a shareholder
of Cash Management should know before voting on the Cash Management Agreement,
and a shareholder of Income Fund should know before voting on the Income Fund
Agreement. It should be read and retained for future reference.
The current Prospectus of Cash Management and Income Fund, dated
August 4, 1997 (the "AAFI Prospectus"), together with the related Statement of
Additional Information also dated August 4, 1997, are on file with the
Securities and Exchange Commission (the "SEC"). Such prospectus and statement
of additional information are incorporated by reference herein, and are
available without charge by writing to A I M Distributors, Inc., P. O. Box
4739, Houston, Texas 77210-4739 or by calling (800) 347-4246. The Prospectus of
Money Market and Intermediate Government dated August 4, 1997 (the "AFG
Prospectus"), and Statement of Additional Information also dated August 4, 1997
have been filed with the SEC and are incorporated by reference herein. 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 (800) 347-4246.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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PAGE
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INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
REASONS FOR THE REORGANIZATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Background and Reasons for the Reorganizations . . . . . . . . . . . . . . . . . . . . . 2
Approval by, and Recommendation of, Board of Directors of AAFI . . . . . . . . . . . . . 2
SYNOPSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Cash Management Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Income Fund Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Comparison of Money Market and Cash Management . . . . . . . . . . . . . . . . . . . . . 5
Comparison of Intermediate Government and Income Fund . . . . . . . . . . . . . . . . . 7
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . 14
Investment Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Portfolio Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Management Discussion and Analysis of Performance . . . . . . . . . . . . . . . . . . 31
ADDITIONAL INFORMATION ABOUT THE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 31
Terms of the Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Federal Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Capital Loss Carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Liability of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Election of Directors/Trustees; Annual Shareholder Meetings . . . . . . . . . . . . . 38
Terms of Directors/Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Removal of Directors/Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Special Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Liability of Directors/Trustees and Officers . . . . . . . . . . . . . . . . . . . . . 39
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Voting Rights of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Amendments to Organization Documents . . . . . . . . . . . . . . . . . . . . . . . . . 40
OWNERSHIP OF MONEY MARKET, INTERMEDIATE GOVERNMENT, CASH MANAGEMENT
AND INCOME FUND SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Control Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Ownership of Officers and Trustees/Directors . . . . . . . . . . . . . . . . . . . . . 43
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION . . . . . . . . . . . . . . . 45
ADDITIONAL INFORMATION ABOUT MONEY MARKET, INTERMEDIATE GOVERNMENT,
CASH MANAGEMENT AND INCOME FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
AGREEMENT AND PLAN OF REORGANIZATION FOR AIM ADVISOR
CASH MANAGEMENT FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION FOR AIM ADVISOR INCOME FUND . . . . . . . . . .APPENDIX II
AIM FUNDS GROUP PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPENDIX III
DISCUSSION OF PERFORMANCE OF INTERMEDIATE GOVERNMENT . . . . . . . . . . . . . . . .APPENDIX IV
DISCUSSION OF PERFORMANCE OF INCOME FUND. . . . . . . . . . . . . . . . . . . . . . .APPENDIX V
</TABLE>
The AIM Family of Funds--Registered Trademark--, The AIM Family of Funds and
Design (i.e., the AIM logo), AIM and Design, AIM, AIM Link, AIM Institutional
Funds, La Familia AIM de Fondos and La Familia AIM de Fondos and Design are
registered service marks and aimfunds.com and Invest With Discipline are service
marks of A I M Management Group Inc.
(ii)
<PAGE> 12
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection
with the solicitation of proxies by AAFI's Board of Directors from the
shareholders of Cash Management and Income Fund, for use at the Special Meeting
of Shareholders to be held at Eleven Greenway Plaza, Suite 100, Houston, Texas
77046 on February 17, 1998, at 3:00 p.m., local time (such meetings and any
adjournments thereof are referred to as the "Special Meeting").
AAFI has engaged the services of Shareholder Communications
Corporation ("SCC") to assist it in the solicitation of proxies for the Special
Meeting. AAFI expects to solicit proxies principally by mail, but AAFI or SCC
may also solicit proxies by telephone, facsimile, telegraph or personal
interview. AAFI's officers will not receive any additional or special
compensation for any such solicitation. Cash Management and Money Market will
bear their respective costs and expenses incurred in connection with the Cash
Management Reorganization. Income Fund and Intermediate Government will bear
their respective costs and expenses incurred in connection with the Income Fund
Reorganization.
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 Cash Management Agreement and
Income Fund 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 Cash Management and Income Fund at the Special Meeting will
constitute a quorum ("Quorum"). Approval of the Cash Management Agreement
requires the affirmative vote of a majority of the outstanding shares of Cash
Management. Approval of the Income Fund Agreement requires the affirmative vote
of a majority of the outstanding shares of Income Fund. Abstentions and broker
non-votes will be counted as shares present at the Special Meeting for quorum
purposes and will have the effect of counting as a vote against the applicable
proposal. Any person giving a proxy has the power to revoke it at any time
prior to its exercise by executing a superseding proxy or by submitting a
notice of revocation to the Secretary of AAFI. 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.
Shareholders of record as of the close of business on
December 10, 1997 (the "Record Date"), are entitled to vote at the Special
Meeting. On the Record Date, there were outstanding ___________ shares of Cash
Management and shares ____________ of Income Fund. Each share is entitled to
one vote for each full share held, and a fractional vote for a fractional share
held.
AAFI intends to mail this Proxy Statement/Prospectus and the
accompanying proxy on or about January 2, 1998.
1
<PAGE> 13
REASONS FOR THE REORGANIZATIONS
BACKGROUND AND REASONS FOR THE REORGANIZATIONS
AAFI was organized in 1989 as a Maryland corporation under
the name INVESCO Advisor Funds, Inc. INVESCO Group Services, Inc., a
subsidiary of INVESCO PLC, acting through its subsidiaries, initially provided
investment advisory marketing, administration, fund accounting and distribution
services to INVESCO Advisor Funds, Inc.
On February 28, 1997, A I M Management Group Inc. merged
with an indirect subsidiary of INVESCO PLC, which then changed its name to
AMVESCAP PLC. A I M Management Group Inc., acting through its subsidiaries
("AIM Management"), provides investment advisory, marketing, administration,
fund accounting and distribution services to the AIM Family of
Funds--Registered Trademark-- (the "AIM Funds").
Following the merger, the board of directors of INVESCO
Advisor Funds, Inc. determined that it would be advisable to engage AIM
Management to provide investment advisory and other services to INVESCO Advisor
Funds, Inc. The shareholders of INVESCO Advisor Funds, Inc. voted in favor of
the change in service providers, which took effect August 4, 1997. INVESCO
Advisor Funds, Inc. changed its name to AIM Advisor Funds, Inc. on that date.
The proxy statement sent to the shareholders of INVESCO Advisor Funds, Inc.
dated June 7, 1997, noted "that possible future reorganizations of certain
Portfolios were being considered" as a consequence of the change in service
providers and "that such reorganization could result in changes in some types
of expenses."
A I M Advisors, Inc. ("AIM"), the investment advisor of
AAFI, evaluated AAFI's portfolios, and determined that two portfolios, Cash
Management and Income Fund, should be merged into existing AIM Funds. Cash
Management and Income Fund were determined to have investment policies and
objectives that are similar to two of the AIM Funds, Money Market and
Intermediate Government. AIM concluded that Cash Management and Income Fund
could not be effectively marketed as separate portfolios due to the similarity.
APPROVAL BY, AND RECOMMENDATION OF, BOARD OF DIRECTORS OF AAFI
The Board of Directors of AAFI considered and unanimously
approved the Cash Management Agreement and Cash Management Reorganization, and
the Income Fund Agreement and Income Fund Reorganization, subject to
shareholder approval, during meetings held on September 19 and 20, 1997. The
Board of AAFI believes the proposed Reorganizations offer shareholders the
benefit of potential economies of scale, among others.
In determining to recommend approval to the shareholders,
the Board of Directors of AAFI reviewed and requested information about Money
Market and Intermediate Government and the Reorganizations, met with certain
members of AIM senior management (including two of its founders, and its
general counsel), consulted with legal counsel, made inquiries and considered
the following factors, among others:
(i) a comparison of the performance of Cash Management
and Money Market, and of Income Fund and Intermediate
Government;
(ii) a comparison of the investment objectives, policies,
strategies and restrictions of Cash Management and
Money Market and of Income Fund and Intermediate
Government;
2
<PAGE> 14
(iii) the distribution performance, resources and
capabilities of A I M Distributors, Inc. ("AIM
Distributors"), and the economies of scale which
potentially may be achieved through larger and wider
distribution of shares of Money Market, which as of
November 10, 1997 had total assets of more than $911
million as compared to $5.5 million for Cash
Management and of Intermediate Government, which as
of November 10, 1997 had total assets of more than
$247 million as compared to $24 million for Income
Fund;
(iv) the distribution fees and expenses paid by Money
Market and Intermediate Government and the services
received for such fees and expenses; and
(v) the terms and conditions of the Cash Management
Agreement and the Cash Management Reorganization, and
of the Income Fund Agreement and the Income Fund
Reorganization including the structure of the
transactions as tax-free transactions and the fact
that no sales charge will be imposed in connection
with the transactions.
The Board of Directors of AAFI has concluded that the Cash
Management Agreement and the Cash Management Reorganization are fair to, and in
the best interests of, Cash Management shareholders. The Board of Directors,
including all of the directors who are not interested persons of AIM,
unanimously approved the Cash Management Agreement and the Cash Management
Reorganization, and recommends to the shareholders of Cash Management that they
vote FOR the Cash Management Agreement and the Cash Management Reorganization.
The Board of Directors of AAFI has concluded that the Income
Fund Agreement and the Income Fund Reorganization are fair to, and in the best
interests of, Income Fund shareholders. The Board of Directors, including all
of the directors who are not interested persons of AIM, unanimously approved
the Income Fund Agreement and the Income Fund Reorganization, and recommends to
the shareholders of Income Fund that they vote FOR the Income Fund Agreement
and the Income Fund Reorganization.
The Board of Directors also considered whether each of the
Cash Management Reorganization and the Income Fund Reorganization is in the
best interests of the shareholders of each of Cash Management, Money Market,
Income Fund and Intermediate Government, consistent with the requirements of
Rule 17a-8 under the 1940 Act. Rule 17a-8 under the 1940 Act requires that when
two funds sharing a common investment adviser, common directors and/or common
officers merge or consolidate, the board of directors of each affiliated
investment company participating in the transaction, including a majority of
the directors of each registered investment company who are not interested
persons of any registered investment company participating in the transaction,
determine: (1) that participation in the transaction in the best interests of
that registered investment company; and (2) that the interests of existing
shareholders of that registered investment company will not be diluted as a
result of its effecting the transaction.
Based on its review of the terms of the Reorganizations,
including the provisions of the Cash Management Agreement and the Income Fund
Agreement, the Board of Directors made these required determinations with
respect to each of the funds.
3
<PAGE> 15
SYNOPSIS
CASH MANAGEMENT REORGANIZATION
The Cash Management Agreement and the Cash Management
Reorganization will result in the combination of Cash Management and Money
Market. Cash Management is a portfolio of AAFI, a Maryland corporation. Money
Market is a portfolio of AFG, a Delaware business trust. If shareholders of
Cash Management approve the Cash Management Agreement and other closing
conditions are satisfied, Cash Management will transfer all of its portfolio
securities and substantially all of its other assets to Money Market. In
exchange, AFG will issue directly to the Class A and Class C shareholders of
Cash Management, Cash Reserve shares of Money Market with an aggregate value
equal to the Cash Management assets transferred in connection with the
transaction, as determined by using Money Market's valuation methodology.
Shareholders will not pay any sales charge in connection with the Cash
Management Reorganization. Promptly after the acquisition by Money Market of
such securities and other assets, AAFI will take steps to pay any outstanding
liabilities of Cash Management and Cash Management's status as a designated
series of AAFI will be terminated. Any assets held by Cash Management after the
Cash Management Reorganization that are not used by AAFI to discharge the debts
of that fund 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 Money Market immediately after the Cash Management Reorganization will be
the same as the value of such shareholder's account with Cash Management
immediately prior to the Cash Management Reorganizations. A copy of the Cash
Management Agreement is attached as Appendix I to this Proxy
Statement/Prospectus. See "Additional Information About the Agreements -
Transfer of Assets and Liabilities" below.
Cash Management is to receive an opinion of Ballard Spahr
Andrews & Ingersoll to the effect that the Cash Management Reorganization will
constitute a tax-free reorganization for Federal income tax purposes. Thus, it
is expected that shareholders will not have to pay Federal income taxes as a
result of the Cash Management Reorganization. See "Additional Information
About the Agreements - Federal Tax Consequences" below.
Money Market 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 100,
Houston, Texas 77046 (telephone: (800) 347-4246).
INCOME FUND REORGANIZATION
The Income Fund Agreement and the Income Fund Reorganization
will result in the combination of Income Fund and Intermediate Government.
Income Fund is a portfolio of AAFI, a Maryland corporation. Intermediate
Government is a portfolio of AFG, a Delaware business trust. If shareholders of
Income Fund approve the Income Fund Agreement and other closing conditions are
satisfied, Income Fund will transfer all of its portfolio securities and
substantially all of its other assets to Intermediate Government. In exchange,
AFG will issue directly to the Class A shareholders of Income Fund Class A
shares of Intermediate Government, and to the Class C shareholders of Income
Fund Class C shares of Intermediate Government, each with an aggregate value
equal to the Income Fund assets attributable to such class transferred in
connection with the reorganization, as determined by using Intermediate
Government's valuation methodology. Shareholders will not pay any sales charge
in connection with the Income Fund Reorganization. Promptly after the
acquisition by Intermediate Government of such securities and other assets,
AAFI will take steps to pay any outstanding liabilities of Income Fund, and
Income Fund's status as a designated series of AAFI will be terminated. Any
assets held by Income Fund after the Income Fund Reorganization that are not
4
<PAGE> 16
used by AAFI to discharge the debts of that fund 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 Intermediate Government immediately
after the Income Fund Reorganization will be the same as the value of such
shareholders' account with Income Fund immediately prior to the Income Fund
Reorganization. A copy of the Income Fund Agreements attached as Appendix II to
this Proxy Statement/Prospectus. See "Additional Information About the
Agreements - Transfer of Assets and Liabilities" below.
Income Fund is to receive an opinion of Ballard Spahr
Andrews & Ingersoll to the effect that the Income Fund Reorganization will
constitute a tax-free reorganization for Federal Income tax purposes.
Intermediate Government is a diversified investment
portfolios 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 100, Houston, Texas 77046 (telephone: (800) 347-4246).
COMPARISON OF MONEY MARKET AND CASH MANAGEMENT
Investment Objective and Policies
The investment objectives of Money Market and Cash
Management are very similar, and the types of securities the two funds purchase
to achieve their objectives are very similar also. The investment objective of
Money Market is to provide as high a level of current income as is consistent
with the preservation of capital and liquidity. The investment objective of
Cash Management is to achieve as high a level of current income, without regard
to federal income tax considerations, as is consistent with the preservation of
capital and the maintenance of liquidity. Both Money Market and Cash Management
comply with the requirements of Rule 2a-7 under the 1940 Act, which generally
restrict each fund's investments to high quality short-term liquid securities
that are determined to present minimal credit risk, and set specific limits on
the fund's dollar-weighted average portfolio maturity. Both are designed as
cash management alternatives for retail shareholders and maintain a stable
$1.00 net asset value. See "Comparison of Investment Objectives and Policies"
below.
Performance
Set forth below are average annual total returns for the
periods indicated for each of Money Market and Cash Management. Average annual
total return figures do not take into account sales charges paid by an
investor.
<TABLE>
<CAPTION>
Money Market Cash Management
Cash Reserve Shares Class A and Class C Shares
------------------- --------------------------
<S> <C> <C>
1 Year Ended December 31, 1996 4.41% 4.48%
3 Years Ended December 31, 1996 4.30% 3.83%
</TABLE>
Distribution
Shares of Money Market and Cash Management are both distributed
through AIM Distributors' nationwide distribution network which consists of
more than 2,500 broker-dealers and institutions located throughout the United
States. AIM Distributors, a registered broker-dealer and a wholly owned
subsidiary of AIM, acts as the distributor of the Cash Reserve shares of Money
Market and of the Class A and Class C shares of Cash Management. 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
5
<PAGE> 17
of Money Market on an annualized basis for the purpose of financing any
activity that is primarily intended to result in the sale of Cash Reserve
shares of Money Market. Cash Management is not subject to a distribution plan
pursuant to Rule 12b-1 under the 1940 Act. Because Money Market pays a Rule
12b-1 fee, its distribution arrangements allow for greater opportunity for
Money Market to increase in size and to benefit from corresponding lower
expense ratios and potential for diversification as compared to Cash
Management.
Set forth below is a comparison of annual operating expenses as a
percentage of net assets ("Expense Ratio") for the Cash Reserve shares of Money
Market and for the Class A and Class C shares of Cash Management for the fiscal
year ended December 31, 1996. Expense Ratios are shown after any voluntary fee
waivers and expense reimbursements.
<TABLE>
<CAPTION>
Cash Management
Money Market Class A and
Cash Reserve Shares Class C Shares(1)
------------------- --------------
<S> <C> <C>
ANNUAL OPERATING EXPENSES (AS A % OF NET ASSETS)
(AFTER FEE WAIVERS OR EXPENSE
REIMBURSEMENTS, IF ANY)
Management fees . . . . . . . . . . . . . . . . . 0.55% 0.50%
Rule 12b-1 distribution plan
payments . . . . . . . . . . . . . . . . . . . . 0.25 0.00
All other expenses . . . . . . . . . . . . . . . 0.28 0.45
---- ----
Total fund operating expenses . . . . . . . . . . 1.08% 0.95%
===== =====
</TABLE>
(1) Class A shares did not exist for this fiscal year although it is
estimated that the expense ratio would be the same as Class C shares.
Sales Charges
No sales charges are applicable to the Cash Management Reorganization.
Money Market
Cash Reserve shares of Money Market, which will be issued to Cash
Management shareholders pursuant to the Cash Management Agreement, are sold at
net asset value without an initial sales charge or a CDSC. The Cash Reserve
shares pay AIM Distributors a 0.25% Rule 12b-1 fee for distribution services.
Cash Reserve shares of Money Market may be exchanged for a Class A shares of
other AIM Funds (except for Class A shares of Money Market). Prior to
consummation of the Cash Management Reorganization Money Market expects to
offer a new exchange option enabling shareholders of Cash Reserve shares to
exchange their shares for Class C shares of AIM Funds. Shareholders of Class C
shares of the AIM Funds are subject to a CDSC of up to 1.00% and a Rule 12b-1
fee of 1.00%. For more information, see the Investor's Guide to The AIM Family
of Funds--Registered Trademark-- in the attached AFG Prospectus.
In addition to the Cash Reserve shares, Money Market offers for sale
to the public other classes of its shares. The availability of other classes
of shares gives potential new investor additional options in selecting a
suitable investment and allows for wider distribution of Money Market as
compared to Cash Management.
6
<PAGE> 18
Cash Management
The Class A and Class C shares of Cash Management (the only existing
classes of shares) are sold at net asset value, without imposition of an
initial sales charge or a CDSC. Under limited circumstances, a CDSC may be
assessed against redemptions of Class C shares of Cash Management if such
shares were purchased by exchange of shares from another of the AIM Funds and
held less than one year. Cash Management is not subject to a distribution plan
under Rule 12b-1.
COMPARISON OF INTERMEDIATE GOVERNMENT AND INCOME FUND
Investment Objective and Policies
The investment objectives of Intermediate Government and Income Fund
are similar, although the types of securities the two funds purchase to achieve
their objectives differ in minor respects. The investment objective of
Intermediate Government is to achieve a high level of current income consistent
with reasonable concern for safety of principal. Intermediate Government seeks
to achieve that objective 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. Intermediate Government 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.
Intermediate Government maintains a dollar-weighted average portfolio maturity
of between three and ten years. The investment objective of Income Fund is to
achieve a high total return on investment through capital appreciation and
current income, without regard to federal income tax considerations. During
normal market conditions, at least 65% of Income Fund's investments will
consist of income producing securities. Income Fund invests primarily in U. S.
Government obligations and carefully selected fixed income corporate
obligations considered to be of investment grade quality. Income Fund may
invest up to 35% of its assets in mortgage-backed securities, including
mortgage pass-through securities and collateralized mortgage obligations, which
carry a guarantee from an agency of the U. S. Government or a private issuer of
the timely payment of principal and interest or, in the case of unrated
securities, are considered to be investment grade quality. See "Comparison of
Investment Objectives and Policies" below.
Both Intermediate Government and Income Fund invest in U.S.
Government obligations, U.S. Government Agency mortgage-backed securities and
repurchase agreements. Income Fund is permitted to invest in debt securities
rated Baa/BBB, or unrated corporate obligations of a quality at least equal to
such rating. These obligations may have speculative characteristics and are
subject to increased credit and market risks. In addition, each fund may engage
in futures contracts and options on futures contracts for hedging purposes.
Income Fund's investment policies and restrictions permit Income Fund to invest
in a wider variety of securities than is permitted under Intermediate
Government's investment policies and restrictions. AIM believes that although
this ability provides Income Fund with greater flexibility to take advantage of
valuable market opportunities, it also introduces a potentially volatile aspect
to Income Fund. For a more detailed discussion of the investment practices of
Money Market and Income Fund, see "Comparison of Investment Objectives and
Policies" below.
7
<PAGE> 19
Performance
Set forth below are average annual total returns for the periods
indicated for each of Intermediate Government and Income Fund. Average annual
total return figures do not take into account sale charges paid by an investor.
<TABLE>
<CAPTION>
Intermediate Government Income Fund
Class A Shares* Class C Shares**
----------------- ----------------
<S> <C> <C>
1 Year Ended December 31, 1996 2.35% (1.23%)
3 Years Ended December 31, 1996 4.74% 5.52%
</TABLE>
* Class C shares did not exist for these fiscal years.
** Class A shares did not exist for these fiscal years.
Distribution
Both Intermediate Government's and Income Fund's shares are
distributed through AIM Distributors' nationwide distribution network which
consists of more than 2,500 broker-dealers and institutions located throughout
the United States. AIM Distributors, a registered broker-dealer and a wholly
owned subsidiary of AIM, acts as the distributor of the Class A and Class C
shares of Intermediate Government and the Class A and Class C shares of Income
Fund. 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 the Class A shares and 1.00% of the average daily
net assets of the Class C shares, of Intermediate Government on an annualized
basis for the purpose of financing any activity that is intended to result in
the sale of Class A or Class C shares of Intermediate Government. AAFI has also
adopted a plan pursuant to Rule 12b-1 under the 1940 Act. Income Fund currently
compensates AIM Distributors an aggregate amount of 0.25% of the average daily
net assets of the Class A shares and 0.60% of the average daily net assets of
the Class C shares of Income Fund on an annualized basis for the purpose of
financing any activity that is intended to result in the sale of Class A or
Class C shares of Income Fund. The additional 0.40% payable under Intermediate
Government's Rule 12b- 1 plan for its Class C shares enables AIM Distributors
to distribute the Class C shares of Intermediate Government more widely, which
allows for greater opportunity for Intermediate Government to increase in size
and to benefit from corresponding lower expense ratios as compared to Income
Fund.
Set forth below is a comparison of Expense Ratio for the Class A
shares and Class C shares of each of Intermediate Government and Income Fund
for the fiscal year ended December 31, 1996. Expense Ratios are shown after any
voluntary fee waivers and expense reimbursements.
8
<PAGE> 20
<TABLE>
<CAPTION>
Intermediate Government Income Fund
----------------------- -----------
Class A Class C Class A Class C
Shares Shares Shares(1) Shares(1)
------ ------- ------ ------
<S> <C> <C> <C> <C>
ANNUAL OPERATING EXPENSES
(AS A % OF NET ASSETS)
(AFTER FEE WAIVERS OR EXPENSE
REIMBURSEMENTS, IF ANY)
Management Fees . . . . . . . . . . 0.48% 0.48% 0.40% 0.40%
Rule 12b-1 distribution plan
payments . . . . . . . . . . . . . 0.25% 1.00% 0.25% 0.60%
All other expenses. . . . . . . . . 0.27% 0.28% 0.45% 0.45%
----- ----- ----- -----
Total fund operating
expenses . . . . . . . . . . . . . 1.00% 1.76% 1.10% 1.45%
===== ===== ===== =====
</TABLE>
The information in the following chart indicates applicable fees
for Income Fund without fee waivers; but giving effect to certain expense
reimbursements:
<TABLE>
<CAPTION>
Income Fund
-----------
Class A Class C
ANNUAL OPERATING EXPENSES (AS A % OF NET ASSETS) Shares Shares
(WITHOUT FEE WAIVERS BUT AFTER EXPENSE ------ -------
REIMBURSEMENTS)
<S> <C> <C>
Management fees 0.65% 0.65%
Rule 12b-1 distribution plan payments 0.25% 0.60%
All other expenses 0.51% 0.51%
----- -----
Total fund operating expenses 1.41% 1.76%
===== =====
</TABLE>
(1) Class C shares did not exist for this fiscal year, however the Expense
Ratio for Class B shares indicates what the applicable expense ratio for
Class C shares would have been for Class C shares, assuming no redemption
of shares.
(2) With voluntary advisory fee limitation of 0.40% in effect through September
30, 1998. Additionally, certain expenses aggregating $72,341 were
voluntarily absorbed by Income Fund's sub-advisor.
(3) Class A shares did not exist for this fiscal year. Expense ratios shown for
Class A shares are estimates for the year ended December 31, 1996.
9
<PAGE> 21
As a result of 12b-1 distribution plan payments, a long-term
shareholder of either Intermediate Government or Income Fund may pay more than
the economic equivalent of the maximum front-end sales charges permitted by
rules of the National Association of Securities Dealers, Inc., although it is
estimated that it would require a substantial number of years to exceed such
maximum charges.
Despite the higher Rule 12b-1 fee, the total fund operating expenses
for Intermediate Government's Class C shares is the same as Income Fund's Class
C shares total fund operating expenses would have been without the advisory fee
waiver. The waiver is in effect through September 30, 1998.
Sale Charges
No sales charges are applicable to the Income Fund Reorganization.
Intermediate Government
Class A shares of Intermediate Government may be purchased at their net
asset value plus an initial sales charge. The sales charge represents a
percentage of the offering price, and decreases from 4.75% of the offering price
to 2.00% of the offering price on purchases of under $1 million. A Rule 12b-1
fee of 0.25% applies to Class A shares. Certain categories of Intermediate
Government shareholders may purchase shares of the fund at net asset value
without the imposition of a sales charge. In addition, purchases of Class A
share of Intermediate Government of $1 million or more may be made at net asset
value, subject to a CDSC of 1.00% of the lesser of the value of the shares
redeemed (excluding reinvested dividends and capital gain distributions) or the
total cost such shares if the shares are redeemed prior to 18 months from the
date of purchase. Intermediate Government's Class C shares are subject to a CDSC
of 1.00% and a Rule 12b-1 fee of 1.00%. For more information, see the Investor's
Guide to The AIM Family of Funds--Registered Trademark-- in the attached AFG
Prospectus.
In addition to Class A and Class C shares, Intermediate Government
offers Class B shares for sale to the public. The availability of another
additional class of shares gives investors an additional option in selecting a
suitable investment and allows for wider distribution of Intermediate
Government as compared to Income Fund.
Income Fund
Class A shares of Income Fund may be purchased in their net asset value
plus an initial sales charge. The sales charge represents a percentage of the
offering price, and decreases from 4.75% of the offering price to 2.00% of the
offering price on purchases of under $1 million. A 0.25% Rule 12b-1 fee also
applies. Certain categories of Intermediate Government shareholders may purchase
shares of the fund at net asset value without the imposition of a sales charge.
In addition, purchases of Class A share of Income Fund of $1 million or more may
be made at net asset value, subject to a CDSC of 1.00% 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. Income Fund's Class C shares are
subject to a CDSC of 0.60% and a Rule 12b-1 fee of 0.60%. For more information,
see the Investor's Guide to The AIM Family of Funds--Registered Trademark-- in
the attached AFG Prospectus.
10
<PAGE> 22
RISK FACTORS
Intermediate Government
Securities Issued on a When Issued or Delayed Delivery Basis.
Intermediate Government 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). Intermediate Government
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.
Intermediate Government 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 Intermediate Government'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 Intermediate Government 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. Intermediate
Government 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 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
attached as Appendix I to the Statement of Additional Information.
Illiquid Securities. Intermediate Government may invest up to 15% of
its net assets 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. Intermediate
Government may have to bear the expense of registering such securities for
resale, and the risk of substantial delays in effecting such registrations.
AFG'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 fund's monitoring AIM's implementation of the
guidelines and procedures.
11
<PAGE> 23
Income Fund
Mortgage-Related Securities. Income Fund may invest in mortgage
pass-through securities and collateralized mortgage obligations ("CMO").
Mortgage pass-through securities are securities representing interests
in "pools" of mortgage loans in which payment of both interest and principal on
the securities are generally made monthly, in effect "passing through" monthly
payments made by the individual borrowers on the mortgage loans which underlie
the securities (net of fees paid to the issuer or guarantor of the securities).
Payment of principal and interest on some mortgage pass-through
securities may be guaranteed as to principal and interest (but not as to market
value) by the full faith and credit of the U. S. Government (in the case of
securities guaranteed by the Government National Mortgage Association ("GNMA");
or guaranteed by agencies or instrumentalities of the U.S. Government (in the
case of securities guaranteed by the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"), which, while
not supported by the full faith and credit of the U.S. Government, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligation).
CMOs - are securities which are typically collateralized by portfolios
of mortgage pass-through securities guaranteed by GNMA, FNMA, or FHLMC. Similar
to a bond, interest and pre-paid principal on a CMO are paid, in most cases,
semiannually. CMOs are structured into multiple classes, with each class
bearing a different stated maturity. Monthly payments of principal, including
prepayments, are first returned to investors holding the shortest maturity
class; investors holding the longer maturity classes will receive principal
only after the first class has been retired. CMOs that are issued or guaranteed
by the U.S. Government or by any of its agencies or instrumentalities will be
considered U.S. Government securities by Income Fund, while other CMOs, even if
collateralized by U.S. Government securities, will have the same status as
other privately issued securities for purposes of applying Income Fund's
diversification tests.
Intermediate Government and Income Fund
Interest Rate Futures Contracts and Related Options. Each of
Intermediate Government and Income Fund may purchase and sell interest rate
futures contracts or purchase and sell options thereon in order to hedge the
value of their respective portfolios against changes in market conditions. A
stock index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to a specified dollar
or other currency amount times the difference between the stock index value at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. No physical delivery of the underlying
stocks in the index is made. 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. Generally, a fund may elect to close a position in a futures contract by
taking an opposite position which will terminate the fund's position in the
futures contract.
There are risks associated with investments in stock index futures
contracts, interest rate futures contracts, and options on such contracts.
During certain market conditions, purchases and sales of futures contracts may
not completely offset a decline or rise in the value of a fund's portfolio. In
the futures markets, it may not always be possible to execute a buy or sell
order at the desired price, or to close out an open position due to market
conditions, limits on open positions and/or daily price fluctuations. Changes
in the market value of a fund's portfolio may differ substantially from the
changes anticipated by the fund when hedged positions were established and
unanticipated price movements in a futures contract may result in a loss
substantially greater than a fund's initial investment in such contract.
Successful use of futures contracts
12
<PAGE> 24
and related options is depended upon the advisor's ability to predict correctly
movements in the direction of the applicable markets. No assurance can be given
that the advisor's judgment in this respect will be correct.
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 the fund's total assets.
Intermediate Government may sell call options. Income Fund may
purchase and write put and call options on securities. The purpose of engaging
in put and call transactions is to hedge against changes in the market value of
the fund's portfolio securities caused by fluctuating interest rates,
fluctuating currency exchange rates and changing market conditions and to close
out or offset existing positions in such options or futures contracts as
described below. Neither fund will engage in such transactions for speculative
purposes.
Intermediate Government may write a call option and Income Fund may
write a call or put option only if the option is "covered" by the fund holding
a position in the underlying securities or by other means which would permit
immediate satisfaction of the fund's obligation as writer of the option. The
purchase and writing of options involve certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. If a put or call
option purchased by a fund is not sold when it has remaining value, and if the
market price of the underlying security, in the case of a put, remains equal to
or greater than the exercise price or, in the case of a call, remains less than
or equal to the exercise price, the fund will lose its entire investment in the
option. Also, where a put or call option may move more or less than the price
of the related security. There can be no assurance that a liquid market will
exist when a fund seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options markets, a fund
may be unable to close out a position.
Repurchase Agreements. Each of Intermediate Government and Income Fund
may engage in repurchase agreements. A repurchase agreement, which may be
considered a "loan" under the 1940 Act is a transaction in which a fund
purchases a security and simultaneously commits to sell the security to the
seller at an agreed-upon price and date (usually not more than seven days)
after the date of purchase. The resale price reflects the purchase price plus
an agreed-upon market rate of interest which is unrelated to the coupon rate or
maturity of the purchased security. A fund's risk is limited to the ability of
the seller to pay the agreed-upon amount on the delivery date. In the opinion
of management this risk is not material; if the seller default, the underlying
security constitutes collateral for the seller's obligations to pay. This
collateral, equal or in excess of 100% of the repurchase agreement, will be
held by the custodian for the particular fund's assets. Repurchase agreement
carry certain risks not associated with direct investments in securities,
including a possible decline in the market value of the underlying securities
and delays and costs to the fund if the other party to the repurchase agreement
becomes insolvent. To the extent that the proceeds from a sale upon a default
in the obligation to repurchase are less than the repurchase price, the
particular fund would suffer a loss. It is intended for these funds to enter
into repurchase agreements with commercial banks and securities dealers. The
Board of Directors/Trustees will monitor the creditworthiness of such entities.
13
<PAGE> 25
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
Money Market
The investment objective of Money Market is to provide as high a level
of current income as is consistent with the preservation of capital and
liquidity.
Cash Management
Cash Management's investment objective is to achieve as high a level
of current income, without regard to Federal income tax considerations, as is
consistent with the preservation of capital and the maintenance of liquidity.
Intermediate Government
The investment objective of Intermediate Government 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.
Income Fund
Income Fund's investment objective is to achieve a high total return
on investment through capital appreciation and current income, without regard
to Federal income tax considerations. During normal market conditions at least
65% of Income Fund's investments will consist of income-producing securities.
INVESTMENT POLICIES
Money Market
Money Market intends to invest in money market instruments such as
banker's acceptances, certificates of deposit, repurchase agreements, master
notes, time deposits, taxable municipal securities 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 the AFG
Prospectus attached hereto.
Money Market may invest in other types of Money Market Instruments not
prohibited by its investment restrictions, if approved by the trustees. Money
Market 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.
Money Market 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
14
<PAGE> 26
category by two nationally recognized statistical rating organizations
("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.
Money Market must also comply with the requirements of Rule 2a-7 under
the 1940 Act, which govern the operations of money market funds and may be more
restrictive than Money Market'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.
Money Market 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.
Cash Management
Cash Management seeks to achieve its objective through investment in a
diversified portfolio of high-quality, short-term Money Market Instruments,
obligations issued or guaranteed by the U. S. Government or any of its agencies
or instrumentalities and corporate obligations. Cash Management may also place
a portion of its assets in interest-bearing accounts with qualifying banks
provided Cash Management is free to withdraw its assets at any time without
suffering any interest reduction or other penalty. Because Cash Management
invests in high-quality, short-term debt obligations, its ability to achieve a
high level of current income is limited in comparison to mutual funds that
invest in securities which present a greater credit risk.
Cash Management also complies with the requirements of Rule 2a-7 under
the 1940 Act.
Intermediate Government
The Government securities which may be purchased by Intermediate
Government 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 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
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 FHLMC and
Federal Farm Credit System. 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. Accordingly, such securities may involve risk of loss of principal and
interest; however, historically there have not been any defaults of such
issues. For a listing of some of the types of Agency Securities in which
Intermediate Government may invest, see Appendix B to the AFG Prospectus,
attached hereto. Intermediate Government may also invest in U. S. Government
agency mortgage-backed securities. Mortgage-backed securities consist of
interests in underlying mortgages with maturities of up to thirty years.
Intermediate Government 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 price 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
15
<PAGE> 27
increasing. Intermediate Government 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 securities.
The composition and weighted average maturity of Intermediate
Government's portfolio will vary from time to time, based upon AIM's
determination of how best to achieve Intermediate Government's investment
objective. Intermediate Government may invest in U.S. Government securities of
all maturities, short-term, intermediate-term and long-term. Intermediate
Government 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 Intermediate Government.
Income Fund
The Income Fund hopes to achieve its goal of capital appreciation by
selecting fixed income obligations which INVESCO Capital Management Inc.
("ICM"), Income Fund's sub-advisor, believes are of a higher quality than has
been generally recognized by the market place. If ICM's analysis is correct in
these cases, the value of these obligations should increase as the marketplace
recognizes the higher quality of the obligations. ICM intends to identify
investments which it believes to be under-rated (and therefore higher yielding)
in light of, among other things, historic and current financial condition of
the issuer, current and anticipated cash flow and borrowing requirement,
strength of management, responsiveness to business conditions, credit standing
and historic and current results of operations. Investors should note that
investments in fixed income obligations will generally be subject to both
credit risk and market risk. Credit risk relates to the ability of the issuer
to meet interest or principal payments, or both, as they come due. Market risk
relates to the fact that the market values of fixed income obligations in which
the fund invests generally will be affected by changes in the level of interest
rates. An increase in interest rates will generally reduce the value of
portfolio investments, and a decline in interest rates will generally increase
the value of portfolio investments.
Securities in which Income Fund invests consist primarily of U. S.
Government obligations and carefully selected fixed income corporate
obligations which ICM considers to be of investment grade quality. Income Fund
invests only in those corporate obligations which in ICM's opinion have the
investment characteristics described by Moody's Investors Service, Inc.
("Moody's") in rating corporate obligations within its four highest ratings of
Aaa, Aa, A and Baa and by Standard & Poor's Ratings Services ("S&P") in rating
corporate obligations within its four highest ratings of AAA, AA, A and BBB. It
is possible that the ability of the fund to achieve its objective of high total
return could be diminished by its restriction on the use of non-investment
grade corporate obligations. Investments in government obligations will include
direct obligations of the U. S. Government, such as U. S. Treasury Bills, Notes
and Bonds, obligations guaranteed by the U. S. Government, such as GNMA
obligations, and obligations of U. S. Government authorities, agencies and
instrumentalities, such as FNMA, Federal Home Loan Bank, Federal Financing Bank
and Federal Farm Credit Bank obligations.
Income Fund may invest up to 35% of its assets in mortgage-backed
securities, including mortgage pass-through securities and CMOs, which carry a
guarantee from an agency of the U. S. Government or a private issuer of the
timely payment of principal and interest or, in the case of unrated securities,
are considered by the sub-advisor to be investment grade quality.
Income Fund does not require that its investments in corporate
obligations actually be rated by Moody's or S&P, and it may acquire such
unrated obligations which in the opinion of ICM are of a quality at least equal
to a rating of Baa by Moody's or BBB by S&P. With respect to investments in
unrated obligations, the fund will rely more on ICM's judgment and experience
than would be the case if Income Fund invested
16
<PAGE> 28
solely in rated obligations. Obligations rated Baa by Moody's or BBB by S&P may
have speculative characteristics. A rating of Baa by Moody's indicates that the
obligation is of "medium grade," neither highly protected or 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. A rating of BBB by S&P indicates that
the obligation is in the lowest "investment grade" security rating. Obligations
rated BBB are regarded as having an adequate capacity to pay principal and
interest. Although such obligations normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest than
obligations in the top three "investment grade" categories. Both credit and
market risks as described above are increased by investing in fixed income
obligations rated Baa by Moody's and BBB by S&P.
ICM will attempt to limit fluctuations in the market value of Income
Fund by adopting a more defensive posture during periods of economic
difficulty. During such periods Income Fund may acquire Treasury Bills and/or
high quality short-term Money Market Instruments rated Prime-1 by Moody's or A
or better by S&P or, if unrated, of comparable quality as determined by ICM, at
such times, and in such amounts, as in the opinion of ICM seems appropriate.
INVESTMENT RESTRICTIONS
Money Market and Cash Management
There are some differences in the investment limitations applicable
to Money Market and Cash Management. However, Money Market and Cash Management
both are money market funds whose investment practices are circumscribed by the
more restrictive requirements of Rule 2a-7 of the 1940 Act. Thus the
differences in the investment restrictions of Money Market and Cash Management
are not reflected in actual operations of the two funds.
Intermediate Government and Income Fund
Set forth below are certain investment restrictions of Intermediate
Government and Income Fund. The investment limitations of Intermediate
Government and Income Fund are similar in many respects. 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.
The following chart summarizes the differences between the
investment limitations of Intermediate Government and Income Fund:
17
<PAGE> 29
<TABLE>
<CAPTION>
Investment Restriction Intermediate Government Income Fund
---------------------- ----------------------- -----------
<S> <C> <C>
Futures Intermediate Government may purchase Income Fund may not write, purchase
and sell interest rate futures or sell puts, calls, straddles,
contracts or purchase and sell spreads or combinations thereof,
options on futures contracts. except for transactions in options,
futures, and options on futures and
transactions arising under swap
agreements. Options on interest rate
futures contracts and investments in
initial margins will not exceed 5% of
Income Fund's total assets. Covered
call options and cash secured puts
will not exceed 25% of Income Fund's
total assets. This is not a
fundamental policy.
Short sales and Intermediate Government may not make Income Fund may not make short sales
purchases of securities short sales of securities or of securities, but it may purchase or
on margin purchase securities on margin, but sell options on futures and write,
it may obtain such short-term purchase and sell puts and calls.
credits as are necessary for the Income Fund may not purchase
clearance of purchases and sales of securities on margin except that it
securities and may make margin may obtain such short-term credit as
payments in connection with may be necessary for the clearance of
transactions in financial futures purchases and sales of portfolio
contracts and options thereon. securities.
Illiquid securities Intermediate Government may not Income Fund may not invest in
invest more that 15% of its average securities for which there are legal
net assets at the time of purchase or contractual restrictions on
in investments which are not readily resale, if more than 2% of the value
marketable. This is not a of its total assets would be invested
fundamental policy. in such securities, or invest in
securities for which there is no
readily available market, if more
than 5% of the value of its total
assets would be invested in such
securities. In determining securities
subject to this 5% restriction,
Income Fund will include repurchase
agreements maturing in more than
seven days.
</TABLE>
18
<PAGE> 30
<TABLE>
<CAPTION>
Investment Restriction Intermediate Government Income Fund
---------------------- ----------------------- -----------
<S> <C> <C>
Securities of one Intermediate Government may not With respect to 100% of Income Fund's
issuer purchase the securities of any assets, the fund may not invest in
issuer if such purchase would cause the securities of any one issuer,
more than 5% of the value of its other than obligations of, or
assets to be invested in the guaranteed by, the U.S. Government,
securities of such issuer (except its agencies, authorities or
U.S. Government Securities, instrumentalities, if immediately
including securities issued by its after such investment more than 5% of
agencies and instrumentalities and the value of Income Fund's total
except that Intermediate Government assets, taken at market value, would
may purchase securities of other be invested in such issuer or more
investment companies to the extent than 10% of such issuer's outstanding
permitted by applicable law or voting securities would be owned by
exemptive order). Intermediate such fund.
Government may not 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
Intermediate Government (except U.
S. Securities, including securities
issued by its agencies and
instrumentalities) and except that
Intermediate Government may purchase
securities of other investment
companies to the extent permitted by
applicable law or exemptive order.
Issue senior securities No corresponding restriction. (1940 Income Fund may not issue any class
Act restriction prohibiting funds of senior securities.
from issuing senior securities
without appropriate disclosure
applies, barring Intermediate
Government from such issuance)
</TABLE>
19
<PAGE> 31
<TABLE>
<CAPTION>
Investment Restriction Intermediate Government Income Fund
---------------------- ----------------------- -----------
<S> <C> <C>
Loans Intermediate Government may not make Income Fund may not make loans to
loans, except (a) through the other persons, provided that it may
purchase of a portion of an issue of purchase debt obligations consistent
bonds or other obligations of types with its investment objectives and
commonly offered publicly and policies and may lend limited amounts
purchased by financial institutions, (not to exceed 15% of total assets)
(b) through the purchase of short- of its portfolio securities to
term obligations (maturing within a broker-dealers or other institutional
year), including repurchase investors.
agreements, and (c) Intermediate
Government may lend its portfolio
securities, provided that the value
of the securities loaned does not
exceed 33-1/3% of a Intermediate
Government's total assets.
Industry concentration Intermediate Government may not Income Fund may not invest in the
concentrate 25% or more of its securities of issuers conducting
investments in a particular their principal business activity in
industry. the same industry, if immediately
after such investment the value of
its investments in such industry
would exceed 25% of the value of
Income Fund's total assets; provided,
however, that this limitation does
not apply to Income Fund's
investments in obligations issued or
guaranteed by the U.S. Government,
its agencies, authorities or
instrumentalities.
Underwriting Intermediate Government may not act Income Fund may not underwrite
as a securities underwriter. securities of other issuers except
insofar as it may technically be
deemed an "underwriter" under the
Securities Act of 1933, in connection
with the disposition of portfolio
securities.
Oil, gas or other Intermediate Government shall not Income Fund may not purchase or sell
mineral exploration or invest in oil, gas or mineral interests in oil, gas or other
development leases. This is not a fundamental mineral leases or exploration or
policy. development programs. Income Fund,
however, may purchase or sell
securities issued by entities which
invest in such interests. This is not
a fundamental policy.
</TABLE>
20
<PAGE> 32
<TABLE>
<CAPTION>
Investment Restriction Intermediate Government Income Fund
---------------------- ----------------------- -----------
<S> <C> <C>
Real Estate Intermediate Government may not Income Fund may not purchase or sell
invest in real estate, although real estate or interests in real
Intermediate Government may purchase estate. Income Fund may invest in
securities secured by real estate or securities secured by real estate or
interests therein or issued by interests therein or issued by
issuers which invest in real estate. companies, including real estate
investment trusts, which invest in
real estate or interests therein.
Borrowing Intermediate Government may not Income Fund may not borrow money
borrow money or mortgage, pledge, or except borrowings from banks for
hypothecate its assets, except that temporary or emergency purposes not
Intermediate Government may enter in excess of 5% of the value of its
into financial futures contracts, total assets at the time the
and except that Intermediate borrowing is made. Income Fund may
Government may borrow from banks to not mortgage, pledge, hypothecate or
pay for redemptions and for in any manner transfer as security
temporary purposes in an amount not for indebtedness any securities owned
exceeding one-third of the value of or held except to an extent not
its total assets (including the greater than 5% of the value of
amount of such borrowings) less its Income Fund's total assets.
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.
Intermediate Government will not
purchase securities while borrowings
in an amount in excess of 5% of its
total assets are outstanding.
Commodities Intermediate Government may not buy Income Fund will not purchase or sell
or sell commodities or commodity commodities or commodities contracts
contracts, although Intermediate except for purchases and sales of
Government may purchase and sell options and futures and options on
financial futures contracts and futures on underlying financial
options thereon. instruments.
</TABLE>
21
<PAGE> 33
<TABLE>
<CAPTION>
Investment Restriction Intermediate Government Income Fund
---------------------- ----------------------- -----------
<S> <C> <C>
Puts and calls Intermediate Government may not Income Fund is permitted to write or
invest in puts, calls, straddles, invest in put or call options.
spreads or any combination thereof,
except, however, that Intermediate
Government may purchase and sell
options on financial futures
contracts and may sell covered call
options. Intermediate Government 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
Intermediate Government.
Investment in non- No corresponding restriction. Income Fund may not invest in non-
income producing income producing securities if
securities immediately after such investment
more than 35% of the value of its
total assets would be invested in
such securities. However, as an
operating policy, Income Fund does
not intend to invest in non-income
producing securities.
</TABLE>
22
<PAGE> 34
<TABLE>
<CAPTION>
Investment Restriction Intermediate Government Income Fund
---------------------- ----------------------- -----------
<S> <C> <C>
Warrants No corresponding restriction. To the extent Income Fund invests in
warrants, its investment in warrants,
valued at the lower of cost or
market, may not exceed 5% of the
value of Income Fund's net assets.
Included within that amount, but not
to exceed 2% of the value of Income
Fund's net assets, may be warrants
which are not listed on the New York
or American Stock Exchanges. Warrants
acquired by Income Fund as part of a
unit or attached to securities may be
deemed to be without value.
</TABLE>
23
<PAGE> 35
<TABLE>
<CAPTION>
Investment Restriction Intermediate Government Income Fund
---------------------- ----------------------- -----------
<S> <C> <C>
Investment companies Intermediate Government may purchase Income Fund may not purchase
securities of other investment securities of other investment
companies to the extent permitted by companies except (a) in connection
applicable law or exemptive order. with a merger, consolidation,
acquisition or reorganization; or
(b) by purchase in the open market of
securities of other investment
companies involving only customary
brokers' commissions and only if
immediately thereafter (i) no more
than 3% of the voting securities of
any one investment company are owned
by Income Fund, (ii) no more than 5%
of the value of the total assets of
Income Fund would be invested in any
one investment company, and (iii) no
more than 10% of the value of the
total assets of Income Fund would be
invested in the securities of such
investment companies. A portion of
Income Fund's cash may be invested
from time to time in investment
companies which AIM or the
sub-advisor serves as investment
advisor; provided that no management
or distribution fee will be charged
by AIM or the sub-advisor with
respect to any such assets so
invested and provided further that at
no time will more than 3% of Income
Fund's assets be so invested. Should
Income Fund purchase securities of
other investment companies,
shareholders may incur additional
management, advisory and distribution
fees.
</TABLE>
24
<PAGE> 36
<TABLE>
<CAPTION>
Investment Restriction Intermediate Government Income Fund
---------------------- ----------------------- -----------
<S> <C> <C>
Investing for control Intermediate Government may not Income Fund may not invest in
invest for the purpose of companies for the purpose of
influencing management or exercising exercising control or management.
control, except that Intermediate
Government may purchase securities
of other investment companies to the
extent permitted by applicable law
or exemptive order. This is not a
fundamental policy.
Unseasoned issuers Intermediate Government may not Income Fund may not invest more than
purchase securities of any company 5% of its total assets in securities
with a record of less than three of companies having a record,
years of continuous operation together with predecessors, of less
(including that of predecessors) if than three years continuous
such purchase would cause operation. This is not a fundamental
Intermediate Government's aggregate policy.
investments in all such companies
taken at cost to exceed 5% of its
total assets taken at market value.
This is not a fundamental policy.
Purchase of securities Intermediate Government may not Income Fund may not purchase or
of issuers owned by purchase or retain the securities of retain the securities of any issuer
officers or directors any issuer, if the officers and if any individual officer or director
of advisors or trustees of AFG, or officers and of Income Fund, AIM or sub-advisor,
distributors directors of AIM who own or any subsidiary thereof owns
beneficially more than 1/2 of 1% of individually more than 0.5% of the
the securities of such issuer, securities of that issuer and all
together own more than 5% of the such officers and directors together
securities of such issuer. This is own more than 5% of the securities of
not a fundamental policy. that issuer. This is not a
fundamental policy.
Securities of foreign No corresponding restrictions. Income Fund may not invest more than
issuers 10% of the value of its total assets
in securities of foreign issuers.
This is not a fundamental policy.
</TABLE>
PORTFOLIO MANAGERS
AIM uses a team approach and a disciplined investment process in
providing investment advisory services to all of its accounts, including Money
Market and Intermediate Government. AIM's investment staff consists of
approximately 125 individuals. While individual members of AIM's investment
staff are assigned
25
<PAGE> 37
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 Intermediate Government and their
titles, if any, with AIM or its subsidiaries and AFG, 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.
Karen Dunn Kelley is Senior Vice President of A I M Capital
Management, Inc. ("AIM Capital"), Vice President of AIM and of AFG and has been
responsible for Intermediate Government since 1992. Ms. Kelley has been
associated with AIM and/or its subsidiaries since 1989 and has a total of 15
years of experience as an investment professional. Meggan Walsh is Vice
President of AIM Capital and has been responsible for Intermediate Government
since 1992. Ms. Walsh has been associated with AIM and/or its subsidiaries
since 1991 and has 10 years of experience as an investment professional. Paula
A. Permenter has been responsible for Intermediate Government since 1996. Ms.
Permenter has been associated with AIM and/or its subsidiaries since 1996 and
has 11 years of experience as an investment professional. Prior to joining
AIM, she was an Associate Trader and Investment Assistant with Van Kampen
American Capital Asset Management, Inc.
See the discussion relating to portfolio managers under "Management
- - Portfolio Managers - Income Fund" set forth in the AFG Prospectus.
26
<PAGE> 38
FINANCIAL INFORMATION
Money Market
Shown below are the financial highlights for a Cash Reserve share
outstanding during the six months ended June 30, 1997, each of the years in the
three-year period ended December 31, 1996 and the period October 16, 1993 (date
operations commenced) through December 31, 1993.
<TABLE>
<CAPTION>
OCT. 16 -
DECEMBER 31 DEC. 31
JUNE 30, ---------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from operations:
Net investment income ........................ 0.0220 0.0433 0.0493 0.0337 0.0048
-------- -------- -------- -------- --------
Less distributions:
Dividends(from net investment income.......... (0.0220) (0.0433) (0.0493) (0.0337) (0.0048)
-------- -------- -------- -------- --------
Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return (a)................................ 4.49% 4.41% 5.04% 3.42% 2.27%(d)
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of year (000's omitted)....... $466,235 $315,470 $293,450 $359,952 $241,778
======== ======== ======== ======== ========
Ratio of expenses to average net
assets........................................ 1.08%(b)(c) 1.08% 1.04% 0.99%(d) 1.00%(a) (d)
======== ======== ======== ======== ========
Ratio of net investment income to
average net assets............................ 4.45%(b) 4.32% 4.92% 3.49%(d) 2.27%(a) (d)
======== ======== ======== ======== ========
</TABLE>
- ----------------
(a) Annualized.
(b) Ratios are annualized and based on average daily net assets of $402,433,762.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly
the ratio of expenses to average daily net assets would have been the same.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average daily net assets prior to fee waivers and/or
expense reimbursements are 1.08% and 3.40% for 1994 and 1.20% (annualized)
2.07% (annualized) for 1993.
27
<PAGE> 39
Cash Management
Shown below are financial highlights for a Class A share and Class C
share outstanding during the six months ended June 30, 1997, and for a Class C
share outstanding during each of the years in the ten-year period ended
December 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------------------------------
1997 1996 1995 1994 1993
---------------------- ------- ------- ------- -------
CLASS A CLASS C
------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Investment operations:
Net investment income .... 0.02 0.02 0.04 0.05 0.03 0.02
------- ------- ------- ------- ------- -------
Distributions:
Dividends (from net ...... (0.02) (0.02) (0.04) (0.05) (0.03) (0.02)
------- ------- ------- ------- ------- -------
investment income)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return (a) ........... 2.23%(b) 2.23%(b) 4.48% 5.04% 3.30% 2.20%
======= ======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted) ......... $ 136 $ 8,481 $15,946 $20,439 $15,212 $13,827
======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets (c) ... 0.48%(b) 0.48%(b) 1.04% 1.00% 1.00% 0.95%
======= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
asset(c) ................. 2.23%(b) 2.23%(b) 4.36% 4.91% 3.23% 2.17%
======= ======= ======= ======= ======= =======
<CAPTION>
1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Investment operations:
Net investment income .... 0.03 0.05 0.07 0.08 0.07 0.06
------- ------- ------- ------- ------- -------
Distributions:
Dividends (from net ...... (0.03) (0.05) (0.07) (0.08) (0.07) (0.06)
------- ------- ------- ------- ------- -------
investment income)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return (a) ........... 3.04% 5.08% 7.35% 8.63% 6.90% 5.67%
======= ======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of year
(000's omitted) ......... $20,431 $17,730 $20,701 $19,902 $32,309 $27,683
======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets (c) ... 0.73% 1.00% 1.09% 1.00% 0.88% 1.25%
======= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
asset(c) ................. 2.94% 5.04% 7.11% 8.31% 6.90% 5.67%
======= ======= ======= ======= ======= =======
</TABLE>
- ----------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(b) Not annualized.
(c) The advisor prior to August 4, 1997, voluntarily absorbed certain expenses
of the Fund aggregating $15,099, $38,925, $5,536, and $27,402 for 1993,
1992, 1990 and 1989, respectively. If such expenses had not been absorbed,
the ratio of expenses to average net assets would have been 1.03%, 0.92%,
1.12%, and 1.11% for the above periods, respectively, and the ratio of net
investment income to average net assets would have been 2.09%, 2.75%,
7.08%, and 8.20%, respectively.
28
<PAGE> 40
Intermediate Government
Shown below are financial highlights for a Class A share
outstanding during the six months ended June 30, 1997, and each of the years in
the nine-year period ended December 1996, and the period April 28, 1987 (date
operations commenced) through December 31, 1987.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------------------------------------------
1997 1996 1995 1994 1993 1992(a)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period . $ 9.28 $ 9.70 $ 8.99 $ 10.05 $ 10.19 $ 10.34
--------- --------- --------- --------- --------- ---------
Income from investing operations:
Net investment income .............. 0.32 0.63 0.69 0.68 0.74 0.77
--------- --------- --------- --------- --------- ---------
Net gains (losses) on securities both
realized and unrealized ............ (0.04) (0.42) 0.73 (1.02) (0.04) (0.15)
--------- --------- --------- --------- --------- ---------
Total from investment operations ..... 0.28 0.21 1.42 (0.34) 0.70 0.62
--------- --------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income (0.32) (0.59) (0.67) (0.58) (0.70) (0.74)
--------- --------- --------- --------- --------- ---------
Distributions from net realized .... -- -- -- (0.04) (0.14) (0.03)
capital gain
--------- --------- --------- --------- --------- ---------
Return of capital .................. -- (0.04) (0.04) (0.10) -- --
--------- --------- --------- --------- --------- ---------
Total distribution ................. (0.32) (0.63) (0.71) (0.72) (0.84) (0.77)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ....... $ 9.24 $ 9.28 $ 9.70 $ 8.99 $ 10.05 $ 10.19
========= ========= ========= ========= ========= =========
Total return (b) ..................... 3.03% 2.35% 16.28% (3.44)% 7.07% 6.26%
========= ========= ========= ========= ========= =========
Ratios/Supplemental Data:
Net assets, end of year ........... $ 157,530 $ 174,344 $ 176,318 $ 158,341 $ 139,586 $ 123,484
========= ========= ========= ========= ========= =========
(000's omitted)
Ratio of expenses to average net
(exclusive of interest expense(c)) . 0 .99(d)(e) 1.00% 1.08% 1.04% 1.00% 0.98%
========= ========= ========= ========= ========= =========
Ratio of net investment income to
average net assets (f) ............. 6.98%(d) 6.76% 7.36% 7.34% 7.08% 7.53%
========= ========= ========= ========= ========= =========
Portfolio turnover rate ............ 33% 134% 140% 109% 110% 42%
========= ========= ========= ========= ========= =========
<CAPTION>
APR. 28 -
DEC. 31.
1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period . $ 9.95 $ 9.91 $ 9.70 $ 9.92 $ 10.00
----------- ----------- ----------- ----------- -----------
Income from investing operations:
Net investment income .............. 0.82 0.87 0.90 0.89 0.55
----------- ----------- ----------- ----------- -----------
Net gains (losses) on securities both
realized and unrealized ............ 0.41 (0.01) (0.15) (0.27) (0.14)
----------- ----------- ----------- ----------- -----------
Total from investment operations ..... 1.23 0.88 1.05 0.62 0.41
----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment income (0.84) (0.84) (0.84) (0.84) (0.49)
----------- ----------- ----------- ----------- -----------
Distributions from net realized .... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
capital gain
Return of capital .................. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total distribution ................. (0.84) (0.84) (0.84) (0.84) (0.49)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period ....... $ 10.34 $ 9.95 $ 9.91 $ 9.70 $ 9.92
=========== =========== =========== =========== ===========
Total return (b) ..................... 12.98% 9.39% 11.28% 6.43% 4.18%
=========== =========== =========== =========== ===========
Ratios/Supplemental Data:
Net assets, end of year ........... $ 101,409 $ 61,463 $ 57,077 $ 48,372 $ 28,052
=========== =========== =========== =========== ===========
(000's omitted)
Ratio of expenses to average net
(exclusive of interest expense(c)) . 1.00% 1.00% 1.00% 1.00% 1.20%(g)
=========== =========== =========== =========== ===========
Ratio of net investment income to
average net assets (f) ............. 8.15% 8.85% 9.10% 9.11% 8.64%(g)
=========== =========== =========== =========== ===========
Portfolio turnover rate ............ 26% 16% 15% 15% 35%
=========== =========== =========== =========== ===========
</TABLE>
- -----------------------
(a) Intermediate Government changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges and is not annualized for periods less than
one year.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net asset prior to fee waiver and/or expense reimbursement were
1.05%, 1.04%, 1.04%, 1.10%, 1.13%, 1.08% and 1.08% for 1994-88,
respectively.
(d) Ratios are annualized and based on average net assets of $164,653,827.
(e) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursement were 7.32%, 7.04%, 7.48%, 8.05%, 8.72%, 9.03% and 9.03, for
1994-88, respectively.
(g) Annualized.
29
<PAGE> 41
Income Fund
Shown below are financial highlights for a Class A share and Class C
share outstanding during the six months ended June 30, 1997, and for a Class C
share outstanding during each of the years in the ten-year period ended
December 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------------
1997 1996 1995 1994
------- ------- -------
CLASS A CLASS C
------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year .................... $ 48.87 $ 48.87 $ 52.22 $ 45.33 $ 48.60
------- ------- ------- ------- -------
Investment operations:
Net investment income ..... 1.45 1.33 2.61 2.44 2.40
------- ------- ------- ------- -------
Net gains or losses on
securities both realized
and unrealized) ........... (0.36) (0.31) (3.31) 6.91 (3.27)
------- ------- ------- ------- -------
Total from investment
operations ................ 1.09 1.02 (0.70) 9.35 (0.87)
------- ------- ------- ------- -------
Distributions:
Dividends (from net
investment income) ........ (1.53) (1.35) (2.65) (2.46) (2.40)
------- ------- ------- ------- -------
Distributions (from
capital gains) ............ 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- -------
Total Distributions .......... (1.53) (1.35) (2.65) (2.46) (2.40)
------- ------- ------- ------- -------
Net asset value, end
of period ................... $ 48.43 $ 48.54 $ 48.87 $ 52.22 $ 45.33
======= ======= ======= ======= =======
Total return (a) ............. 2.26%(b) 2.13%(b) (1.23)% 21.12% (1.80)%
======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period .. $ 29 $24,575 $26,162 $31,986 $25,467
======= ======= ======= ======= =======
(000's omitted)
Ratio of expenses to
average net assets (c) ..... 0.55%(b) 0.72%(b) 1.51% 2.19% 2.25%
======= ======= ======= ======= =======
Ratio of net investment
income to average
net assets (c) ............. 2.91%(b) 2.74%(b) 5.30% 4.94% 5.09%
======= ======= ======= ======= =======
Portfolio turnover rate .... 0%(b) 0%(b) 34% 24% 59%
======= ======= ======= ======= =======
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year .................... $ 47.41 $ 47.77 $ 45.42 $ 45.48 $ 44.45 $ 45.45 $ 50.42
------- ------- ------- ------- ------- ------- -------
Investment operations:
Net investment income ..... 2.28 2.57 3.03 3.43 3.32 3.32 2.71
------- ------- ------- ------- ------- ------- -------
Net gains or losses on
securities both realized
and unrealized) ........... 1.20 (0.37) 2.43 (0.03) 0.88 (0.92) ( 3.18)
------- ------- ------- ------- ------- ------- -------
Total from investment
operations ................ 3.48 2.20 5.46 (3.40) 4.20 2.40 (0.47)
------- ------- ------- ------- ------- ------- -------
Distributions:
Dividends (from net
investment income) ........ (2.29) (2.56) (3.11) (3.46) (3.27) (3.30) (3.35)
------- ------- ------- ------- ------- ------- -------
Distributions (from
capital gains) ............ 0.00 0.00 0.00 0.00 0.00 0.00 (1.15)
------- ------- ------- ------- ------- ------- -------
Total Distributions .......... (2.29) (2.56) (3.11) (3.46) (3.27) (3.30) (4.50)
------- ------- ------- ------- ------- ------- -------
Net asset value, end
of period ................... $ 48.60 $ 47.41 $ 47.77 $ 45.42 $ 45.48 $ 44.55 $ 45.45
======= ======= ======= ======= ======= ======= =======
Total return (a) ............. 7.39% 4.74% 12.46% 7.81% 9.12% 5.59% (0.90)%
======= ======= ======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of period .. $42,872 $47,096 $39,104 $41,004 $58,774 $74,309 $81,882
======= ======= ======= ======= ======= ======= =======
(000's omitted)
Ratio of expenses to
average net assets (c) ..... 2.25% 2.25% 2.29% 2.30% 2.35% 2.16% 1.99%
======= ======= ======= ======= ======= ======= =======
Ratio of net investment
income to average
net assets (c) ............. 4.56% 5.48% 6.48% 7.08% 6.98% 6.89% 6.29%
======= ======= ======= ======= ======= ======= =======
Portfolio turnover rate .... 92% 16% 37% 25% 33% 49% 64%
======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(b) Not annualized.
(c) The advisor prior to August 4, 1997, voluntarily absorbed certain expenses
of the Fund aggregating $31,132, $72,341, $17,720, $17,632, and $11,540
for the six months ended June 30, 1997 and the years 1996, 1995, 1993, and
1990, respectively. If such expenses had not been absorbed, the ratio of
expenses average net assets would have been 2.62%, 5.05%, 4.88%, 4.52%,
and 7.06%, respectively.
30
<PAGE> 42
MANAGEMENT DISCUSSION AND ANALYSIS OF PERFORMANCE
A discussion of the performance of Intermediate Government for the
six-month period ended June 30, 1997 is set forth in Appendix IV to this Proxy
Statement/Prospectus. A discussion of the performance of Income Fund for the
six- months period ended June 30, 1997 is set forth in Appendix V to this Proxy
Statement/Prospectus.
ADDITIONAL INFORMATION ABOUT THE AGREEMENTS
TERMS OF THE REORGANIZATIONS
The terms and conditions under which the Reorganizations may be
consummated are set forth in the Agreements. Significant provisions of the
Agreements are summarized below; however, this summary is qualified in its
entirety by reference to each Agreement, copies of which are attached as
Appendix I and II to this Proxy Statement/Prospectus.
TRANSFER OF ASSETS
Money Market will acquire substantially all of the assets of Cash
Management in exchange for shares of Money Market. The actual transfer of such
assets (the "Closing") is expected to occur on March 2, 1998, at 7:00 a.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 Money Market.
At the Closing, AFG will issue directly to the shareholders of Cash
Management that number of shares of Money Market equal in aggregate net asset
value to the aggregate value of Cash Management's assets then transferred. It
is expected that the value of each shareholder's account with Money Market
immediately after the Cash Management Reorganization will be the same as the
value of such shareholder's account with Cash Management immediately prior to
the Cash Management Reorganization. The value calculations will be made
pursuant to procedures customarily used by Money Market. Securities for which
there is no readily ascertainable market value will be valued by mutual
agreement of AAFI and AFG, provided such value is consistent with AFG's pricing
procedures. Promptly after the Closing, AAFI will take steps to pay any
outstanding liabilities of Cash Management and Cash Management's status as a
designated series of shares of AAFI will be terminated. Any assets held by Cash
Management after the Cash Management Reorganization that are not used by AAFI
to discharge the debts of Cash Management will be distributed to its
shareholders as a dividend, although none is expected.
Intermediate Government will acquire substantially all of the assets
of Income Fund in exchange for shares of Intermediate Government. The actual
transfer of such assets (the "Closing") is expected to occur on March 2, 1998,
at 7:00 a.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 Intermediate Government.
At the Closing, AFG will issue directly to the shareholders of Income
Fund that number of shares of Intermediate Government equal in aggregate net
asset value to the aggregate value of Income Fund's assets then transferred. It
is expected that the value of each shareholder's account with Intermediate
Government immediately after the Income Fund Reorganization will be the same as
the value of such shareholder's account with Income Fund immediately prior to
the Income Fund Reorganization. The value calculations will be made pursuant to
procedures customarily used by Intermediate Government. Securities for which
there
31
<PAGE> 43
is no readily ascertainable market value will be valued by mutual agreement of
AAFI and AFG, provided such value is consistent with AFG's pricing procedures.
Promptly after the Closing, AAFI will take steps to pay any outstanding
liabilities of Income Fund and Income Fund's status as a designated series of
shares of AAFI will be terminated. Any assets held by Income Fund after the
Income Fund Reorganization that are not used by AAFI to discharge the debts of
Income Fund will be distributed to its shareholders as a dividend, although
none is expected.
OTHER TERMS
The Cash Management Agreement may be amended without shareholder
approval by mutual agreement of AAFI and AFG. If any amendment is made to the
Cash Management Agreement which effects a material change to the Cash
Management Agreement and the Cash Management Reorganization, such change will
be submitted to the shareholders for their approval.
Each of AAFI and AFG have made representations and warranties in the
Cash Management Agreement that are customary in matters such as the Cash
Management Reorganization. The obligations of AAFI and AFG pursuant to the Cash
Management Agreement are subject to various conditions, including the
following: (a) the assets of Cash Management to be acquired by Money Market
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 Cash Management
immediately prior to the Cash Management Reorganization; (b) 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); (c) the
shareholders of Cash Management shall have approved the Cash Management
Agreement; and (d) the receipt of an opinion from Ballard Spahr Andrews &
Ingersoll, that the Cash Management Reorganization will not result in the
recognition of gain or loss for Federal income tax purposes for Cash
Management, Money Market or their shareholders.
Money Market and Cash Management have each agreed to bear their
respective expenses in connection with the Cash Management Reorganization.
The Board of Directors of AAFI may waive without shareholder approval
any default by AFG or any failure by AFG to satisfy any of the conditions to
AAFI's obligations as long as such a waiver will not have a material adverse
effect on the benefits intended under the Cash Management Agreement for the
shareholders of Cash Management. The Cash Management Agreement may be
terminated and the Cash Management Reorganization may be abandoned by either
AAFI or AFG at any time by mutual agreement of AAFI and AFG, or by either party
in the event that Cash Management shareholders do not approve the Cash
Management Agreement or if the Closing does not occur on or before June 30,
1998.
If the Cash Management Agreement is approved, an account will be
established for each shareholder of Cash Management containing the appropriate
number of shares of Money Market. Such accounts will contain certain
information about the shareholder that is identical to the account currently
maintained for each shareholder of Cash Management.
The Income Fund Agreement may be amended without shareholder approval
by mutual agreement of AAFI and AFG. If any amendment is made to the Income
Fund Agreement which effects a material change to the Income Fund Agreement and
the Income Fund Reorganization, such change will be submitted to the
shareholders for their approval.
32
<PAGE> 44
Each of AAFI and AFG have made representations and warranties in the
Income Fund Agreement that are customary in matters such as the Income Fund
Reorganization. The obligations of AAFI and AFG pursuant to the Income Fund
Agreement are subject to various conditions, including the following: (a) the
assets of Income Fund to be acquired by Intermediate Government 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 Income Fund
immediately prior to the Income Fund Reorganization; (b) 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); (c) the
shareholders of Income Management shall have approved the Income Fund
Agreement; and (d) the receipt of an opinion from Ballard Spahr Andrews &
Ingersoll, that the Income Fund Reorganization will not result in the
recognition of gain or loss for Federal income tax purposes for Income Fund,
Intermediate Government or their shareholders.
Intermediate Government and Income Fund have each agreed to bear their
respective expenses in connection with the Income Fund Reorganization.
The Board of Directors of AAFI may waive without shareholder approval
any default by AFG or any failure by AFG to satisfy any of the conditions to
AAFI's obligations as long as such a waiver will not have a material adverse
effect on the benefits intended under the Income Fund Agreement for the
shareholders of Income Fund. The Income Fund Agreement may be terminated and
the Income Fund Reorganization may be abandoned by either AAFI or AFG at any
time by mutual agreement of AAFI and AFG, or by either party in the event that
Income Fund shareholders do not approve the Income Fund Agreement or if the
Closing does not occur on or before June 30, 1998.
If the Income Fund Agreement is approved, an account will be
established for each shareholder of Income Fund containing the appropriate
number of shares of Intermediate Government. Such accounts will contain certain
information about the shareholder that is identical to the account currently
maintained for each shareholder of Income Fund.
FEDERAL TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Cash Management Reorganization and is based upon the
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the existing Treasury regulations thereunder, current administrative
rulings of the Internal Revenue Service ("IRS") and judicial decisions, all of
which are subject to change. The principal Federal income tax consequences that
are expected to result from the Cash Management Reorganization, under currently
applicable law, are as follows: (i) the Cash Management Reorganization 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 Cash Management upon the transfer of its assets to
Money Market; (iii) in accordance with Section 354(a)(1) of the Code, no gain
or loss will be recognized by any shareholder of Cash Management upon the
exchange of shares of Cash Management solely for shares of Money Market; (iv)
in accordance with Section 358(a) of the Code, the tax basis of the shares of
Money Market to be received by a shareholder of Cash Management will be the
same as the tax basis of the shares of Cash Management surrendered in exchange
therefor; (v) in accordance with Section 1223(1) of the Code, the holding
period of the shares of Money Market to be received by a shareholder of Cash
Management will include the holding period for which such shareholder held the
shares of Cash Management exchanged therefor, provided that such shares of Cash
Management 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 Money Market on the receipt of assets of Cash Management in
exchange for
33
<PAGE> 45
shares of Money Market; (vii) in accordance with Section 362(b) of the Code,
the tax basis of the assets of Cash Management in the hands of Money Market
will be the same as the tax basis of such assets in the hands of Cash
Management immediately prior to the Cash Management Reorganization; (viii) in
accordance with Section 1223(2) of the Code, the holding period of the assets
of Cash Management to be received by Money Market will include the holding
period of such assets in the hands of Cash Management immediately prior to the
Cash Management Reorganization; and (ix) Money Market will succeed to and take
into account the items of Cash Management 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.
As a condition to Closing, Ballard Spahr Andrews & Ingersoll will
render a favorable opinion as to the foregoing Federal income tax consequences
of the Cash Management Reorganization, which opinion will be conditioned upon
the accuracy, as of the date of Closing, of certain representations upon which
Ballard Spahr Andrews & Ingersoll will rely in rendering its opinion, 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 Cash
Management to sell, exchange or otherwise dispose of a number of shares of
Money Market received in the Cash Management Reorganization that would reduce
the Cash Management shareholders' ownership of Money Market 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 Cash Management as of the Closing
Date; (B) following the Cash Management Reorganization, Money Market will
continue the historic business of Cash Management (for this purpose "historic
business" shall mean the business most recently conducted by Cash Management
which was not entered into in connection with the Cash Management
Reorganization) or use a significant portion of Cash Management's historic
business assets in its business; (C) at the direction of Cash Management, Money
Market will issue directly to Cash Management's shareholders pro rata the
shares of Money Market that Cash Management constructively receives in the Cash
Management Reorganization and Cash Management will distribute its other
properties (if any) to its shareholders on, or as promptly as practicable
after, the Closing; (D) Money Market has no plan or intention to reacquire any
of its shares issued in the Cash Management Reorganization, except to the
extent that Money Market is required by the 1940 Act to redeem any of its
shares presented for redemption; (E) Money Market does not plan or intend to
sell or otherwise dispose of any of the assets of Cash Management acquired in
the Cash Management Reorganization, 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; (F) Money Market,
Cash Management and the shareholders of Cash Management will pay their
respective expenses, if any, incurred in connection with the Cash Management
Reorganization; (G) Money Market will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair market value
of the gross assets held by Cash Management immediately before the Cash
Management Reorganization, including for this purpose amounts used by Cash
Management to pay its reorganization expenses and all redemptions and
distributions made by Cash Management immediately before the Cash Management
Reorganization (other than redemptions pursuant to a demand of a shareholder in
the ordinary course of Cash Management's business as an open-end diversified
management investment company under the 1940 Act and regular, normal dividends
not in excess of the requirements of Section 852 of the Code); and (H) Money
Market and Cash Management have each elected to be taxed as a "regulated
investment company" ("RIC") under Section 851 of the Code and will each have
qualified for the special Federal tax treatment afforded RICs under the Code
for all taxable periods (including the last short taxable period of Cash
Management ending on the Closing and the taxable year of Money Market that
includes the Closing).
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF
THE CASH MANAGEMENT REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR
FACTS AND CIRCUMSTANCES OF ANY SHAREHOLDER OF CASH MANAGEMENT. CASH MANAGEMENT
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
34
<PAGE> 46
AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE CASH MANAGEMENT REORGANIZATION,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.
The following is a general summary of the material Federal income tax
consequences of the Income Fund Reorganization and is based upon the current
provisions of the Code, the existing Treasury regulations thereunder, current
administrative rulings of the IRS and judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Income Fund Reorganization, under currently
applicable law, are as follows: (i) the Income Fund Reorganization 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 Income Fund upon the transfer of its assets to Intermediate
Government; (iii) in accordance with Section 354(a)(1) of the Code, no gain or
loss will be recognized by any shareholder of Income Fund upon the exchange of
shares of Income Fund solely for shares of Intermediate Government; (iv) in
accordance with Section 358(a) of the Code, the tax basis of the shares of
Intermediate Government to be received by a shareholder of Income Fund will be
the same as the tax basis of the shares of Income Fund surrendered in exchange
therefor; (v) in accordance with Section 1223(1) of the Code, the holding
period of the shares of Intermediate Government to be received by a shareholder
of Income Fund will include the holding period for which such shareholder held
the shares of Income Fund exchanged therefor provided that such shares of
Income Fund are capital assets in the hands of such shareholder as of the
Closing; (vi) in accordance with Section 1032 of the Code, no gain or loss will
be recognized by Intermediate Government on the receipt of assets of Income
Fund in exchange for shares of Intermediate Government; (vii) in accordance
with Section 362(b) of the Code, the tax basis of the assets of Income Fund in
the hands of Intermediate Government will be the same as the tax basis of such
assets in the hands of Income Fund immediately prior to the Income Fund
Reorganization; (viii) in accordance with Section 1223(2) of the Code, the
holding period of the assets of Income Fund to be received by Intermediate
Government will include the holding period of such assets in the hands of
Income Fund immediately prior to the Income Fund Reorganization; and (ix)
Intermediate Government will succeed to and take into account the items of
Income Fund described in Section 381(c) of the Code, subject to the conditions
and limitations specified in Sections 381 through 384 of the Code and the
Treasury regulations thereunder.
As a condition to Closing, Ballard Spahr Andrews & Ingersoll will
render a favorable opinion as to the foregoing Federal income tax consequences
of the Income Fund Reorganization, which opinion will be conditioned upon the
accuracy, as of the Closing date, of certain representations upon which Ballard
Spahr Andrews & Ingersoll will rely in rendering its opinion, 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
Income Fund to sell, exchange or otherwise dispose of a number of shares of
Intermediate Government received in the Income Fund Reorganization that would
reduce the Income Fund shareholders' ownership of Intermediate Government
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 Income Fund
as of the Closing Date; (B) following the Income Fund Reorganization,
Intermediate Government will continue the historic business of Income Fund (for
this purpose "historic business" shall mean the business most recently
conducted by Income Fund which was not entered into in connection with the
Income Fund Reorganization) or use a significant portion of Income Fund's
historic business assets in its business; (C) at the direction of Income Fund,
Intermediate Government will issue directly to Income Fund's shareholders pro
rata the shares of Intermediate Government that Income Fund constructively
receives in the Income Fund Reorganization and Income Fund will distribute its
other properties (if any) to its shareholders on, or as promptly as practicable
after, the Closing; (D) Intermediate Government has no plan or intention to
reacquire any of its shares issued in the Income Fund Reorganization, except to
the extent that Intermediate Government is required by the 1940 Act to redeem
any of its shares presented for redemption; (E) Intermediate Government does
not plan or intend to sell or otherwise dispose of any of the assets of Income
Fund acquired in the Income Fund Reorganization, except for dispositions made
in the
35
<PAGE> 47
ordinary course of its business or dispositions necessary to maintain its
status as a "regulated investment company" under the Code; (F) Intermediate
Government, Income Fund and the shareholders of Income Fund will pay their
respective expenses, if any, incurred in connection with the Income Fund
Reorganization; (G) Intermediate Government will acquire at least 90 percent of
the fair market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Income Fund immediately before the
Income Fund Reorganization, including for this purpose amounts used by Income
Fund to pay its reorganization expenses and all redemptions and distributions
made by Income Fund immediately before the Income Fund Reorganization (other
than redemptions pursuant to demands of shareholders in the ordinary course of
Income Fund's business as an open-end diversified management investment company
under the 1940 Act and regular, normal dividends not in excess of the
requirements of Section 852 of the Code; and (H) Intermediate Government and
Income Fund have each elected to be taxed as a RIC under Section 851 of the
Code and will each have qualified for the special Federal tax treatment
afforded RICs under the Code for all taxable periods (including the last short
taxable period of Income Fund ending on the Closing and the taxable year of
Intermediate Government that includes the Closing).
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF
THE INCOME FUND REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS
AND CIRCUMSTANCES OF ANY SHAREHOLDER OF INCOME FUND. INCOME FUND SHAREHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO
THEM OF THE INCOME FUND REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT
OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
CAPITAL LOSS CARRYFORWARD
As of December 31, 1996, Cash Management had a capital loss
carryforward available to offset future capital gains of approximately $1,113.
Under Section 381 of the Code, Money Market will succeed to the capital loss
carryforwards of Cash Management if, as described in "Additional Information
about the Agreements -- Federal Tax Consequences" above, the Cash Management
Reorganization qualifies as a "reorganization" under Section 368 (a) of the
Code. The carryforward period for capital losses is limited to eight years and
absent realized capital gains, these capital loss carryforwards will expire
through the year 2004.
As a result of the Cash Management Reorganization, Cash Management
will undergo an ownership change, as defined under Section 382 of the Code. The
amount of Cash Management's capital loss carryforwards which can be taken into
account each year by Money Market to offset any realized capital gains will be
limited generally to an amount equal to the fair market value of Cash
Management on the date the Cash Management Reorganization is consummated
multiplied by the long-term tax-exempt rate in effect at that time.
The amount of such capital loss carryforwards may be different at the
Effective Time. The Cash Management Agreement does not provide for any
adjustment to the number of shares that Cash Management shareholders will
receive to reflect any potential income tax effect on the shareholders of Cash
Management 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 Money Market 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.
As of December 31, 1996, Income Fund had a capital loss carryforward
available to offset future capital gains of approximately $930,172. Under
Section 381 of the Code, Intermediate Government will succeed to the capital
loss carryforwards of Income Fund if, as described in "Additional Information
about
36
<PAGE> 48
the Agreements -- Federal Tax Consequences" above, the Income Fund
Reorganization qualifies as a "reorganization" under Section 368 (a) of the
Code. The carryforward period for capital losses is limited to eight years and
absent realized capital gains, these capital loss carryforwards will expire
through the year 2002.
As a result of the Income Fund Reorganization, Income Fund will
undergo an ownership change, as defined under Section 382 of the Code. The
amount of Income Fund's capital loss carryforwards which can be taken into
account each year by Intermediate Government to offset any realized capital
gains will be limited generally to an amount equal to the fair market value of
Income Fund on the date the Income Fund Reorganization is consummated
multiplied by the long-term tax-exempt rate in effect at that time.
The amount of such capital loss carryforwards may be different at the
Effective Time. The Income Fund Agreement does not provide for any adjustment
to the number of shares that Income Fund shareholders will receive to reflect
any potential income tax effect on the shareholders of Income Fund 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
Intermediate Government 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.
ACCOUNTING TREATMENT
The Reorganizations will be accounted for on a continuing entity
(pooling of interests without restatement) basis. Accordingly, the book cost
basis to Money Market of the assets of Cash Management will be the same as the
book cost basis of such assets to Cash Management, and the book cost basis to
Intermediate Government of the assets of Income Fund will be the same as the
book cost basis of such assets to Income Fund.
RIGHTS OF SHAREHOLDERS
AAFI is organized as a Maryland 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
AAFI.
There are, however, certain differences between the two forms of
organization. The operations of AAFI, as a Maryland corporation, are governed
by its Articles of Incorporation and applicable Maryland law. The operations of
AFG, as a Delaware business trust, are governed by its Agreement and
Declaration of Trust (the "Declaration of Trust") and Delaware law.
LIABILITY OF SHAREHOLDERS
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. There is, however,
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 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 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.
37
<PAGE> 49
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 likely not
impose a material obligation on a shareholder.
Shareholders of a Maryland corporation generally do not have personal
liability for a corporation's obligations, except a shareholder may be liable
to the extent that he receives any distribution which exceeds the amount which
he could properly receive under Maryland law.
ELECTION OF DIRECTORS/TRUSTEES; ANNUAL SHAREHOLDER MEETINGS
The shareholders of AFG initially elected the trustees of AFG and are,
thereafter, entitled to vote for the election of trustees only to the extent
such vote may be required by the 1940 Act, by the Declaration of Trust or by
AFG's By-Laws. AFG is not otherwise required to hold annual shareholder
meetings. The shareholders of AAFI initially elected the directors of AAFI and
are, thereafter, entitled to vote for the election of directors only to the
extent such vote may be required by the 1940 Act, by the Articles of
Incorporation or by AAFI's By-Laws. AAFI is not otherwise required to hold
annual shareholder meetings.
TERMS OF DIRECTORS/TRUSTEES
The Declaration of Trust provides that the trustees of AFG shall hold
office during the lifetime of AFG except as follows: (a) any trustees may
resign or retire; (b) any trustee may be removed by the other trustees or the
shareholders of the trust (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. AAFI's By-Laws provide that a
director shall hold office until the next election of directors is held or
until his successor is duly elected and qualified.
REMOVAL OF DIRECTORS/TRUSTEES
A trustee of AFG may be removed by a vote of two-thirds of the
outstanding shares at any meeting of the shareholders of AFG or at any time by
written instrument signed by at least two-thirds of the trustees and specifying
when such removal becomes effective. The Declaration of Trust provides that in
the case of refusal to serve, death, resignation, retirement or removal of a
trustee, the remaining trustees may either fill the vacancy or 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. AAFI's Articles of Incorporation do not specifically address removal
of a director. Under Maryland law, removal of a director requires the
affirmative vote of a majority of the votes entitled to be cast for the
election of directors.
38
<PAGE> 50
SPECIAL MEETINGS OF SHAREHOLDERS
AFG's Declaration of Trust provides that trustees may call special
meetings of shareholders. In addition, AFG's By-Laws 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. AAFI's By-Laws provide that a
special meeting of shareholders may be called by the chairman, president or the
Board of Directors and shall be called by the secretary upon the written
request of the holders of at least 25% of all the votes entitled to be cast at
such meeting.
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.
Under AAFI's Articles of Incorporation, to the fullest extent that
limitations on liability of directors and officers are permitted by Maryland
General Corporation law, no director or officer of AAFI shall have any
liability to AAFI or its shareholders for damages.
TERMINATION
AFG's Declaration of Trust provides that AFG may be terminated at any
time (i) by the vote of shareholders holding a majority of shares outstanding
provided that the Trustees have submitted the termination of AFG to the
shareholders for their approval or (ii) by the trustees by written notice to
shareholders, provided that as of the date on which they have determined to so
terminate there are fewer than 100 holders of record of AFG. Any portfolio of
AFG 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 Maryland law, AAFI may be dissolved by vote of a majority of the
directors, followed by the affirmative vote of two-thirds of AAFI's outstanding
stock.
VOTING RIGHTS OF SHAREHOLDERS
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) approve the termination of
AFG or any portfolio or class of shares of AFG, provided that a meeting of
shareholders has been called for that purpose, 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 of AFG or such terminating portfolio
or class of shares of AFG; (iv) approve the sale of all or substantially all of
the assets of AFG or of any portfolio or class of
39
<PAGE> 51
shares of AFG, unless the primary purpose of such sale is to change AFG's
domicile or form of organization or form of business trust; (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 form of
business trust, 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 Maryland corporation such as AAFI are entitled to
vote on numerous matters affecting the corporation (such as mergers or sales of
substantially all of the assets of the corporation) as provided by Maryland
corporation law.
DISSENTERS' RIGHTS
Under Maryland law, an AAFI shareholder may not demand the fair value
of his shares from the successor company in a transaction involving the
transfer of AAFI's assets, and is bound by the terms of the transaction,
because AAFI's stock is that of an open-end investment company registered with
the SEC under the 1940 Act and the value placed on the stock in the transaction
is its net asset value. Neither Delaware law nor AFG's Declaration of Trust or
Bylaws provides AFG's shareholders with dissenters' rights.
AMENDMENTS TO ORGANIZATION 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. Consistent with Maryland law, AAFI's Articles of
Incorporation provide that AAFI reserves the right to amend any provision
contained in the Articles of Incorporation in the manner now or hereafter
prescribed by statute, including any amendment that alters the contract rights,
as expressly set forth in the Articles of Incorporation, of any outstanding
capital stock. The Board of Directors of AAFI may approve amendments to the
Articles of Incorporation to classify or reclassify unissued shares of a class
of stock without shareholder approval.
OWNERSHIP OF MONEY MARKET, INTERMEDIATE
GOVERNMENT, CASH MANAGEMENT AND INCOME FUND SHARES
CONTROL PERSONS
Ownership of Intermediate Government
As of November 10, 1997, BSDT Cust. 403(b) Plan for First-Plymouth
Conge. Church FBO John M. Levick, Jr. owned of record 38,236.259 Class C shares
of Intermediate Government, or 42.22% of the outstanding shares of such class.
Ownership of Cash Management
As of November 10, 1997, INVESCO Services, Inc. owned of record
103,490.990 Class A shares of Cash Management, or 74.81% of the outstanding
shares of such class.
40
<PAGE> 52
Ownership of Income Fund
As of November 10, 1997, Florence A. Correll owned of record 517.878
Class A shares of Income Fund, or 58.295% of the outstanding shares of such
class.
Listed below is the name, address and percent ownership of each person
who as of November 10, 1997, to the knowledge of AFG, owned beneficially 5% or
more of the outstanding shares of Cash Reserve:
<TABLE>
<CAPTION>
Percent
Number of Beneficial
Name and Address Shares Owned Ownership
- ---------------- ------------ ---------
<S> <C> <C>
Charles T. Bauer & 24,470,268.630 6.712%
Ruth J. Bauer
11 Greenway Plaza
Suite 100
Houston, Texas 77046
</TABLE>
Listed below is the name, address and percent ownership of each person who as
of November 10, 1997, to the knowledge of AFG, owned beneficially 5% or more of
the outstanding shares of Intermediate Government:
<TABLE>
<CAPTION>
Percent
Number of Beneficial
Name and Address Shares Owned Ownership
- ---------------- ------------ ---------
<S> <C> <C>
Class A Shares
- --------------
Merrill Lynch Pierce Fenner & Smith 1,445,539.000 8 .426%
FBO the Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville, FL 32246
Class C Shares
- --------------
BSDT Cust. 403B Plan 38,236.259 42.224%
First-Plymouth Conge. Church FBO
John M. Levick, Jr.
2454 Ryons St.
Lincoln, NE 68502-4024
PaineWebber For the Benefit of 5,375.132 5 .936%
Mark T. Gilmore Cust. FBO
Laura Gilmore UGMA/CT
67 Tallwood Road
Southbury, CT 06488-2751
PaineWebber For the Benefit of 5,375.132 5.936%
Mark T. Gilmore Cust. FBO
Christopher Gilmore UGMA/CT
67 Tallwood Road
Southbury, CT 06488-2751
</TABLE>
41
<PAGE> 53
<TABLE>
<CAPTION>
Percent
Number of Beneficial
Name and Address Shares Owned Ownership
- ---------------- ------------ ---------
<S> <C> <C>
PaineWebber For the Benefit of 5,375.132 5.936%
Mark T. Gilmore Cust. FBO
Sarah Gilmore UGMA/CT
67 Tallwood Road
Southbury, CT 06488-2751
A.G. Edwards & Sons 5,319.149 5.874%
Custodian For
Merrill N. Werblun
IRA Account
1036 Kamehame Drive
Honolulu, HI 96826
Mary Lee Archer 4,785.428 5.285%
1222 N. Illinois
Wichita, KS 67203
Prudential Securities, Inc. FBO 4,740.424 5.235%
Mr. Marshall T. Polk III
P.O. Box 90148
Nashville, TN 37209-0148
</TABLE>
Listed below is the name, address and percent ownership of each person
who as of November 10, 1997, to the knowledge of AAFI, owned beneficially 5% or
more of the outstanding shares of Cash Management:
<TABLE>
<CAPTION>
Percent
Number of Beneficial
Name and Address Shares Owned Ownership
- ---------------- ------------ ---------
<S> <C> <C>
Class A Shares
- --------------
INVESCO Services, Inc. 103,490.990 74.809%
Attn: Tony Green
1355 Peachtree St. NE
Atlanta, GA 30306-3269
Middleton Savant and 26,153.090 18.905%
Sheila Johnson
26 Dunsford Dr.
Sullivan, MO 63080
</TABLE>
42
<PAGE> 54
Listed below is the name, address and percent ownership of each person
who as of November 10, 1997, to the knowledge of AAFI, owned beneficially 5% or
more of the outstanding shares of Income Fund:
<TABLE>
<CAPTION>
Percent
Number of Beneficial
Name and Address Shares Owned Ownership
- ---------------- ------------ ---------
<S> <C> <C>
Class A Shares
- --------------
Florence A. Correll 517.878 58.295%
1329 Nevada St.
Allentown, PA 18103-3006
NFSC FBO C7W-608904 193.836 21.819%
Lois M. Bove
FMT Co TTEE NFRP PS
UA 01 01 84
501 Atwood Ct.
Newtown, PA 18940-1755
INVESCO Services, Inc. 105.316 11.855%
Attn: Tony Green
1355 Peachtree St. NE
Atlanta, GA 30309-3269
PaineWebber For the Benefit of 71.345 8.031%
PaineWebber Cdn FBO
Molly Elizabeth Scarmoutsos
P.O. Box 3321
Weehawken, NJ 07087-8154
Class C Shares
- --------------
Merrill Lynch Pierce Fenner & Smith 51,263.00 10.498%
FBO the Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lane Dr. East
Jacksonville, FL 32246
</TABLE>
OWNERSHIP OF OFFICERS AND TRUSTEES/DIRECTORS
To the best of the knowledge of AFG, the beneficial ownership of
shares of Money Market and of Intermediate Government by officers and trustees
of AFG as a group constituted less than 1% of the outstanding shares of such
fund as of the date of this Proxy Statement/Prospectus; except that the
officers and trustees as a group owned 9.59% of the outstanding Cash Reserve
shares of Money Market. To the best of the knowledge of AAFI, the beneficial
ownership of shares of Cash Management and of Income Fund by officers or
directors of AAFI as a group constituted less than 1% of the outstanding shares
of such fund as of November 10, 1997.
43
<PAGE> 55
CAPITALIZATION
The following table sets forth as of September 30, 1997, (i) the
capitalization of Money Market Cash Reserve shares, (ii) the capitalization of
Cash Management Class A and Class C shares, and (iii) the pro-forma
capitalization of Money Market Cash Reserve shares as adjusted to give effect
to the transactions contemplated by the Cash Management Agreement.
<TABLE>
<CAPTION>
PRO FORMA
CASH MONEY MARKET
MONEY MARKET MANAGEMENT CASH RESERVE
CASH RESERVE CLASS A AND SHARES
SHARES CLASS C SHARES AS ADJUSTED
------ -------------- -----------
<S> <C> <C> <C>
Net Assets $273,947,980 $7,031,920 $280,979,900
Shares Outstanding 273,927,309 7,032,374 280,959,683
Net Asset Value Per Share $ 1.00 $ 1.00 $ 1.00
</TABLE>
The following table sets forth as of September 30, 1997, (i) the
capitalization of Intermediate Government Class A shares, (ii) the
capitalization of Income Fund Class A shares, and (iii) the pro-forma
capitalization of Intermediate Government Class A shares as adjusted to give
effect to the transactions contemplated by the Income Fund Agreement:
<TABLE>
<CAPTION>
PRO FORMA
INTERMEDIATE
INTERMEDIATE GOVERNMENT
GOVERNMENT INCOME FUND CLASS A SHARES
CLASS A SHARES CLASS A SHARES AS ADJUSTED
--------------- -------------- --------------
<S> <C> <C> <C>
Net Assets $157,095,768 $ 50,912 $157,146,680
Shares Outstanding 16,789,490 1,037,453 16,794,929
Net Asset Value Per Share $ 9.36 $ 49.07 $ 9.36
</TABLE>
The following table sets forth as of September 30, 1997, (i) the
capitalization of Intermediate Government Class C shares (ii) the
capitalization of Income Fund Class C shares, and (iii) the pro forma
capitalization of Intermediate Government Class C shares as adjusted to give
the effect to the transactions contemplated by the Income Fund Agreement:
44
<PAGE> 56
<TABLE>
<CAPTION>
PRO FORMA
INTERMEDIATE
INTERMEDIATE GOVERNMENT
GOVERNMENT INCOME FUND CLASS C SHARES
CLASS C SHARES CLASS C SHARES AS ADJUSTED
-------------- -------------- -----------
<S> <C> <C> <C>
Net Assets $1,368,595 $ 24,552,143 $ 25,920,738
Shares Outstanding 146,350 498,328 2,772,299
Net Asset Value Per Share $ 9.35 $ 49.27 $ 9.35
</TABLE>
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Money
Market and Intermediate Government 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 AAFI 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 AAFI's registration statement containing the Prospectus and
Statement of Additional Information relating to Cash Management and Income Fund
is Registration No. 2-87377. Such Prospectus and Statement of Additional
Information are incorporated herein by reference. The SEC file number for AFG's
registration statement containing the Prospectus and Statement of Additional
Information relating to Money Market and Intermediate Government is
Registration No. 2-27334. Such Prospectus and Statement of Additional
Information are incorporated herein by reference.
AFG and AAFI 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 AAFI and AFG (including the Registration Statement of AFG relating to
Money Market and Intermediate Government 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.
45
<PAGE> 57
ADDITIONAL INFORMATION ABOUT MONEY MARKET,
INTERMEDIATE GOVERNMENT, CASH MANAGEMENT AND INCOME FUND
For more information with respect to AFG and Money Market and
Intermediate Government 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 Money Market and
Intermediate Government; (ii) see the discussion "Summary," "Investment
Objectives and Policies," "Investment Restrictions," "Repurchase Agreement and
Reverse Repurchase Agreements" and "Ratings of Securities" for further
information regarding investment objectives and polices of Money Market and
Intermediate Government; (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
Money Market and Intermediate Government; (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 Money Market and Intermediate Government shares.
For more information with respect to AAFI and Cash Management and
Income Fund concerning the following topics, please refer to the AAFI
Prospectus as indicated: (i) see the discussion "Summary," "About the Funds,"
"Investment Programs," "Management" and "General Information" for further
information regarding AAFI and Cash Management and Income Fund; (ii) see the
discussion "Summary," "Investment Programs," "Management" and "General
Information" for further information regarding management of Cash Management
and Income Fund; (iii) see the discussion "Summary," "Management,"
"Miscellaneous," "Dividends, Distributions and Tax Matters" and "General
Information" for further information regarding the capital stock of Cash
Management and Income Fund; (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 Cash Management and Income Fund shares.
46
<PAGE> 58
APPENDIX I
AGREEMENT
and
PLAN OF REORGANIZATION
for
AIM ADVISOR CASH MANAGEMENT FUND
a Portfolio of
AIM ADVISOR FUNDS, INC.
<PAGE> 59
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1. Reorganization of Cash Management Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2. Computation of Net.Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3. Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.4. Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.5. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.6. Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.7. Issuance of AFG Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.8. Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.9 Liabilities and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AAFI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1. Incorporation: Qualification and Corporate Authority . . . . . . . . . . . . . . . . . . . 7
Section 3.2. Registration and Regulation of AAFI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.3. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.4. No Material Adverse Changes; Contingent Liabilities . . . . . . . . . . . . . . . . . . . . 8
Section 3.5. CMF Shares; Liabilities; Business Operations . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.6. Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.7. Binding Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.8. No Breaches or Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.9. Authorizations or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.10. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.11. No Actions, Suits or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.12. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.13. Properties and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.15. Benefit and Employment Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.16. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.17. Voting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.18. State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.19. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.20. Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AFG. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1. Organization; Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2. Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
<PAGE> 60
<TABLE>
<S> <C>
Section 4.3. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.4. No Material Adverse Changes; Contingent Liabilities . . . . . . . . . . . . . . . . . . . 13
Section 4.5. No Breaches or Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.6. Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.7. Authorizations or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.8. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.9. No Actions, Suits or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.11. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.12. Registration and Regulation of Company . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.13. Registration of Money Market Portfolio Cash Reserve Shares . . . . . . . . . . . . . . . 15
Section 4.14. Representations Concerning the Reorganization . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.15. Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.1. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.2. Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.4. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.5. Notice of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.6. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.7. Consents, Approvals and Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.8. Submission of Agreement to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.1. Conditions Precedent of AFG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6.2. Mutual Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.3. Conditions Precedent of AAFI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VII
TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.2. Survival After Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.1. Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.2. Law Governing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.3. Binding Effect, Persons Benefiting, No Assignment . . . . . . . . . . . . . . . . . . . . 23
Section 8.4. Obligations of AFG and AAFI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.5. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.6. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.7. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.8. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.9. Entire Agreement; Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
<PAGE> 61
<TABLE>
<S> <C> <C>
Section 8.10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Schedule 6.1(d) - Opinion of Counsel to AIM Advisor Cash Management Fund
Schedule 6.2(f) - Tax Opinions
Schedule 6.3(d) - Opinion of Counsel to AFG
</TABLE>
<PAGE> 62
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of September
25, 1997 (this "Agreement"), by and between AIM Advisor Funds, Inc., a
Maryland corporation ("AAFI"), acting on behalf of AIM Advisor Cash Management
Fund ("Cash Management Fund"), and AIM Funds Group, a Delaware business trust
("AFG"), acting on behalf of AIM Money Market Fund (the "Money Market
Portfolio").
WITNESSETH
WHEREAS, AAFI 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 seven investment portfolios, including Cash Management Fund, 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 Money
Market Portfolio, for sale to the public; and
WHEREAS, Cash Management Fund owns securities in which the
Money Market Portfolio is permitted to invest; and
WHEREAS, Cash Management Fund desires to provide for its
reorganization through the transfer of substantially all of its assets to the
Money Market Portfolio in exchange for shares of the Money Market 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 AAFI agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. (a) For all purposes in this
Agreement, the following terms shall have the respective meanings set forth in
this Section 1.1 (such definitions to be equally applicable to both the
singular and plural forms of the terms herein defined):
"AAFI" means AIM Advisor Funds, Inc., a Maryland corporation.
<PAGE> 63
"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.
"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 AAFI
on behalf of Cash Management Fund, or otherwise providing benefits to any
current or former employee, officer or director of AAFI.
"Cash Management Fund" means AIM Advisor Cash Management Fund,
a portfolio of AAFI.
"CMF Financial Statements" shall have the meaning set forth in
Section 3.3 of this Agreement.
"CMF Shareholders" means the holders of record as of the
Closing Date of the issued and outstanding shares of the capital stock of Cash
Management Fund.
"CMF Shareholders Meeting" means a meeting of the shareholders
of Cash Management Fund convened in accordance with applicable law and the
articles of incorporation of AAFI to consider and vote upon the approval of
this Agreement and the transactions contemplated by this Agreement.
"CMF Shares" means the issued and outstanding shares of the
capital stock of Cash Management Fund.
"Closing" means the transfer of the assets of Cash Management
Fund against the delivery of Money Market Portfolio Cash Reserve Shares
directly to the shareholders of Cash Management Fund as described in Section
2.1 of this Agreement.
"Closing Date" means March 2, 1998, or such other date as the
parties may mutually determine.
"Code" means the Internal Revenue Code of 1986, as amended.
2
<PAGE> 64
"Custodian" means State Street Bank and Trust Company acting
in its capacity as custodian for the assets of the Money Market Portfolio.
"Effective Time" shall mean 7:00 a.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.
"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.
"Money Market Portfolio" means AIM Money Market Fund, an
investment portfolio of AFG.
"Money Market Portfolio Cash Reserve Shares" means Cash
Reserve Shares of the Money Market Portfolio issued by AFG, each representing
an interest in the Money Market Portfolio.
"Money Market Portfolio Financial Statements" shall have the
meaning set forth in Section 4.3 of this Agreement.
"Person" means an individual or a corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of certain of the
assets of Cash Management Fund by the Money Market Portfolio in consideration
of the issuance of Money
3
<PAGE> 65
Market Portfolio Cash Reserve Shares directly to CMF Shareholders as described
in this Agreement.
"Required CMF Shareholder Vote" shall have the meaning set
forth in Section 3.19 of this Agreement.
"Return" means any return, report or form or any attachment
thereto required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and all rules and regulations adopted by the SEC pursuant thereto.
"Tax" means any tax or similar governmental charge, impost or
levy (including, without limitation, income taxes (including, without
limitation, alternative minimum tax and estimated tax), franchise taxes,
transfer taxes or fees, sales taxes, use taxes, gross receipts taxes, value
added taxes, employment taxes, excise taxes, ad valorem taxes, property taxes,
withholding taxes, payroll taxes, minimum taxes, or windfall profit taxes),
together with any related penalties, fines, additions to tax or interest,
imposed by the United States or any state, county, local or foreign government
or subdivision or agency thereof.
"Valuation Date" shall have the meaning set forth in Section
2.4 of this Agreement.
ARTICLE II
TRANSFER OF ASSETS
Section 2.1. Reorganization of Cash Management Fund. At
the Effective Time, all of the assets of Cash Management Fund, except the
Excluded Assets, shall be delivered to the Custodian for the account of the
Money Market Portfolio, in exchange for, and against delivery by AFG directly to
the CMF Shareholders at the opening of business on the Closing Date of a number
of Money Market Portfolio Cash Reserve 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 the Cash Management Fund so
transferred, assigned and delivered, all determined and adjusted as provided in
Section 2.2 below. Upon delivery of such assets, the Money Market 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 Money Market Portfolio
Cash Reserve Shares and the net value of the assets of Cash Management Fund
subject to this Agreement shall, in each case, be determined as of the close of
business on the NYSE on the Valuation Date.
4
<PAGE> 66
(b) The net asset value of the Money Market Portfolio
Cash Reserve Shares shall be computed in accordance with the policies and
procedures of the Money Market Portfolio as described in the AFG Registration
Statement.
(c) The net value of the assets of Cash Management Fund
subject to this Agreement shall be computed by AFG and shall be subject to
adjustment by the amount, if any, agreed to by AAFI and AFG. In determining
the value of the securities transferred by Cash Management Fund to the Money
Market Portfolio, each security shall be priced in accordance with the policies
and procedures of the Money Market 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 AAFI. Securities for which market quotes are not
available shall be valued as mutually agreed by AFG and AAFI, 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 AAFI, who will apply certain procedures agreed to by AFG and
AAFI to test such computations.
Section 2.3. Excluded Assets. There shall be deducted
from the assets of Cash Management Fund described in Section 2.1 all
organizational expenses, any prepaid expenses that would not have value to the
Money Market Portfolio and cash in an amount estimated by AAFI to be sufficient
to pay all the liabilities of Cash Management Fund, including, without
limitation, (i) amounts owed or to be owed to any CMF 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 Cash Management Fund in making and carrying out the transactions
contemplated by this Agreement.
Section 2.4. Valuation Date. The assets of Cash
Management Fund and the net asset value per share of the Money Market Portfolio
Cash Reserve 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 Cash Management Fund will be permanently closed as of
the close of business on the Valuation Date and only requests for the
redemption of shares of Cash Management Fund received in proper form prior to
the close of trading on the NYSE on the Valuation Date shall be accepted by
Cash Management Fund. Redemption requests thereafter received by Cash
Management Fund shall be deemed to be redemption requests for Money Market
Portfolio Cash Reserve Shares (assuming that the transactions contemplated by
this Agreement have been consummated) to be distributed to CMF Shareholders
under this Agreement.
Section 2.5. Delivery.
(a) Assets held by Cash Management Fund shall be
delivered by AAFI to the Custodian on the Closing Date. No later than three
(3) business days preceding the Closing Date, AAFI shall instruct Cash
Management Fund's custodian to make such delivery to the Custodian. AAFI shall
further instruct Cash Management Fund's custodian that any trade made by Cash
Management Fund 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
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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 Cash Management Fund (other than cash held as part of the Excluded
Assets) shall be delivered on the Closing Date and shall be in the form of
currency or wire transfer in Federal funds, payable to the order of the account
of the Money Market Portfolio at the Custodian.
(b) If, on the Closing Date, AAFI is unable to make
delivery in the manner contemplated by Section 2.5(a) of securities held by
Cash Management Fund for the reason that any of such securities purchased prior
to the Closing Date have not yet been delivered to Cash Management Fund, its
broker or brokers, then, AFG shall waive the delivery requirements of Section
2.5(a) with respect to said undelivered securities, if Cash Management Fund 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, Cash Management Fund shall pay or make
provisions for all of its debts, liabilities and taxes and distribute all
remaining assets to the CMF Shareholders, and Cash Management Fund's status as
a designated series of shares of AAFI shall be terminated, provided that, in
the event that the transactions contemplated herein are not approved by the CMF
Shareholders, AAFI shall not be obligated to so terminate Cash Management
Fund's designation as a series of shares.
Section 2.7. Issuance of AFG Shares. At the Closing
Date, AAFI shall instruct AFG that the pro rata interest of each of CMF
Shareholders of record as of the close of business on the Valuation Date, as
certified by Cash Management Fund's transfer agent, in Money Market Portfolio
Cash Reserve Shares to holders of Class A Shares and Class C Shares of Cash
Management Fund, be registered on the books of AFG in full and fractional
shares in the name of each CMF Shareholder, and AFG agrees promptly to comply
with said instruction. All issued and outstanding shares of Cash Management
Fund's capital stock shall thereupon be canceled on the books of AAFI. 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 Money Market Portfolio Cash Reserve Shares by CMF Shareholders
and shall forward a confirmation of such ownership to the CMF Shareholders. No
redemption or repurchase of such shares credited to former CMF Shareholders in
respect of Cash Management Fund 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. On or prior to the
Valuation Date, AAFI shall deliver a list setting forth the securities Cash
Management Fund then owns together with the respective Federal income tax bases
thereof. AAFI 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
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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 Money Market Portfolio hereunder. Such
records shall be made available by AAFI 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 Money Market
Portfolio shall not assume any liability of Cash Management Fund and Cash
Management Fund 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 AAFI
AAFI, on behalf of Cash Management Fund, represents and
warrants to AFG that:
Section 3.1. Incorporation: Qualification and Corporate
Authority. AAFI has been duly incorporated and is validly existing and in
active status under the laws of the State of Maryland with all requisite
corporate power and authority to conduct its business as presently conducted.
Section 3.2. Registration and Regulation of AAFI. AAFI
is duly registered with the SEC as an investment company under the Investment
Company Act and all CMF 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 AAFI
to revoke or rescind any such registration or qualification. Cash Management
Fund 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.
Cash Management Fund 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 Cash Management
Fund is determined using portfolio valuation methods that comply in all
material respects with the requirements of the Investment Company Act and the
policies of Cash Management Fund and all purchases and redemptions of CMF
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 Cash Management Fund 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, 1996 of Cash Management Fund, and the unaudited
financial statements dated June 30, 1997 of Cash Management Fund, previously
delivered to AFG (the "CMF Financial Statements") present fairly in all
material respects the financial position of Cash Management Fund as at the
dates indicated and the results of operations and changes in net assets for the
periods then ended in
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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 June 30, 1997, no material adverse change has occurred in
the financial condition, results of operations, business, assets or liabilities
of Cash Management Fund or the status of Cash Management Fund 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 Cash Management Fund or occurring in the ordinary
course of business of Cash Management Fund or AAFI. There are no contingent
liabilities of Cash Management Fund not disclosed in the CMF Financial
Statements which are required to be disclosed in accordance with generally
accepted accounting principles.
Section 3.5. CMF Shares; Liabilities; Business Operations.
(a) The CMF Shares have been duly authorized and
validly issued and are fully paid and non- assessable.
(b) There is no plan or intention by the shareholders
of Cash Management Fund who own five percent (5%) or more of the CMF Shares,
and to the knowledge of AAFI's management, the remaining CMF Shareholders have
no present plan or intention of selling, exchanging, redeeming or otherwise
disposing of a number of the Money Market Portfolio Cash Reserve Shares
received by them in connection with the Reorganization that would reduce the
CMF Shareholders' ownership of Money Market Portfolio Cash Reserve 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 CMF Shares as of
the same date. For purposes of this representation, CMF Shares exchanged for
cash or other property or exchanged for cash in lieu of fractional shares of
the Money Market Portfolio will be treated as outstanding CMF Shares on the
date of the Reorganization. Moreover, CMF Shares and Money Market Portfolio
Cash Reserve Shares held by CMF Shareholders and otherwise sold, redeemed or
disposed of prior or subsequent to the Reorganization will be considered in
making this representation, except for CMF Shares or Money Market Portfolio
Cash Reserve Shares which have been, or will be, redeemed by Cash Management
Fund or the Money Market 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, Cash Management
Fund shall not have outstanding any warrants, options, convertible securities
or any other type of right pursuant to which any Person could acquire CMF
Shares, except for the right of investors to acquire CMF 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
19, 1983 (as INVESCO Advisor Cash Management Fund) and ending on the Closing
Date, Cash Management Fund 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, Cash
Management Fund will not dispose of assets that, in
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the aggregate, will result in less than fifty percent (50%) of its historic
business assets being transferred to the Money Market Portfolio.
(e) AAFI 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 CMF Financial Statements for the period ended December 31,
1996, 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 AAFI on behalf of Cash
Management Fund and, assuming this Agreement has been duly executed and
delivered by AFG and approved by the CMF Shareholders, constitutes the legal,
valid and binding obligation of AAFI, enforceable against AAFI in accordance
with its terms from and with respect to the revenues and assets of Cash
Management Fund, 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 AAFI on behalf of Cash Management Fund and
performance of its obligations hereunder has been duly authorized by all
necessary corporate action on the part of AAFI, other than CMF 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 AAFI 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 Cash Management Fund (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 AAFI
is a party or by which it may be bound and which relates to the assets of Cash
Management Fund or to which any of Cash Management Fund'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 AAFI or any of Cash Management Fund's properties. AAFI is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
Section 3.9. Authorizations or Consents. Other than
those which shall have been obtained or made on or prior to the Closing Date
and those that must be made after the Closing Date to comply with Section 2.6
of this Agreement, no authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority will be required to be
obtained or made by AAFI in connection with the due execution and delivery by
AAFI of this Agreement and the consummation by AAFI of the transactions
contemplated hereby.
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Section 3.10. Permits. AAFI 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 Cash Management Fund, 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 AAFI 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 AAFI, has any litigation been overtly
threatened in writing or orally, against AAFI 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
AAFI, threatened in writing or, if probable of assertion, orally against AAFI
affecting any property, asset, interest, or right of Cash Management Fund, that
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect with respect to Cash Management Fund. 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 AAFI's conduct of the business of
Cash Management Fund affecting in any significant respect the conduct of such
business. AAFI is not, and has not been, to the knowledge of AAFI, the target
of any investigation by the SEC or any state securities administrator with
respect to its conduct of the business of Cash Management Fund.
Section 3.12. Contracts. AAFI 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 Cash Management Fund, by which the assets, business, or operations of
Cash Management Fund may be bound or affected, or under which it or the assets,
business or operations of Cash Management Fund 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 AAFI, 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. Cash Management
Fund has good and marketable title to all properties and assets reflected in
the CMF Financial Statements as owned by it, free and clear of all Liens,
except as described in the CMF Financial Statements.
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Section 3.14. Taxes.
(a) Cash Management Fund has elected to be treated as a
regulated investment company under Subchapter M of the Code. Cash Management
Fund 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 Cash Management Fund as a "regulated investment
company" for tax purposes and (ii) eliminate any tax liability of Cash
Management Fund arising by reason of undistributed investment company taxable
income or net taxable gain, AAFI will declare to the CMF 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
Cash Management Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended
December 31, 1997 and for the short taxable year beginning on January 1, 1998
and ending on the Closing Date and (B) all of Cash Management Fund's net
capital gains realized in its taxable year ended December 31, 1997 and in such
short taxable year (after reduction for any capital loss carryover).
(b) Cash Management Fund 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 Cash Management
Fund 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 Cash Management
Fund, 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 Cash Management Fund is currently being or has been
audited with respect to income taxes or other Taxes by any Federal, state,
local, or foreign Tax authority.
(c) Cash Management Fund's fiscal year has not been
changed for tax purposes since the date on which it commenced operations.
Section 3.15. Benefit and Employment Obligations. On or
prior to the Closing Date, Cash Management Fund 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 3.16. Brokers. No broker, finder or similar
intermediary has acted for or on behalf of AAFI or Cash Management Fund 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 AAFI or any action taken by
it.
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Section 3.17. Voting Requirements; Dissenter's Rights.
The affirmative votes of a majority of the holders of the outstanding CMF
Shares (the "Required CMF Shareholder Vote") are the only votes of the holders
of any class or series of Cash Management Fund's capital stock necessary to
approve this Agreement and the transactions contemplated by this Agreement.
The CMF Shareholders may not exercise dissenter's rights granted under the
Maryland Business Corporation Law with respect to the Reorganization.
Section 3.18. 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 3.19. Books and Records. The books and records
of AAFI relating to Cash Management Fund, reflecting, among other things, the
purchase and sale of CMF Shares by CMF Shareholders, the number of issued and
outstanding shares owned by each CMF Shareholder and the state or other
jurisdiction in which such shares were offered and sold, are complete and
accurate in all material respects.
Section 3.20. Prospectus. The current prospectus and
statement of additional information for Cash Management Fund 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 Cash Management Fund, or any supplement
thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AFG
AFG, on behalf of the Money Market Portfolio, represents and
warrants to AAFI 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 AAFI, 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 Money Market
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).
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Section 4.3. Financial Statements. The books of account
and related records of the Money Market 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, 1996 of the Money Market Portfolio, and
unaudited financial statements dated June 30, 1997 of the Money Market
Portfolio, previously delivered to AAFI (the "Money Market Portfolio Financial
Statements") present fairly in all material respects the financial position of
the Money Market Portfolio as at the dates indicated and the results of
operations and changes in net assets 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 June 30, 1997, no material adverse change has occurred in
the financial condition, results of operations, business, assets or liabilities
of the Money Market Portfolio or the status of the Money Market 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 Money Market Portfolio or occurring
in the ordinary course of business of the Money Market Portfolio or AFG. There
are no contingent liabilities of the Money Market Portfolio not disclosed in
the Money Market Portfolio Financial Statements which are required to be
disclosed in accordance with generally accepted accounting principles.
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 Money Market
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 Money Market Portfolio or to
which any properties of the Money Market 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 Money Market Portfolio's properties.
Section 4.6. Accountants. KPMG Peat Marwick LLP, which
has reported upon the Money Market Portfolio Financial Statements for the
period ended December 31, 1996, 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
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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 Money Market 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.
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 Money Market
Portfolio, that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect with respect to the Money Market
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 Money Market 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 Money Market Portfolio.
Section 4.10. Taxes.
(a) The Money Market Portfolio has elected to be
treated as a regulated investment company under Subchapter M of the Code. The
Money Market Portfolio has qualified as such for each taxable year since
inception that has ended prior to the Closing Date.
(b) The Money Market 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 Money
Market 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
Money Market Portfolio, and no deficiency has been proposed, assessed or
asserted, in
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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 Money Market Portfolio is currently being
or has been audited with respect to income taxes or other Taxes by any Federal,
state, local, or foreign Tax authority.
(c) The Money Market Portfolio's fiscal year has not
been changed for tax purposes since the date on which it commenced operations.
Section 4.11. Brokers. No broker, finder or similar
intermediary has acted for or on behalf of AFG or the Money Market 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 4.12. 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 Money
Market 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 Money Market 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 Money Market Portfolio is determined using portfolio valuation methods
that comply in all material respects with the requirements of the Investment
Company Act.
Section 4.13. Registration of Money Market Portfolio
Cash Reserve Shares.
(a) The shares of beneficial interest of AFG are divided into
nine portfolios, including the Money Market Portfolio. The Money Market
Portfolio has four classes of shares, Class A Shares, Class B Shares, Class C
Shares and Cash Reserve 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 Money Market Portfolio.
(b) The Money Market Portfolio Cash Reserve 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 Money Market Portfolio Cash Reserve 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 Money Market Portfolio
shall not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any Person could acquire Money Market
Portfolio Cash Reserve Shares, except for the right of investors to acquire
Money Market Portfolio Cash
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Reserve 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 AAFI and CMF Shareholders entitled
to vote at the CMF Shareholders Meeting. The Combined Proxy
Statement/Prospectus and related Statement of Additional Information of the
Money Market 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 AAFI for
inclusion in the Combined Prospectus/Proxy Statement.
(e) The shares of the Money Market Portfolio which have
been or are being offered for sale (other than Money Market Portfolio Cash
Reserve 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 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 4.14. Representations Concerning the Reorganization.
(a) AFG has no plan or intention to reacquire any of
the Money Market Portfolio Cash Reserve Shares issued in the Reorganization,
except to the extent that the Money Market Portfolio is required by the
Investment Company Act to redeem any of its shares presented for redemption.
(b) The Money Market Portfolio has no plan or intention
to sell or otherwise dispose of any of the assets of Cash Management Fund
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 Money Market
Portfolio will continue the "historic business" of Cash Management Fund (within
the meaning of Section 1.368-1(d) of the Income Tax Regulations under the Code)
or use a significant portion of Cash Management Fund's historic business assets
in a business.
Section 4.15. Prospectus. The current prospectus and
statement of additional information for the Money Market 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.
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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), AAFI shall conduct the business of Cash Management
Fund 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 Cash
Management Fund in the ordinary course in all material respects. Without
limiting the generality of the foregoing, AAFI shall not do any of the
following with respect to Cash Management Fund 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 Cash Management Fund taken as a whole, except
purchases of assets in the ordinary course of business consistent with
past practice;
(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 Cash Management Fund, guarantee any debt securities of another
Person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another Person, or enter into any
arrangement having the economic effect of any of the foregoing;
(vi) settle or compromise any income tax liability
or make any material tax election;
(vii) pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than in the ordinary
course of business;
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(viii) change its methods of accounting, except as
required by changes in generally accepted accounting principles as
concurred in by its independent auditors, or change its fiscal year;
(ix) make or agree to make any material severance,
termination, indemnification or similar payments except pursuant to
existing agreements; or
(x) adopt any Benefit Plan.
(b) From the date of this Agreement up to and including
the Closing Date (or, if earlier, the date upon which this Agreement is
terminated pursuant to Article VII), AFG shall conduct the business of the
Money Market 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 Money Market Portfolio in the ordinary course in all material
respects.
Section 5.2. Announcements. Promptly following
execution and delivery of this Agreement, AAFI and AFG shall agree upon and
release a mutually acceptable press release and AAFI shall give any and all
notices required to be given by law.
Section 5.3. Expenses. Cash Management Fund and the
Money Market 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 AAFI, and AAFI 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 AAFI, 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 AAFI, 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.
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Section 5.6. Access to Information.
(a) AAFI will, during regular business hours and on reasonable
prior notice, allow AFG and its authorized representatives reasonable access to
the books and records of AAFI pertaining to the assets of Cash Management Fund
and to employees of AAFI knowledgeable thereof; provided, however, that any
such access shall not significantly interfere with the business or operations
of AAFI.
(b) AFG will, during regular business hours and on reasonable
notice, allow AAFI and its authorized representatives reasonable access to the
books and records of AFG pertaining to the assets of the Money Market 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
AAFI 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 AAFI 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
AAFI 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.
AAFI shall take all action necessary in accordance with applicable law and its
articles of incorporation and by-laws to convene the CMF Shareholders Meeting.
AAFI shall, through its Board of Directors, recommend to the CMF Shareholders
approval of this Agreement and the other transactions contemplated by this
Agreement. AAFI shall use its reasonable best efforts to hold the CMF
Shareholders Meeting as soon as practicable after the date hereof.
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 AAFI on
behalf of Cash Management Fund set forth in this Agreement shall be true and
correct in all material respects
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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) AAFI 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 AAFI on behalf of
AAFI, in such individual's capacity as an officer of AAFI 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 AAFI 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
Ballard Spahr Andrews & Ingersoll, counsel to AAFI, 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 AAFI
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 AAFI 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 AAFI 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 CMF Shareholders
Meeting by the shareholders of Cash Management Fund on the record date by the
Required CMF Shareholder Vote.
(c) The assets of Cash Management Fund to be acquired
by the Money Market 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 Cash Management Fund immediately prior to the Reorganization.
For purposes of this Section 6.2(c), assets used by Cash Management Fund to pay
the expenses it incurs in connection with this Agreement and the Reorganization
and to effect all shareholder redemptions and distributions (other than
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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 Cash Management Fund's business
as an open-end diversified management investment company) after the date of
this Agreement shall be included as assets of Cash Management Fund 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 Money Market Portfolio Cash Reserve Shares to be issued
to CMF Shareholders in connection with the Reorganization shall have become
effective under the Securities Act and no stop order 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) AAFI 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 AAFI and AFG, set forth on Schedule 6.2(f).
(g) The dividend or dividends described in the last
sentence of Section 3.14(a) shall have been declared.
Section 6.3. Conditions Precedent of AAFI. The
obligation of AAFI 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 AAFI.
(a) The representations and warranties of AFG on behalf
of the Money Market 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) AAFI 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.
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(d) AAFI shall have received the signed opinion of
Ballard Spahr Andrews & Ingersoll, counsel to AFG, or other counsel reasonably
acceptable to AAFI, in form and substance reasonably acceptable to counsel for
AAFI, 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 AAFI and AFG;
and
(ii) at the election of AAFI or AFG:
(A) if the Closing Date shall not be on or
before June 30, 1998, 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 CMF Shareholders Meeting
or any adjournment thereof, the Required CMF 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.
(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 5.3.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1. Nonsurvival of Representations and
Warranties. Except as set for those contained in Sections 2.6, 3.5, 3.15(a)
and 4.14, 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 AAFI.
(a) AAFI and AFG hereby acknowledge and agree that the
Money Market Portfolio is a separate investment portfolio of AFG, that AFG is
executing this Agreement on behalf of the Money Market 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 Money Market Portfolio.
AAFI 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) AAFI and AFG hereby acknowledge and agree that Cash
Management Fund is a separate investment portfolio of AAFI, that AAFI is
executing this Agreement on behalf of Cash Management Fund and that any amounts
payable by AAFI under or in connection with this Agreement shall be payable
solely from the revenues and assets of Cash Management Fund.
Section 8.5. Amendments. This Agreement may not be
amended, altered or modified except by a written instrument executed by AAFI
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
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the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in any court of the United States or any state having
jurisdiction, in addition to any other remedy to which they are entitled at law
or in equity.
Section 8.7. Interpretation. When a reference is made
in this Agreement to a Section or Schedule, such reference shall be to a
Section of, or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation". Each representation and warranty contained in Article
III or IV that relates to a general category of a subject matter shall be
deemed superseded by a specific representation and warranty relating to a
subcategory thereof to the extent of such specific representation or warranty.
Section 8.8. Counterparts. This Agreement may be
executed in counterparts, each of which shall be deemed an original and each of
which shall constitute one and the same instrument.
Section 8.9. Entire Agreement; Schedules. This
Agreement, including the Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with
respect to such subject matter.
Section 8.10. Notices. All notices, requests, demands
and other communications hereunder shall be in writing and shall be deemed to
have been duly given when delivered by hand or by overnight courier, two days
after being sent by registered mail, return receipt requested, or when sent by
telecopier (with receipt confirmed), provided, in the case of a telecopied
notice, a copy is also sent by registered mail, return receipt requested, or by
courier, addressed as follows (or to such other address as a party may
designate by notice to the other):
(a) If to AFG:
AIM Funds Group
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Attn: Carol F. Relihan, Esq.
Fax: (713) 993-9185
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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 AAFI:
AIM Funds Group
11 Greenway Plaza, Suite 100
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
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
AIM ADVISOR FUNDS, INC., acting
on behalf of AIM Advisor Cash Management Fund
By: /s/ Robert H. Graham
--------------------------------------
AIM FUNDS GROUP, acting
on behalf of AIM Money Market Fund
By: /s/ Robert H. Graham
--------------------------------------
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Schedule 6.1(d)
OPINION OF COUNSEL TO AIM Advisor Cash Management Fund
1. AAFI is a corporation duly incorporated and validly existing
under the laws of the State of Maryland.
2. AAFI 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
AAFI have been duly authorized and approved by all requisite
corporate action on the part of AAFI. The Agreement has been
duly executed and delivered by AAFI and constitutes the valid
and binding obligation of Cash Management Fund.
4. The CMF Shares outstanding on the date hereof have been duly
authorized and validly issued, are fully paid and are
non-assessable.
5. AAFI 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 AAFI or who has devoted substantive
attention on behalf of AAFI 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 Cash
Management Fund (i) with respect to the Agreement or (ii) which involves in
excess of $500,000 in damages.
<PAGE> 88
Schedule 6.2(g)
Tax Opinions.
(i) The transfer of the assets of Cash
Management Fund to the Money Market Portfolio in exchange for the
Portfolio Shares distributed directly to the CMF Shareholders, as
provided in the Agreement, will constitute a "reorganization" within
the meaning of Section 368(a) of the Code and that Cash Management
Fund 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
Cash Management Fund as a result of such transaction.
(iii) In accordance with Section 1032 of the
Code, no gain or loss will be recognized by the Money Market Portfolio
upon the receipt of assets of Cash Management Fund in exchange for
Money Market Portfolio Cash Reserve Shares issued directly to the CMF
Shareholders
(iv) In accordance with Section 354(a)(1) of the
Code, no gain or loss will be recognized by CMF Shareholders on
issuance by AFG of Money Market Portfolio Cash Reserve Shares in
exchange for their CMF Shares.
(v) In accordance with Section 362(b) of the
Code, the basis to the Money Market Portfolio of the assets of Cash
Management Fund transferred to it will be the same as the basis of
such assets in the hands of Cash Management Fund immediately prior to
the exchange.
(vi) In accordance with Section 358(a) of the
Code, a CMF Shareholder's basis for Money Market Portfolio Cash
Reserve Shares issued to such CMF Shareholder pursuant to Section 2.7
of the Agreement ("Issued Shares") will be the same as his basis for
CMF Shares.
(vii) In accordance with Section 1223(1) of the
Code, a CMF Shareholder's holding period for Money Market Portfolio
Cash Reserve Shares will be determined by including said CMF
Shareholder's holding period for CMF Shares exchanged therefor,
provided that CMF Shareholder held such CMF Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the
Code, the holding period with respect to the assets of Cash Management
Fund transferred to the Money Market Portfolio will include the
holding period for such assets in the hands of Cash Management Fund.
<PAGE> 89
(ix) In accordance with Section 381(a)(2) of the
Code, the Money Market Portfolio will succeed to and take into account
the items of Cash Management Fund described in Section 381(c) of the
Code, subject to the conditions and limitations specified in Sections
381 through 384 of the Code and the Internal Revenue Service
regulations thereunder.
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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 Money Market Portfolio.
4. The Money Market Portfolio Cash Reserve 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 Money
Market Portfolio (i) with respect to the Agreement or (ii) which involves in
excess of $500,000 in damages.
<PAGE> 91
APPENDIX II
AGREEMENT
and
PLAN OF REORGANIZATION
for
AIM ADVISOR INCOME FUND
a Portfolio of
AIM ADVISOR FUNDS, INC.
<PAGE> 92
TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.1. Reorganization of Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2. Computation of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.3. Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.4. Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.6. Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.7. Issuance of AFG Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8. Investment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.9 Liabilities and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AAFI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1. Incorporation: Qualification and Corporate Authority . . . . . . . . . . . . . . . . . . . 7
Section 3.2. Registration and Regulation of AAFI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.4. No Material Adverse Changes; Contingent Liabilities . . . . . . . . . . . . . . . . . . . . 8
Section 3.5. IF Shares; Liabilities; Business Operations . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.6. Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.7. Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.8. No Breaches or Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.9. Authorizations or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.10. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.11. No Actions, Suits or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.12. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.13. Properties and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.15. Benefit and Employment Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.16. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.17. Voting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.18. State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.19. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.20. Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AFG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.1. Organization; Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.2. Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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Section 4.3. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.4. No Material Adverse Changes; Contingent Liabilities . . . . . . . . . . . . . . . . . . . 13
Section 4.5. No Breaches or Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.6. Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.7. Authorizations or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.8. Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.9. No Actions, Suits or Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.11. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.12. Registration and Regulation of Company . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.13. Registration of Intermediate Government Portfolio Shares . . . . . . . . . . . . . . . . 16
Section 4.14. Representations Concerning the Reorganization . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.15. Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.1. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.2. Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.4. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.5. Notice of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.6. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.7. Consents, Approvals and Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.8. Submission of Agreement to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VI
CONDITIONS PRECEDENT TO THE REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.1. Conditions Precedent of AFG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6.2. Mutual Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6.3. Conditions Precedent of AAFI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII
TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 7.2. Survival After Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.1. Nonsurvival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.2. Law Governing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.3. Binding Effect, Persons Benefiting, No Assignment . . . . . . . . . . . . . . . . . . . . 23
Section 8.4. Obligations of AFG and AAFI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.5. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.6. Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.7. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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Section 8.9. Entire Agreement; Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 8.10. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Schedule 6.1(d) - Opinion of Counsel to AIM Advisor Income Fund
Schedule 6.2(f) - Tax Opinions
Schedule 6.3(d) - Opinion of Counsel to AFG
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<PAGE> 95
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of September
25, 1997 (this "Agreement"), by and between AIM Advisor Funds, Inc., a Maryland
corporation ("AAFI"), acting on behalf of AIM Advisor Income Fund ("Income
Fund"), and AIM Funds Group, a Delaware business trust ("AFG"), acting on
behalf of AIM Intermediate Government Fund (the "Intermediate Government
Portfolio").
WITNESSETH
WHEREAS, AAFI 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 seven investment portfolios, including Income Fund, 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
Intermediate Government Portfolio, for sale to the public; and
WHEREAS, Income Fund owns securities in which the Intermediate
Government Portfolio is permitted to invest; and
WHEREAS, Income Fund desires to provide for its reorganization
through the transfer of substantially all of its assets to the Intermediate
Government Portfolio in exchange for shares of the Intermediate Government
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 AAFI agree
as follows:
<PAGE> 96
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):
"AAFI" means AIM Advisor Funds, Inc., a Maryland corporation.
"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.
"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 AAFI
on behalf of Income Fund, or otherwise providing benefits to any current or
former employee, officer or director of AAFI.
"Closing" means the transfer of the assets of Income Fund
against the delivery of Intermediate Government Portfolio Class A Shares and
Intermediate Government Portfolio Class C Shares directly to the shareholders
of Income Fund as described in Section 2.1 of this Agreement.
"Closing Date" means March 2, 1998, or such other date as the
parties may mutually determine.
"Code" means the Internal Revenue Code of 1986, as amended.
"Custodian" means State Street Bank and Trust Company acting
in its capacity as custodian for the assets of the Intermediate Government
Portfolio.
"Effective Time" shall mean 7:00 a.m. Central Time on the
Closing Date.
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<PAGE> 97
"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.
"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).
"Income Fund" means AIM Advisor Income Fund, a portfolio of
AAFI.
"IF Financial Statements" shall have the meaning set forth in
Section 3.3 of this Agreement.
"IF Shareholders" means the holders of record as of the
Closing Date of the issued and outstanding shares of the capital stock of
Income Fund.
"IF Shareholders Meeting" means a meeting of the shareholders
of Income Fund convened in accordance with applicable law and the articles of
incorporation of AAFI to consider and vote upon the approval of this Agreement
and the transactions contemplated by this Agreement.
"IF Shares" means the issued and outstanding shares of the
capital stock of Income Fund.
"Investment Company Act" means the Investment Company Act of
1940, as amended, and all rules and regulations adopted by the SEC pursuant
thereto.
"Intermediate Government Portfolio" means AIM Intermediate
Government Fund, an investment portfolio of AFG.
"Intermediate Government Portfolio Class A Shares" means Class
A Shares of the Intermediate Government Portfolio issued by AFG, each
representing an interest in the Intermediate Government Portfolio.
"Intermediate Government Portfolio Class C Shares" means Class
C Shares of the Intermediate Government Portfolio issued by AFG, each
representing an interest in the Intermediate Government Portfolio.
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<PAGE> 98
"Intermediate Government Portfolio Financial Statements" shall
have the meaning set forth in Section 4.3 of this Agreement.
"Intermediate Government Portfolio Shares" means Class A
Shares and Class C Shares of the Intermediate Government Portfolio issued by
AFG, each representing an interest in the Intermediate Government Portfolio.
"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.
"Reorganization" means the acquisition of certain of the
assets of Income Fund by the Intermediate Government Portfolio in consideration
of the issuance of Intermediate Government Portfolio Class A Shares and
Intermediate Government Portfolio Class C Shares directly to IF Shareholders as
described in this Agreement.
"Required IF Shareholder Vote" shall have the meaning set
forth in Section 3.19 of this Agreement.
"Return" means any return, report or form or any attachment
thereto required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and all rules and regulations adopted by the SEC pursuant thereto.
"Tax" means any tax or similar governmental charge, impost or
levy (including, without limitation, income taxes (including, without
limitation, alternative minimum tax and estimated tax), franchise taxes,
transfer taxes or fees, sales taxes, use taxes, gross receipts taxes, value
added taxes, employment taxes, excise taxes, ad valorem taxes, property taxes,
withholding taxes, payroll taxes, minimum taxes, or windfall profit taxes),
together with any related penalties, fines, additions to tax or interest,
imposed by the United States or any state, county, local or foreign government
or subdivision or agency thereof.
"Valuation Date" shall have the meaning set forth in Section
2.4 of this Agreement.
4
<PAGE> 99
ARTICLE II
TRANSFER OF ASSETS
Section 2.1. Reorganization of Income Fund. At the
Effective Time, all of the assets of Income Fund, except the Excluded Assets,
shall be delivered to the Custodian for the account of the Intermediate
Government Portfolio, in exchange for, and against delivery by AFG directly to
the IF Shareholders at the opening of business on the Closing Date of a number
of Intermediate Government Portfolio Class A 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 the Income Fund
attributable to the Class A Shares of the Income Fund, and a number of
Intermediate Government Portfolio Class C Shares (including, if applicable,
fractional shares rounded to the nearest thousandth) having an aggregate net
asset value equal to the net asset value of the assets of the Income Fund
attributable to the Class C Shares of the Income Fund, so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, the Intermediate Government 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 Intermediate Government
Portfolio Class A Shares and the Intermediate Government Portfolio Class C
Shares and the net value of the assets of Income Fund 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 Intermediate Government
Portfolio Class A Shares and the Intermediate Government Portfolio Class C
Shares shall be computed in accordance with the policies and procedures of the
Intermediate Government Portfolio as described in the AFG Registration
Statement.
(c) The net value of the assets of Income Fund subject
to this Agreement shall be computed by AFG and shall be subject to adjustment
by the amount, if any, agreed to by AAFI and AFG. In determining the value of
the securities transferred by Income Fund to the Intermediate Government
Portfolio, each security shall be priced in accordance with the policies and
procedures of the Intermediate Government 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 AAFI. Securities for which market quotes are not
available shall be valued as mutually agreed by AFG and AAFI, 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 AAFI, who will apply certain procedures agreed to by AFG and
AAFI to test such computations.
Section 2.3. Excluded Assets. There shall be deducted
from the assets of Income Fund described in Section 2.1 all organizational
expenses, any prepaid expenses that would not have value to the Intermediate
Government Portfolio and cash in an amount estimated by AAFI to be sufficient
to pay all the liabilities of Income Fund, including, without limitation, (i)
amounts owed or to be owed to any IF Shareholder, including declared but unpaid
5
<PAGE> 100
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 Income Fund in
making and carrying out the transactions contemplated by this Agreement.
Section 2.4. Valuation Date. The assets of Income Fund
and the net asset value per share of the Intermediate Government 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 Income Fund will be permanently closed as of the close of business on
the Valuation Date and only requests for the redemption of shares of Income
Fund received in proper form prior to the close of trading on the NYSE on the
Valuation Date shall be accepted by Income Fund. Redemption requests
thereafter received by Income Fund shall be deemed to be redemption requests
for Intermediate Government Portfolio Shares (assuming that the transactions
contemplated by this Agreement have been consummated) to be distributed to IF
Shareholders under this Agreement.
Section 2.5. Delivery.
(a) Assets held by Income Fund shall be delivered
by AAFI to the Custodian on the Closing Date. No later than three (3) business
days preceding the Closing Date, AAFI shall instruct Income Fund's custodian to
make such delivery to the Custodian. AAFI shall further instruct Income Fund's
custodian that any trade made by Income Fund 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 Income Fund (other than
cash held as part of the Excluded Assets) shall be delivered on the Closing Date
and shall be in the form of currency or wire transfer in Federal funds, payable
to the order of the account of the Intermediate Government Portfolio at the
Custodian.
(b) If, on the Closing Date, AAFI is unable to make
delivery in the manner contemplated by Section 2.5(a) of securities held by
Income Fund for the reason that any of such securities purchased prior to the
Closing Date have not yet been delivered to Income Fund, its broker or brokers,
then, AFG shall waive the delivery requirements of Section 2.5(a) with respect
to said undelivered securities, if Income Fund 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, Income Fund shall pay or make provisions
for all of its debts, liabilities and taxes and distribute all remaining assets
to the IF Shareholders, and Income Fund's status as a designated series of
shares of AAFI shall be terminated, provided that, in the event that the
transactions
6
<PAGE> 101
contemplated herein are not approved by the IF Shareholders, AAFI shall not be
obligated to so terminate Income Fund's designation as a series of shares.
Section 2.7. Issuance of AFG Shares. At the Closing
Date, AAFI shall instruct AFG that the pro rata interest of each of IF
Shareholders of record as of the close of business on the Valuation Date, as
certified by Income Fund's transfer agent, in Intermediate Government Portfolio
Class A Shares to holders of Class A Shares of Income Fund and in Intermediate
Government Portfolio Class C Shares to holders of Class C Shares of Income
Fund, be registered on the books of AFG in full and fractional shares in the
name of each IF Shareholder, and AFG agrees promptly to comply with said
instruction. All issued and outstanding shares of Income Fund's capital stock
shall thereupon be canceled on the books of AAFI. 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
Intermediate Government Portfolio Class A Shares and Intermediate Government
Portfolio Class C Shares by IF Shareholders and shall forward a confirmation of
such ownership to the IF Shareholders. No redemption or repurchase of such
shares credited to former IF Shareholders in respect of Income Fund 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. On or prior to the
Valuation Date, AAFI shall deliver a list setting forth the securities Income
Fund then owns together with the respective Federal income tax bases thereof.
AAFI 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 Intermediate Government Portfolio hereunder. Such
records shall be made available by AAFI 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 Intermediate
Government Portfolio shall not assume any liability of Income Fund and Income
Fund 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 AAFI
AAFI, on behalf of Income Fund, represents and warrants to AFG
that:
Section 3.1. Incorporation: Qualification and Corporate
Authority. AAFI has been duly incorporated and is validly existing and in
active status under the laws of the State of Maryland with all requisite
corporate power and authority to conduct its business as presently conducted.
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Section 3.2. Registration and Regulation of AAFI. AAFI
is duly registered with the SEC as an investment company under the Investment
Company Act and all IF 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 AAFI
to revoke or rescind any such registration or qualification. Income Fund 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.
Income Fund 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 Income Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Income Fund and
all purchases and redemptions of IF 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 Income Fund 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, 1996 of Income Fund, and the unaudited financial
statements dated June 30, 1997 of Income Fund, previously delivered to AFG (the
"IF Financial Statements") present fairly in all material respects the
financial position of Income Fund as at the dates indicated and the results of
operations and changes in net assets 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 June 30, 1997, no material adverse change has occurred in
the financial condition, results of operations, business, assets or liabilities
of Income Fund or the status of Income Fund 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 Income Fund or occurring in the ordinary course of business
of Income Fund or AAFI. There are no contingent liabilities of Income Fund not
disclosed in the IF Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles.
Section 3.5. IF Shares; Liabilities; Business
Operations.
(a) The IF Shares have been duly authorized and validly
issued and are fully paid and non- assessable.
(b) There is no plan or intention by the shareholders
of Income Fund who own five percent (5%) or more of the IF Shares, and to the
knowledge of AAFI's management, the remaining IF Shareholders have no present
plan or intention of selling, exchanging, redeeming or otherwise disposing of a
number of the Intermediate Government Portfolio Shares received by them in
connection with the Reorganization that would reduce the IF Shareholders'
ownership of Intermediate Government Portfolio Shares to a number of shares
having a value,
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as of the Closing Date, of less than fifty percent (50%) of the value of all of
the formerly outstanding IF Shares as of the same date. For purposes of this
representation, IF Shares exchanged for cash or other property or exchanged for
cash in lieu of fractional shares of the Intermediate Government Portfolio will
be treated as outstanding IF Shares on the date of the Reorganization.
Moreover, IF Shares and Intermediate Government Portfolio Shares held by IF
Shareholders and otherwise sold, redeemed or disposed of prior or subsequent to
the Reorganization will be considered in making this representation, except for
IF Shares or Intermediate Government Portfolio Shares which have been, or will
be, redeemed by Income Fund or the Intermediate Government 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, Income Fund
shall not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any Person could acquire IF Shares,
except for the right of investors to acquire IF 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 April 10,
1984 (as INVESCO Advisor Income Fund) and ending on the Closing Date, Income
Fund 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, Income Fund 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
Intermediate Government Portfolio.
(e) AAFI 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 IF Financial Statements for the period ended December 31,
1996, 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 AAFI on behalf of Income Fund
and, assuming this Agreement has been duly executed and delivered by AFG and
approved by the IF Shareholders, constitutes the legal, valid and binding
obligation of AAFI, enforceable against AAFI in accordance with its terms from
and with respect to the revenues and assets of Income Fund, 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).
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Section 3.8. No Breaches or Defaults . The execution
and delivery of this Agreement by AAFI on behalf of Income Fund and performance
of its obligations hereunder has been duly authorized by all necessary
corporate action on the part of AAFI, other than IF 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 AAFI 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
Income Fund (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 AAFI is a party or by which it
may be bound and which relates to the assets of Income Fund or to which any of
Income Fund'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 AAFI or any of Income Fund's properties.
AAFI is not under the jurisdiction of a court in a Title 11 or similar case
within the meaning of Section 368(a)(3)(A) of the Code.
Section 3.9. Authorizations or Consents. Other than
those which shall have been obtained or made on or prior to the Closing Date
and those that must be made after the Closing Date to comply with Section 2.6
of this Agreement, no authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority will be required to be
obtained or made by AAFI in connection with the due execution and delivery by
AAFI of this Agreement and the consummation by AAFI of the transactions
contemplated hereby.
Section 3.10. Permits. AAFI 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 Income Fund, 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 AAFI 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 AAFI, has any litigation been overtly
threatened in writing or orally, against AAFI 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
AAFI, threatened in writing or, if probable of assertion, orally against AAFI
affecting any property, asset, interest, or right of
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<PAGE> 105
Income Fund, that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect with respect to Income Fund. 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 AAFI's conduct of
the business of Income Fund affecting in any significant respect the conduct of
such business. AAFI is not, and has not been, to the knowledge of AAFI, the
target of any investigation by the SEC or any state securities administrator
with respect to its conduct of the business of Income Fund.
Section 3.12. Contracts. AAFI 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 Income Fund, by which the assets, business, or operations of Income
Fund may be bound or affected, or under which it or the assets, business or
operations of Income Fund 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 AAFI, 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. Income Fund has
good and marketable title to all properties and assets reflected in the IF
Financial Statements as owned by it, free and clear of all Liens, except as
described in the IF Financial Statements.
Section 3.14. Taxes.
(a) Income Fund has elected to be treated as a
regulated investment company under Subchapter M of the Code. Income Fund 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 Income Fund as a "regulated investment company" for tax
purposes and (ii) eliminate any tax liability of Income Fund arising by reason
of undistributed investment company taxable income or net taxable gain, AAFI
will declare to the IF 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 Income Fund's investment
company taxable income (determined without regard to any deductions for
dividends paid) for the taxable year ended December 31, 1997 and for the short
taxable year beginning on January 1, 1998 and ending on the Closing Date and
(B) all of Income Fund's net capital gains realized in its taxable year ended
December 31, 1997 and in such short taxable year (after reduction for any
capital loss carryover).
(b) Income Fund 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 Income Fund 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
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<PAGE> 106
proposed, assessed or asserted in writing by any taxing authority against
Income Fund, 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 Income Fund is currently being or has been
audited with respect to income taxes or other Taxes by any Federal, state,
local, or foreign Tax authority.
(c) Income Fund's fiscal year has not been changed for
tax purposes since the date on which it commenced operations.
Section 3.15. Benefit and Employment Obligations. On or
prior to the Closing Date, Income Fund 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 3.16. Brokers. No broker, finder or similar
intermediary has acted for or on behalf of AAFI or Income Fund 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 AAFI or any action taken by it.
Section 3.17. Voting Requirements; Dissenter's Rights.
The affirmative votes of a majority of the holders of the outstanding IF Shares
(the "Required IF Shareholder Vote") are the only votes of the holders of any
class or series of Income Fund's capital stock necessary to approve this
Agreement and the transactions contemplated by this Agreement. The IF
Shareholders may not exercise dissenter's rights granted under the Maryland
Business Corporation Law with respect to the Reorganization.
Section 3.18. 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 3.19. Books and Records. The books and records
of AAFI relating to Income Fund, reflecting, among other things, the purchase
and sale of IF Shares by IF Shareholders, the number of issued and outstanding
shares owned by each IF Shareholder and the state or other jurisdiction in
which such shares were offered and sold, are complete and accurate in all
material respects.
Section 3.20. Prospectus. The current prospectus and
statement of additional information for Income Fund 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
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inclusion in the prospectus or statement of additional information of Income
Fund, or any supplement thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AFG
AFG, on behalf of the Intermediate Government Portfolio,
represents and warrants to AAFI 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 AAFI, 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 Intermediate
Government 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 Intermediate Government 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, 1996 of the Intermediate
Government Portfolio, and unaudited financial statements dated June 30, 1997,
of the Intermediate Government Portfolio, previously delivered to AAFI (the
"Intermediate Government Portfolio Financial Statements") present fairly in all
material respects the financial position of the Intermediate Government
Portfolio as at the dates indicated and the results of operations and changes
in net assets 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 June 30, 1997, no material adverse change has occurred in
the financial condition, results of operations, business, assets or liabilities
of the Intermediate Government Portfolio or the status of the Intermediate
Government 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
Intermediate Government Portfolio or occurring in the ordinary course of
business of the Intermediate Government Portfolio or AFG. There are no
contingent liabilities of the Intermediate Government Portfolio not disclosed
in the Intermediate Government 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 Intermediate
Government 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 Intermediate
Government Portfolio or to which any properties of the Intermediate Government
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 Intermediate Government Portfolio's
properties.
Section 4.6. Accountants. KPMG Peat Marwick LLP, which
has reported upon the Intermediate Government Portfolio Financial Statements
for the period ended December 31, 1996, 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 Intermediate Government 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.
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.
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(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 Intermediate
Government Portfolio, that could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect with respect to the Intermediate
Government 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 Intermediate Government 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 Intermediate Government Portfolio.
Section 4.10. Taxes.
(a) The Intermediate Government Portfolio has elected
to be treated as a regulated investment company under Subchapter M of the Code.
The Intermediate Government Portfolio has qualified as such for each taxable
year since inception that has ended prior to the Closing Date.
(b) The Intermediate Government 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 Intermediate Government 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 Intermediate Government 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, to the best of AFG's knowledge, no Return of the Intermediate Government
Portfolio is currently being or has been audited with respect to income taxes
or all other Taxes by any Federal, state, local, or foreign Tax authority.
(c) The Intermediate Government Portfolio's fiscal year
has not been changed for tax purposes since the date on which it commenced
operations.
Section 4.11. Brokers. No broker, finder or similar
intermediary has acted for or on behalf of AFG or the Intermediate Government
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.
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Section 4.12. 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
Intermediate Government 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 Intermediate Government 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 Intermediate Government Portfolio is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act.
Section 4.13. Registration of Intermediate Government
Portfolio Shares.
(a) The shares of beneficial interest of AFG are divided
into nine portfolios, including the Intermediate Government Portfolio. The
Intermediate Government Portfolio has three classes of shares, Class A Shares,
Class B Shares and Class C 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 Intermediate Government Portfolio.
(b) The Intermediate Government Portfolio Shares and
the 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 Intermediate Government 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 Intermediate Government
Portfolio shall not have outstanding any warrants, options, convertible
securities or any other type of right pursuant to which any Person could
acquire Intermediate Government Portfolio Shares, or except for the right of
investors to acquire Intermediate Government 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 AAFI and IF Shareholders entitled
to vote at the IF Shareholders Meeting. The Combined Proxy
Statement/Prospectus and related Statement of Additional Information of the
Intermediate Government 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 AAFI for
inclusion in the Combined Prospectus/Proxy Statement.
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(e) The shares of the Intermediate Government Portfolio
which have been or are being offered for sale (other than Intermediate
Government 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 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 4.14. Representations Concerning the
Reorganization.
(a) AFG has no plan or intention to reacquire any of
the Intermediate Government Portfolio Shares issued in the Reorganization,
except to the extent that the Intermediate Government Portfolio is required by
the Investment Company Act to redeem any of its shares presented for
redemption.
(b) The Intermediate Government Portfolio has no plan
or intention to sell or otherwise dispose of any of the assets of Income Fund
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 Intermediate
Government Portfolio will continue the "historic business" of Income Fund
(within the meaning of Section 1.368-1(d) of the Income Tax Regulations under
the Code) or use a significant portion of Income Fund's historic business
assets in a business.
Section 4.15. Prospectus. The current prospectus and
statement of additional information for the Intermediate Government 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), AAFI shall conduct the business of Income Fund 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 Income
Fund in the ordinary course in all material respects. Without limiting the
generality of the foregoing, AAFI shall not do any of the following with
respect to Income Fund without the prior written consent of AFG, which consent
shall not be unreasonably withheld:
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(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 Income Fund taken as a whole, except purchases of
assets in the ordinary course of business consistent with past
practice;
(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 Income Fund, guarantee any debt securities of another Person, enter
into any "keep well" or other agreement to maintain any financial
statement condition of another Person, or enter into any arrangement
having the economic effect of any of the foregoing;
(vi) settle or compromise any income tax liability
or make any material tax election;
(vii) pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than in the ordinary
course of business;
(viii) change its methods of accounting, except as
required by changes in generally accepted accounting principles as
concurred in by its independent auditors, or change its fiscal year;
(ix) make or agree to make any material severance,
termination, indemnification or similar payments except pursuant to
existing agreements; or
(x) adopt any Benefit Plan.
(b) From the date of this Agreement up to and including
the Closing Date (or, if earlier, the date upon which this Agreement is
terminated pursuant to Article VII), AFG shall conduct the business of the
Intermediate Government 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
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and business relations necessary to conduct the business operations of the
Intermediate Government Portfolio in the ordinary course in all material
respects.
Section 5.2. Announcements. Promptly following
execution and delivery of this Agreement, AAFI and AFG shall agree upon and
release a mutually acceptable press release and AAFI shall give any and all
notices required to be given by law.
Section 5.3. Expenses. Income Fund and the Intermediate
Government 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 AAFI, and AAFI 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 AAFI, 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 AAFI, 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) AAFI will, during regular business hours and on reasonable
prior notice, allow AFG and its authorized representatives reasonable access to
the books and records of AAFI pertaining to the assets of Income Fund and to
employees of AAFI knowledgeable thereof; provided, however, that any such
access shall not significantly interfere with the business or operations of
AAFI.
(b) AFG will, during regular business hours and on reasonable
notice, allow AAFI and its authorized representatives reasonable access to the
books and records of AFG pertaining to the assets of the Intermediate
Government 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.
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Section 5.7. Consents, Approvals and Filings. Each of
AAFI 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 AAFI 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
AAFI 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.
AAFI shall take all action necessary in accordance with applicable law and its
articles of incorporation and by-laws to convene the IF Shareholders Meeting.
AAFI shall, through its Board of Directors, recommend to the IF Shareholders
approval of this Agreement and the other transactions contemplated by this
Agreement. AAFI shall use its reasonable best efforts to hold the IF
Shareholders Meeting as soon as practicable after the date hereof.
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 AAFI on
behalf of Income Fund 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) AAFI 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 AAFI on behalf of
AAFI, in such individual's capacity as an officer of AAFI 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 AAFI certifying as to the accuracy
and completeness of the attached articles of incorporation and by-laws, and
resolutions, consents and authorizations with respect to the execution and
delivery of this Agreement and the transactions contemplated hereby.
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<PAGE> 115
(d) AFG shall have received the signed opinion of
Ballard Spahr Andrews & Ingersoll, counsel to AAFI, 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 AAFI
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 AAFI 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 AAFI 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 IF Shareholders
Meeting by the shareholders of Income Fund on the record date by the Required
IF Shareholder Vote.
(c) The assets of Income Fund to be acquired by the
Intermediate Government 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 Income Fund immediately prior to the Reorganization. For
purposes of this Section 6.2(c), assets used by Income Fund 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 Income Fund's business as an open-end
diversified management investment company) after the date of this Agreement
shall be included as assets of Income Fund 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 Intermediate Government Portfolio Shares to be issued
to IF Shareholders in connection with the Reorganization shall have become
effective under the Securities Act and no stop order 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.
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<PAGE> 116
(f) AAFI 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 AAFI and AFG, set forth on Schedule 6.2(f).
(g) The dividend or dividends described in the last
sentence of Section 3.14(a) shall have been declared.
Section 6.3. Conditions Precedent of AAFI. The
obligation of AAFI 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 AAFI.
(a) The representations and warranties of AFG on behalf
of the Intermediate Government 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) AAFI 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) AAFI shall have received the signed opinion of
Ballard Spahr Andrews & Ingersoll, counsel to AFG, or other counsel reasonably
acceptable to AAFI, in form and substance reasonably acceptable to counsel for
AAFI, 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 AAFI and AFG;
and
(ii) at the election of AAFI or AFG:
(A) if the Closing Date shall not be on or
before June 30, 1998, or such later date as the parties hereto
may agree upon, unless the failure to
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<PAGE> 117
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 IF Shareholders Meeting
or any adjournment thereof, the Required IF 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.
(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 5.3.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Nonsurvival of Representations and
Warranties. Except for those contained in Sections 2.6, 3.5, 3.15(a) and 4.14,
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.
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<PAGE> 118
Section 8.4. Obligations of AFG and AAFI.
(a) AAFI and AFG hereby acknowledge and agree that the
Intermediate Government Portfolio is a separate investment portfolio of AFG,
that AFG is executing this Agreement on behalf of the Intermediate Government
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
Intermediate Government Portfolio. AAFI 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) AAFI and AFG hereby acknowledge and agree that
Income Fund is a separate investment portfolio of AAFI, that AAFI is executing
this Agreement on behalf of Income Fund and that any amounts payable by AAFI
under or in connection with this Agreement shall be payable solely from the
revenues and assets of Income Fund.
Section 8.5. Amendments. This Agreement may not be
amended, altered or modified except by a written instrument executed by AAFI
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
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<PAGE> 119
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 he deemed to
have been duly given when delivered by hand or by overnight courier, two days
after being sent by registered mail, return receipt requested, or when sent by
telecopier (with receipt confirmed), provided, in the case of a telecopied
notice, a copy is also sent by registered mail, return receipt requested, or by
courier, addressed as follows (or to such other address as a party may
designate by notice to the other):
(a) If to AFG:
AIM Funds Group
11 Greenway Plaza, Suite 100
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 AAFI:
AIM Funds Group
11 Greenway Plaza, Suite 100
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
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<PAGE> 120
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
AIM ADVISOR FUNDS, INC., acting
on behalf of AIM Advisor Income Fund
By: /s/ ROBERT H. GRAHAM
--------------------------------------
AIM FUNDS GROUP, acting on behalf of
AIM Intermediate Government Fund
By: /s/ ROBERT H. GRAHAM
--------------------------------------
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<PAGE> 121
Schedule 6.1(d)
OPINION OF COUNSEL TO AIM Advisor Income Fund
1. AAFI is a corporation duly incorporated and validly existing
under the laws of the State of Maryland.
2. AAFI 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
AAFI have been duly authorized and approved by all requisite
corporate action on the part of AAFI. The Agreement has been
duly executed and delivered by AAFI and constitutes the valid
and binding obligation of Income Fund.
4. The IF Shares outstanding on the date hereof have been duly
authorized and validly issued, are fully paid and are
non-assessable.
5. AAFI 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 AAFI or who has devoted substantive
attention on behalf of AAFI 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 Income Fund
(i) with respect to the Agreement or (ii) which involves in excess of $500,000
in damages.
<PAGE> 122
Schedule 6.2(g)
Tax Opinions.
(i) The transfer of the assets of Income Fund
to the Intermediate Government Portfolio in exchange for the Portfolio
Shares distributed directly to the IF Shareholders, as provided in the
Agreement, will constitute a "reorganization" within the meaning of
Section 368(a) of the Code and that Income Fund 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
Income Fund as a result of such transaction.
(iii) In accordance with Section 1032 of the
Code, no gain or loss will be recognized by the Intermediate
Government Portfolio upon the receipt of assets of Income Fund in
exchange for Intermediate Government Portfolio Shares issued directly
to the IF Shareholders
(iv) In accordance with Section 354(a)(1) of the
Code, no gain or loss will be recognized by IF Shareholders on
issuance by AFG of Intermediate Government Portfolio Shares in
exchange for their IF Shares.
(v) In accordance with Section 362(b) of the
Code, the basis to the Intermediate Government Portfolio of the assets
of Income Fund transferred to it will be the same as the basis of such
assets in the hands of Income Fund immediately prior to the exchange.
(vi) In accordance with Section 358(a) of the
Code, a IF Shareholder's basis for Intermediate Government Portfolio
Shares issued to such IF Shareholder pursuant to Section 2.7 of the
Agreement ("Issued Shares") will be the same as his basis for IF
Shares.
(vii) In accordance with Section 1223(1) of the
Code, a IF Shareholder's holding period for Intermediate Government
Portfolio Shares will be determined by including said IF Shareholder's
holding period for IF Shares exchanged therefor, provided that IF
Shareholder held such IF Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the
Code, the holding period with respect to the assets of Income Fund
transferred to the Intermediate Government Portfolio will include the
holding period for such assets in the hands of Income Fund.
<PAGE> 123
(ix) In accordance with Section 381(a)(2) of the
Code, the Intermediate Government Portfolio will succeed to and take
into account the items of Income Fund described in Section 381(c) of
the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Internal Revenue Service
regulations thereunder.
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<PAGE> 124
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 Intermediate Government Portfolio.
4. The Intermediate Government 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
Intermediate Government Portfolio (i) with respect to the Agreement or (ii)
which involves in excess of $500,000 in damages.
<PAGE> 125
APPENDIX III
[APPLICATION INSIDE]
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark--
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
AUGUST 4, 1997
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 August 4, 1997,
has been filed with the United States Securities and Exchange Commission ("SEC")
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 or by calling (800) 347-4246. The SEC maintains a Web
site at http://www.sec.gov that contains the Statement of Additional
Information, material incorporated by reference, and other information regarding
the Trust. Additional information about the Funds may also be obtained from
http://www.aimfunds.com.
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> 126
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, together with its subsidiaries, manages or advises 53 investment company
portfolios. As of July 15, 1997, the total assets of the investment company
portfolios advised or managed by AIM or its subsidiaries were approximately
$76.0 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, Class B or Class C
shares of each Fund and, in the case of AIM MONEY MARKET FUND, AIM Cash Reserve
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 -- Shares are offered at net asset value, without an
initial sales charge, and are subject to a contingent deferred sales charge
of 1% on certain redemptions made within one year from the date such shares
were purchased.
AIM Cash Reserve Shares (AIM MONEY MARKET FUND only) -- Shares are
offered at net asset value, without an initial sales charge and without
contingent deferred sales charges.
SUITABILITY FOR INVESTORS. The multiple class structure 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
2
<PAGE> 127
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 or on Class C shares 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 or Class C 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, and AIM Cash Reserve Shares of AIM MONEY MARKET
FUND, 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 may redeem all or a portion of their shares at net
asset value on any business day, less a 1% contingent deferred sales charge for
redemptions made within one year from the date such shares were purchased. See
"How to Redeem Shares -- Multiple Distribution System."
Holders of AIM Cash Reserve 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 a Fund may be paid by check
or reinvested in additional Class C shares of another fund in The AIM Family of
Funds at net asset value. Dividends and distributions paid with respect to AIM
Cash Reserve Shares of AIM MONEY MARKET FUND may be paid by check, reinvested in
additional AIM Cash Reserve 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, La Familia AIM
de Fondos and La Familia AIM de Fondos and Design are registered service marks
and aimfunds.com and Invest With Discipline are service mark of A I M
Management Group Inc.
3
<PAGE> 128
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.
Except where noted, the fees and expenses set forth in the table are based on
the expenses of the Funds for the most recent fiscal year. The fees and expenses
for Class C shares set forth in the table below are based on estimated average
net assets of Class C shares of each Fund for the first period of operation. 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 "How to
Purchase Shares."
<TABLE>
<CAPTION>
AIM
AIM GLOBAL AIM AIM AIM
BALANCED UTILITIES GROWTH HIGH YIELD INCOM
FUND FUND FUND FUND FUND
--------------------- --------------------- --------------------- --------------------- -----
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B C A B C A B C A B C A
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <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 None 5.50% None None 5.50% None None 4.75% None None 4.75%
Maximum sales load on
reinvested
dividends............ None None None 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% 1.0% None* 5.0% 1.0% None* 5.0% 1.0% None* 5.0% 1.0% None*
Redemption fees........ None None None None None None None None None None None None None
Exchange fee........... None None None None None None None None None None None None None
Annual Fund Operating
Expenses
(as a % of average net
assets)
Management fees........ 0.61% 0.61% 0.61% 0.58% 0.58% 0.58% 0.69% 0.69% 0.69% 0.50% 0.50% 0.50% 0.46%
Rule 12b-1 distribution
plan payments........ 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.25%
All other expenses..... 0.29% 0.36% 0.36% 0.34% 0.38% 0.38% 0.24% 0.34% 0.34% 0.22% 0.18% 0.18% 0.27%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total fund
operating
expenses....... 1.15% 1.97% 1.97% 1.17% 1.96% 1.96% 1.18% 2.03% 2.03% 0.97% 1.68% 1.68% 0.98%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
AIM
INCOME
FUND
-------------
CLASS CLASS
B C
----- -----
<S> <C> <C>
Shareholder Transaction
Expenses
Maximum sales load
imposed on purchase
of shares (as a % of
the offering
price)............... None None
Maximum sales load on
reinvested
dividends............ None None
Deferred sales load (as
a % of
original purchase
price or
redemption proceeds,
whichever is
lower)............... 5.0% 1.0%
Redemption fees........ None None
Exchange fee........... None None
Annual Fund Operating
Expenses
(as a % of average net
assets)
Management fees........ 0.46% 0.46%
Rule 12b-1 distribution
plan payments........ 1.00% 1.00%
All other expenses..... 0.34% 0.34%
---- ----
Total fund
operating
expenses....... 1.80% 1.80%
==== ====
</TABLE>
<TABLE>
<CAPTION>
AIM
AIM MONEY
INTERMEDIATE MARKET FUND AIM AIM
GOVERNMENT ------------------------------- MUNICIPAL VALUE
FUND AIM BOND FUND FUND
--------------------- CASH --------------------- -----
CLASS CLASS CLASS CLASS CLASS CLASS RESERVE CLASS CLASS CLASS CLASS
A B C A B C SHARES A B C A
----- ----- ----- ----- ----- ----- ------- ----- ----- ----- -----
<S> <C> <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 None 5.50% None None None 4.75% None None 5.50%
Maximum sales load on reinvested
dividends......................... None 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% 1.0% None* 5.0% 1.0% None None* 5.0% 1.0% None*
Redemption fees..................... None None None None None None None None None None None
Exchange fee........................ None None None None None None None None None None None
Annual Fund Operating Expenses (as a %
of average net assets)
Management fees (after fee
waivers).......................... 0.48% 0.48% 0.48% 0.55% 0.55% 0.55% 0.55% 0.47% 0.47% 0.47% 0.61%(1)
Rule 12b-1 distribution plan
payments.......................... 0.25% 1.00% 1.00% 0.25% 1.00% 1.00% 0.25% 0.25% 1.00% 1.00% 0.25%
All other expenses.................. 0.27% 0.28% 0.28% 0.27% 0.26% 0.26% 0.28% 0.08% 0.14% 0.14% 0.25%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total fund operating
expenses.................... 1.00% 1.76% 1.76% 1.07% 1.81% 1.81% 1.08% 0.80% 1.61% 1.61% 1.11%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
AIM
VALUE
FUND
---------------
CLASS CLASS
B C
----- -----
<S> <C> <C>
Shareholder Transaction Expenses
Maximum sales load imposed on
purchase of shares (as a % of the
offering price)................... None None
Maximum sales load on reinvested
dividends......................... None None
Deferred sales load (as a % of
original purchase price or
redemption proceeds, whichever is
lower)............................ 5.0% 1.0%
Redemption fees..................... None None
Exchange fee........................ None None
Annual Fund Operating Expenses (as a %
of average net assets)
Management fees (after fee
waivers).......................... 0.61%(1) 0.61%(1)
Rule 12b-1 distribution plan
payments.......................... 1.00% 1.00%
All other expenses.................. 0.33% 0.33%
---- ----
Total fund operating
expenses.................... 1.94% 1.94%
==== ====
</TABLE>
- ------------------------
(1) After fee waivers. If management fees were not being waived, they would be
0.63% on all classes of AIM VALUE 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."
4
<PAGE> 129
- --------------------------------------------------------------------------------
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.................. $59 $66 $66 $57 $57 $57 $65 $55 $66
3 years................. 82 90 90 77 77 78 87 72 88
5 years................. 108 116 116 99 99 100 111 90 113
10 years................ 181 189 190 161 162 164 178 142 183
</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 from the date such shares were purchased.
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.................. $70 $70 $71 $67 $68 $68 $68 $66 $70
3 years................. 92 92 94 83 87 85 87 81 91
5 years................. 126 126 129 111 117 115 118 108 125
10 years*............... 208 208 214 180 190 187 193 169 205
</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.................. $20 $20 $21 $17 $18 $18 $18 $16 $20
3 years................. 62 62 64 53 57 55 57 51 61
5 years................. 106 106 109 91 97 95 98 88 105
10 years*............... 208 208 214 180 190 187 193 169 205
</TABLE>
You would pay the following expenses on a $1,000 investment in Class C 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.................. $30 $30 $31 $27 $28 $28 $28 $26 $30
3 years................. 62 62 64 53 57 55 57 51 61
</TABLE>
You would pay the following expenses on the same $1,000 investment in Class C
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.................. $20 $20 $21 $17 $18 $18 $18 $16 $20
3 years................. 62 62 64 53 57 55 57 51 61
</TABLE>
- ---------------
* Reflects the conversion to Class A shares eight years following the end of the
calendar month in which a purchase was made; therefore years nine and ten
reflect Class A expenses.
You would pay the following expenses on a $1,000 investment in AIM Cash
Reserve 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................................. $11
3 years................................ 34
5 years................................ 60
10 years............................... 132
</TABLE>
5
<PAGE> 130
- --------------------------------------------------------------------------------
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, Class B
shares and Class C 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.
6
<PAGE> 131
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following per share data, ratios and supplemental data for the Class A
shares of AIM BALANCED FUND, 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 (i) all periods presented for AIM
BALANCED FUND and (ii) the years ended December 31, 1996, 1995, 1994 and 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. Class C shares of the Funds commenced
operations on August 4, 1997. 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 ENDED SEPTEMBER 1,
DECEMBER 31, 1993 TO YEAR ENDED AUGUST 31,
---------------------------------- DECEMBER 31, -----------------------------
1996 1995 1994 1993 1993 1992 1991
-------- ------- ------- ------------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 19.22 $ 14.62 $ 16.10 $ 15.97 $ 12.77 $ 12.04 $ 9.73
Income from investment operations:
Net investment income.................. 0.66 0.49 0.44 0.10 0.32 0.29 0.28
Net gains or losses on securities (both
realized and unrealized)............... 2.99 4.57 (1.31) 0.18 3.18 0.74 2.33
-------- ------- ------- -------- ------- -------- --------
Total from investment operations....... 3.65 5.06 (0.87) 0.28 3.50 1.03 2.61
-------- ------- ------- -------- ------- -------- --------
Less distributions:
Dividends from net investment income... (0.55) (0.46) (0.39) (0.15) (0.30) (0.30) (0.30)
Distributions from net realized capital
gains................................ (0.48) -- (0.22) -- -- -- --
-------- ------- ------- -------- ------- -------- --------
Total distributions.................... (1.03) (0.46) (0.61) (0.15) (0.30) (0.30) (0.30)
-------- ------- ------- -------- ------- -------- --------
Net asset value, end of period.......... $ 21.84 $ 19.22 $ 14.62 $ 16.10 $ 15.97 $ 12.77 $ 12.04
======== ======= ======= ======== ======= ======== ========
Total return(a)......................... 19.25% 34.97% (5.44)% 1.76% 27.75% 8.66% 27.41%
======== ======= ======= ======== ======= ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................. $334,189 $92,241 $37,572 $ 23,520 $19,497 $ 11,796 $ 11,750
======== ======= ======= ======== ======= ======== ========
Ratio of expenses to average net
assets............................... 1.15%(b)(c) 1.43%(d) 1.25%(e) 2.17%(f) 2.07% 2.12% 2.39%
======== ======= ======= ======== ======= ======== ========
Ratio of net investment income to
average net assets..................... 2.97%(b) 2.81%(d) 3.07%(e) 1.81%(f) 2.23% 2.32% 2.74%
======== ======= ======= ======== ======= ======== ========
Portfolio turnover rate................ 72% 77% 76% 233% 154% 166% 208%
======== ======= ======= ======== ======= ======== ========
Average broker commission rate(g)...... $ 0.0558 N/A N/A N/A N/A N/A N/A
======== ======= ======= ======== ======= ======== ========
Borrowings for the period:
Amount of debt outstanding at end of
period............................... -- -- -- -- -- -- --
Average amount of debt outstanding
during the period(h)................. -- -- -- -- -- -- --
Average number of shares outstanding
during the period (000s
omitted)(h).......................... 9,778 3,173 2,061 1,305 1,046 939 1,051
Average amount of debt per share during
the period........................... -- -- -- -- -- -- --
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------
1990 1989 1988
-------- -------- -------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 10.67 $ 9.08 $ 11.89
Income from investment operations:
Net investment income.................. 0.32 0.39 0.42
Net gains or losses on securities (both
realized and unrealized)............... (0.91) 1.63 (2.65)
-------- -------- -------
Total from investment operations....... (0.59) 2.02 (2.23)
-------- -------- -------
Less distributions:
Dividends from net investment income... (0.35) (0.43) (0.50)
Distributions from net realized capital
gains................................ -- -- (0.08)
-------- -------- -------
Total distributions.................... (0.35) (0.43) (0.58)
-------- -------- -------
Net asset value, end of period.......... $ 9.73 $ 10.67 $ 9.08
======== ======== =======
Total return(a)......................... (5.67)% 22.96% (18.57)%
======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................. $ 10,965 $ 14,405 $16,789
======== ======== =======
Ratio of expenses to average net
assets............................... 2.15% 1.94% 2.31%
======== ======== =======
Ratio of net investment income to
average net assets..................... 3.18% 3.99% 4.50%
======== ======== =======
Portfolio turnover rate................ 307% 149% 118%
======== ======== =======
Average broker commission rate(g)...... N/A N/A N/A
======== ======== =======
Borrowings for the period:
Amount of debt outstanding at end of
period............................... -- $260,000 --
Average amount of debt outstanding
during the period(h)................. $138,181 $ 83,195 --
Average number of shares outstanding
during the period (000s
omitted)(h).......................... 1,238 1,589 2,131
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
of less than one year.
(b) Ratios are based on average daily net assets of $205,275,849.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have remained the same.
(d) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 1.46% and 2.78%,
respectively.
(e) 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.
(f) Annualized.
(g) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
(h) Averages computed on a daily basis.
7
<PAGE> 132
AIM GLOBAL UTILITIES FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 14.59 $ 11.85 $ 14.09 $ 13.31 $ 13.75
Income from investment operations:
Net investment income...................... 0.55 0.55 0.59 0.60 0.67
Net gains or losses on securities (both
realized and unrealized)................. 1.43 2.71 (2.20) 1.02 0.36
-------- -------- -------- -------- --------
Total from investment operations........... 1.98 3.26 (1.61) 1.62 1.03
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income....... (0.56) (0.52) (0.60) (0.61) (0.68)
Distributions from net realized capital
gains.................................... -- -- -- (0.23) (0.79)
Returns of capital......................... -- -- (0.03) -- --
-------- -------- -------- -------- --------
Total distributions........................ (0.56) (0.52) (0.63) (0.84) (1.47)
-------- -------- -------- -------- --------
Net asset value, end of period.............. $ 16.01 $ 14.59 $ 11.85 $ 14.09 $ 13.31
======== ======== ======== ======== ========
Total return(a)............................. 13.88% 28.07% (11.57)% 12.32% 7.92%
======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted)... $164,001 $170,624 $150,515 $200,016 $111,771
======== ======== ======== ======== ========
Ratio of expenses to average net assets.... 1.17%(b)(c) 1.21% 1.18% 1.16% 1.17%
======== ======== ======== ======== ========
Ratio of net investment income to average
net assets............................... 3.62%(b) 4.20% 4.67% 4.21% 4.96%
======== ======== ======== ======== ========
Portfolio turnover rate.................... 48% 88% 101% 76% 148%
======== ======== ======== ======== ========
Average broker commission rate(g).......... $ 0.0460 N/A N/A N/A N/A
======== ======== ======== ======== ========
<CAPTION>
JANUARY 18, 1988*
YEAR ENDED DECEMBER 31, TO
-------------------------------- DECEMBER 31,
1991 1990 1989 1988
-------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........ $ 12.45 $ 13.73 $ 10.99 $ 10.00
Income from investment operations:
Net investment income...................... 0.70 0.66 0.77 0.82
Net gains or losses on securities (both
realized and unrealized)................. 2.12 (1.10) 3.06 0.83
------- ------- ------- ------
Total from investment operations........... 2.82 (0.44) 3.83 1.65
------- ------- ------- ------
Less distributions:
Dividends from net investment income....... (0.66) (0.70) (0.69) (0.66)
Distributions from net realized capital
gains.................................... (0.86) (0.14) (0.40) --
Returns of capital......................... -- -- -- --
------- ------- ------- ------
Total distributions........................ (1.52) (0.84) (1.09) (0.66)
------- ------- ------- ------
Net asset value, end of period.............. $ 13.75 $ 12.45 $ 13.73 $ 10.99
======= ======= ======= ======
Total return(a)............................. 23.65% (2.98)% 36.11% 17.03%
======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted)... $91,939 $69,541 $58,307 $20,104
======= ======= ======= ======
Ratio of expenses to average net assets.... 1.23% 1.21%(d) 1.05%(d) 1.22%(d)(f)
======= ======= ======= ======
Ratio of net investment income to average
net assets............................... 5.36% 5.21%(e) 6.13%(e) 7.63%(e)(f)
======= ======= ======= ======
Portfolio turnover rate.................... 169% 123% 115% 87%
======= ======= ======= ======
Average broker commission rate(g).......... N/A N/A N/A N/A
======= ======= ======= ======
</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 $163,634,721.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) Ratios of expenses to average net assets prior to reduction of advisory fees
were 1.22%, 1.11% and 1.69% (annualized) for 1990-1988, 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 1990-1988,
respectively.
(f) Annualized.
(g) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
AIM GROWTH FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $ 13.05 $ 10.32 $ 11.32 $ 12.28 $ 14.73 $ 12.35 $ 13.92
Income from investment operations:
Net investment income................. 0.07 0.02 -- -- 0.06 0.11 0.21
Net gains or losses on securities
(both realized and unrealized)...... 2.34 3.50 (0.57) 0.41 (0.04) 4.33 (0.91)
-------- -------- -------- -------- -------- -------- --------
Total from investment operations...... 2.41 3.52 (0.57) 0.41 0.02 4.44 (0.70)
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income.............................. -- -- -- -- (0.06) (0.13) (0.20)
Distributions from net realized
capital gains....................... (0.68) (0.79) (0.43) (1.37) (2.41) (1.93) (0.67)
-------- -------- -------- -------- -------- -------- --------
Total distributions................... (0.68) (0.79) (0.43) (1.37) (2.47) (2.06) (0.87)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period......... $ 14.78 $ 13.05 $ 10.32 $ 11.32 $ 12.28 $ 14.73 $ 12.35
======== ======== ======== ======== ======== ======== ========
Total return(a)........................ 18.61% 34.31% (4.99)% 3.64% 0.19% 37.05% (5.04)%
======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................ $227,882 $168,217 $123,271 $146,723 $168,395 $185,461 $153,245
======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets.............................. 1.18%(b)(c) 1.28% 1.22% 1.17% 1.17% 1.21% 1.16%
======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets.................. 0.46%(b) 0.20% 0.02% 0.02% 0.42% 0.73% 1.41%
======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate............... 97% 87% 201% 192% 133% 73% 61%
======== ======== ======== ======== ======== ======== ========
Average broker commission rate(d)..... $ 0.0621 N/A N/A N/A N/A N/A N/A
======== ======== ======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period... $ 11.93 $ 11.04 $ 12.91
Income from investment operations:
Net investment income................. 0.25 0.23 0.24
Net gains or losses on securities
(both realized and unrealized)...... 3.16 0.89 0.30
-------- -------- --------
Total from investment operations...... 3.41 1.12 0.54
-------- -------- --------
Less distributions:
Dividends from net investment
income.............................. (0.27) (0.23) (0.31)
Distributions from net realized
capital gains....................... (1.15) -- (2.10)
-------- -------- --------
Total distributions................... (1.42) (0.23) (2.41)
-------- -------- --------
Net asset value, end of period......... $ 13.92 $ 11.93 $ 11.04
======== ======== ========
Total return(a)........................ 28.87% 10.13% 3.62%
======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................ $187,805 $180,793 $203,329
======== ======== ========
Ratio of expenses to average net
assets.............................. 1.00% 0.98% 0.84%
======== ======== ========
Ratio of net investment income to
average net assets.................. 1.62% 1.73% 1.51%
======== ======== ========
Portfolio turnover rate............... 53% 38% 78%
======== ======== ========
Average broker commission rate(d)..... N/A N/A N/A
======== ======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges.
(b) Ratios are based on average net assets of $204,456,793.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
8
<PAGE> 133
AIM HIGH YIELD FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 9.43 $ 8.93 $ 10.05 $ 9.40 $ 8.86 $ 7.07 $ 8.94
Income from investment operations:
Net investment income.................. 0.92 0.93 0.96 0.97 1.04 1.02 1.09
Net gains or losses on securities (both
realized and unrealized)............. 0.46 0.52 (1.12) 0.69 0.55 1.81 (1.84)
---------- -------- -------- -------- -------- -------- --------
Total from investment operations....... 1.38 1.45 (0.16) 1.66 1.59 2.83 (0.75)
---------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income... (0.93) (0.95) (0.96) (1.01) (1.05) (1.04) (1.12)
---------- -------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 9.88 $ 9.43 $ 8.93 $ 10.05 $ 9.40 $ 8.86 $ 7.07
========== ======== ======== ======== ======== ======== ========
Total return(a)......................... 15.44% 16.86% (1.67)% 18.40% 18.60% 42.18% (9.03)%
========== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)....................... $1,272,974 $886,106 $578,959 $550,760 $324,518 $259,677 $204,932
========== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets............................... 0.97%(b)(c) 0.96% 1.00% 1.12% 1.15% 1.22% 1.21%(d)
========== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets................... 9.67%(b) 9.95% 10.07% 9.82% 11.00% 12.67% 13.59%(e)
========== ======== ======== ======== ======== ======== ========
Portfolio turnover rate................ 77% 61% 53% 53% 56% 61% 27%
========== ======== ======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 10.01 $ 9.67 $ 10.54
Income from investment operations:
Net investment income.................. 1.21 1.18 1.16
Net gains or losses on securities (both
realized and unrealized)............. (1.07) 0.34 (0.83)
-------- -------- --------
Total from investment operations....... 0.14 1.52 0.33
-------- -------- --------
Less distributions:
Dividends from net investment income... (1.21) (1.18) (1.20)
-------- -------- --------
Net asset value, end of period.......... $ 8.94 $ 10.01 $ 9.67
======== ======== ========
Total return(a)......................... 1.18% 16.41% 3.07%
======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)....................... $261,920 $274,631 $242,858
======== ======== ========
Ratio of expenses to average net
assets............................... 0.99% 0.96%(d) 0.92%
======== ======== ========
Ratio of net investment income to
average net assets................... 12.40% 11.84%(e) 11.21%
======== ======== ========
Portfolio turnover rate................ 36% 76% 81%
======== ======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges.
(b) Ratios are based on average net assets of $1,052,462,336.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) Ratios of expenses to average net assets prior to reduction of advisory fees
were 1.22% and 1.00% for 1990 and 1988, respectively.
(e) Ratios of net investment income to average net assets prior to reduction of
advisory fees were 13.58% and 11.80% for 1990 and 1988, respectively.
AIM INCOME FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 8.17 $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41 $ 7.80
Income from investment operations:
Net investment income.................. 0.57 0.58 0.58 0.60 0.60 0.61 0.65
Net gains or losses on securities (both
realized and unrealized)............. 0.09 1.00 (1.22) 0.61 (0.03) 0.66 (0.39)
-------- -------- -------- -------- -------- -------- --------
Total from investment operations....... 0.66 1.58 (0.64) 1.21 0.57 1.27 0.26
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income... (0.59) (0.61) (0.49) (0.60) (0.61) (0.61) (0.65)
Distributions from net realized capital
gains................................ -- -- (0.01) (0.19) -- -- --
Returns of capital..................... -- -- (0.11) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total distributions.................... (0.59) (0.61) (0.61) (0.79) (0.61) (0.61) (0.65)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 8.24 $ 8.17 $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41
======== ======== ======== ======== ======== ======== ========
Total return(a)......................... 8.58% 22.77% (7.65)% 15.38% 7.42% 18.00% 3.65%
======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)....................... $286,183 $251,280 $201,677 $244,168 $218,848 $231,798 $215,987
======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets............................... 0.98%(b)(c) 0.98% 0.98% 0.98% 0.99%(d) 1.00%(d) 1.00%
======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets................... 7.13%(b) 7.52% 7.53% 7.01% 7.54%(d) 7.97%(d) 8.73%
======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate................ 80% 227% 185% 99% 82% 67% 106%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 7.53 $ 7.55 $ 8.20
Income from investment operations:
Net investment income.................. 0.66 0.68 0.67
Net gains or losses on securities (both
realized and unrealized)............. 0.32 (0.02) (0.63)
-------- -------- --------
Total from investment operations....... 0.98 0.66 0.04
-------- -------- --------
Less distributions:
Dividends from net investment income... (0.71) (0.68) (0.69)
Distributions from net realized capital
gains................................ -- -- --
Returns of capital..................... -- -- --
-------- -------- --------
Total distributions.................... (0.71) (0.68) (0.69)
-------- -------- --------
Net asset value, end of period.......... $ 7.80 $ 7.53 $ 7.55
======== ======== ========
Total return(a)......................... 13.56% 9.01% 0.56%
======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)....................... $229,222 $218,946 $237,466
======== ======== ========
Ratio of expenses to average net
assets............................... 0.96% 0.95% 0.84%
======== ======== ========
Ratio of net investment income to
average net assets................... 8.56% 8.81% 8.64%
======== ======== ========
Portfolio turnover rate................ 222% 361% 195%
======== ======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges.
(b) Ratios are based on average net assets of $262,501,383.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average daily net assets would have been 0.97%.
(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.
9
<PAGE> 134
AIM INTERMEDIATE GOVERNMENT FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................... $ 9.70 $ 8.99 $ 10.05 $ 10.19 $ 10.34 $ 9.95
Income from investment operations:
Net investment income................ 0.63 0.69 0.68 0.74 0.77 0.82
Net gains or losses on securities
(both realized and unrealized)..... (0.42) 0.73 (1.02) (0.04) (0.15) 0.41
-------- -------- -------- -------- -------- --------
Total from investment operations..... 0.21 1.42 (0.34) 0.70 0.62 1.23
-------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income............................. (0.59) (0.67) (0.58) (0.70) (0.74) (0.84)
Distributions from net realized
capital gains...................... -- -- (0.04) (0.14) (0.03) --
Returns of capital................... (0.04) (0.04) (0.10) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions.................. (0.63) (0.71) (0.72) (0.84) (0.77) (0.84)
-------- -------- -------- -------- -------- --------
Net asset value, end of period........ $ 9.28 $ 9.70 $ 8.99 $ 10.05 $ 10.19 $ 10.34
======== ======== ======== ======== ======== ========
Total return(a)....................... 2.35% 16.28% (3.44)% 7.07% 6.26% 12.98%
======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)..................... $174,344 $176,318 $158,341 $139,586 $123,484 $101,409
======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets (exclusive of interest
expense)(b)........................ 1.00%(c)(d) 1.08% 1.04% 1.00% 0.98% 1.00%
======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets(e).............. 6.76%(c) 7.36% 7.34% 7.08% 7.53% 8.15%
======== ======== ======== ======== ======== ========
Portfolio turnover rate.............. 134% 140% 109% 110% 42% 26%
======== ======== ======== ======== ======== ========
<CAPTION>
APRIL 28,
1987*
YEAR ENDED DECEMBER 31, TO
---------------------------- DECEMBER 31,
1990 1989 1988 1987
-------- ------- ------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................... $ 9.91 $ 9.70 $ 9.92 $ 10.00
Income from investment operations:
Net investment income................ 0.87 0.90 0.89 0.55
Net gains or losses on securities
(both realized and unrealized)..... 0.01 0.15 (0.27) (0.14)
-------- ------- ------- -------
Total from investment operations..... 0.88 1.05 0.62 0.41
-------- ------- ------- -------
Less distributions:
Dividends from net investment
income............................. (0.84) (0.84) (0.84) (0.49)
Distributions from net realized
capital gains...................... -- -- -- --
Returns of capital................... -- -- -- --
-------- ------- ------- -------
Total distributions.................. (0.84) (0.84) (0.84) (0.49)
-------- ------- ------- -------
Net asset value, end of period........ $ 9.95 $ 9.91 $ 9.70 $ 9.92
======== ======= ======= =======
Total return(a)....................... 9.39% 11.28% 6.43% 4.18%
======== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted)..................... $ 61,463 $57,077 $48,372 $28,052
======== ======= ======= =======
Ratio of expenses to average net
assets (exclusive of interest
expense)(b)........................ 1.00% 1.00% 1.00% 1.20%(f)
======== ======= ======= =======
Ratio of net investment income to
average net assets(e).............. 8.85% 9.10% 9.11% 8.64%(f)
======== ======= ======= =======
Portfolio turnover rate.............. 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 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.
(c) Ratios are based on average net assets of $175,038,605.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(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 1994-1988, respectively.
(f) Annualized.
AIM MUNICIPAL BOND FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 8.31 $ 7.78 $ 8.61 $ 8.27 $ 8.13 $ 7.66 $ 7.81
Income from investment operations:
Net investment income.................. 0.43 0.43 0.46 0.48 0.51 0.52 0.53
Net gains or losses on securities (both
realized and unrealized)............. (0.12) 0.56 (0.78) 0.46 0.21 0.46 (0.14)
-------- -------- -------- -------- -------- -------- --------
Total from investment operations....... 0.31 0.99 (0.32) 0.94 0.72 0.98 0.39
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income... (0.43) (0.43) (0.45) (0.48) (0.51) (0.51) (0.53)
Distributions from net realized capital
gains................................ -- -- (0.03) (0.11) (0.07) -- --
Returns of capital..................... -- (0.03) (0.03) (0.01) -- -- (0.01)
-------- -------- -------- -------- -------- -------- --------
Total distributions.................... (0.43) (0.46) (0.51) (0.60) (0.58) (0.51) (0.54)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 8.19 $ 8.31 $ 7.78 $ 8.61 $ 8.27 $ 8.13 $ 7.66
======== ======== ======== ======== ======== ======== ========
Total return(a)......................... 3.90% 13.05% (3.79)% 11.66% 9.10% 13.30% 5.27%
======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................. $278,812 $284,803 $257,456 $294,209 $271,205 $273,037 $258,194
======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets............................... 0.80%(b)(c) 0.88% 0.89% 0.91% 0.90% 0.94% 0.91%
======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets................... 5.29%(b) 5.26% 5.61% 5.65% 6.15% 6.58% 6.91%
======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate................ 26% 36% 43% 24% 160% 289% 230%
======== ======== ======== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 7.64 $ 7.32 $ 8.41
Income from investment operations:
Net investment income.................. 0.54 0.53 0.51
Net gains or losses on securities (both
realized and unrealized)............. 0.18 0.34 (0.65)
-------- -------- --------
Total from investment operations....... 0.72 0.87 (0.14)
-------- -------- --------
Less distributions:
Dividends from net investment income... (0.55) (0.55) (0.49)
Distributions from net realized capital
gains................................ -- -- (0.46)
Returns of capital..................... -- -- --
-------- -------- --------
Total distributions.................... (0.55) (0.55) (0.95)
-------- -------- --------
Net asset value, end of period.......... $ 7.81 $ 7.64 $ 7.32
======== ======== ========
Total return(a)......................... 9.70% 12.33% (1.88)%
======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................. $262,997 $243,480 $237,225
======== ======== ========
Ratio of expenses to average net
assets............................... 0.89% 0.87% 0.80%
======== ======== ========
Ratio of net investment income to
average net assets................... 6.97% 7.11% 6.71%
======== ======== ========
Portfolio turnover rate................ 305% 381% 392%
======== ======== ========
</TABLE>
- ---------------
(a) Total returns do not deduct sales charges.
(b) Ratios are based on average net assets of $276,724,764.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
10
<PAGE> 135
AIM VALUE FUND -- CLASS A SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 26.81 $ 21.14 $ 20.82 $ 18.24 $ 17.55 $ 13.75 $ 14.53
Income from investment operations:
Net investment income.................. 0.43(a) 0.14 0.16 0.04 0.12 0.13 0.26
Net gains on securities
(both realized and
unrealized).......................... 3.42 7.21 0.52 3.34 2.68 5.73 0.01
---------- ---------- ---------- -------- -------- -------- --------
Total from investment operations....... 3.85 7.35 0.68 3.38 2.80 5.86 0.27
---------- ---------- ---------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income... (0.41) (0.09) (0.16) (0.03) (0.12) (0.14) (0.26)
Distributions from net realized capital
gains................................ (1.10) (1.59) (0.20) (0.77) (1.99) (1.92) (0.79)
---------- ---------- ---------- -------- -------- -------- --------
Total distributions.................... (1.51) (1.68) (0.36) (0.80) (2.11) (2.06) (1.05)
---------- ---------- ---------- -------- -------- -------- --------
Net asset value, end
of period.............................. $ 29.15 $ 26.81 $ 21.14 $ 20.82 $ 18.24 $ 17.55 $ 13.75
========== ========== ========== ======== ======== ======== ========
Total return(b)......................... 14.52% 34.85% 3.28% 18.71% 16.39% 43.45% 1.88%
========== ========== ========== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)....................... $5,100,061 $3,408,952 $1,358,725 $765,305 $239,663 $152,149 $ 86,565
========== ========== ========== ======== ======== ======== ========
Ratio of expenses to average net
assets(c)............................ 1.11%(d)(e) 1.12% 0.98% 1.09% 1.16% 1.22% 1.21%
========== ========== ========== ======== ======== ======== ========
Ratio of net investment income to
average net assets(f)................ 1.65%(d) 0.74% 0.92% 0.30% 0.75% 0.89% 1.87%
========== ========== ========== ======== ======== ======== ========
Portfolio turnover rate................ 126% 151% 127% 177% 170% 135% 131%
========== ========== ========== ======== ======== ======== ========
Average broker commission rate(g)...... $ 0.0436 N/A N/A N/A N/A N/A N/A
========== ========== ========== ======== ======== ======== ========
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 12.79 $ 11.47 $ 12.26
Income from investment operations:
Net investment income.................. 0.40 0.26 0.25
Net gains on securities
(both realized and
unrealized).......................... 3.58 2.07 0.53
-------- -------- --------
Total from investment operations....... 3.98 2.33 0.78
-------- -------- --------
Less distributions:
Dividends from net investment income... (0.43) (0.26) (0.39)
Distributions from net realized capital
gains................................ (1.81) (0.75) (1.18)
-------- -------- --------
Total distributions.................... (2.24) (1.01) (1.57)
-------- -------- --------
Net asset value, end
of period.............................. $ 14.53 $ 12.79 $ 11.47
======== ======== ========
Total return(b)......................... 31.54% 20.61% 5.96%
======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)....................... $ 76,444 $ 60,076 $ 55,527
======== ======== ========
Ratio of expenses to average net
assets(c)............................ 1.00% 1.00% 1.00%
======== ======== ========
Ratio of net investment income to
average net assets(f)................ 2.65% 1.98% 1.91%
======== ======== ========
Portfolio turnover rate................ 152% 124% 219%
======== ======== ========
Average broker commission rate(g)...... N/A N/A N/A
======== ======== ========
</TABLE>
- ---------------
(a) Calculated using average shares outstanding.
(b) Total returns do not deduct sales charges.
(c) Ratios of expenses to average net assets prior to reduction of advisory fees
were 1.13%, 1.13%, 1.23%, 1.09% and 1.08% for 1996, 1995, 1990-1988,
respectively.
(d) Ratios are based on average net assets of $4,296,112,779.
(e) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(f) Ratios of net investment income to average net assets prior to reduction of
advisory fees were 1.63%, 0.73%, 1.85%, 2.56% and 1.90% for 1996, 1995,
1990-1988, respectively.
(g) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
+ 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.
* Commencement of operations.
11
<PAGE> 136
The following per share data, ratios and supplemental data for the Class B
shares of AIM BALANCED FUND, 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 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 DECEMBER 31, OCTOBER 18, 1993*
------------------------------------ TO
1996 1995 1994 DECEMBER 31, 1993
-------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 19.22 $ 14.62 $ 16.11 $16.69
Income from investment operations:
Net investment income....................... 0.48 0.31 0.31 0.04
Net gains (losses) on securities (both
realized and unrealized)................. 2.99 4.61 (1.31) (0.58)
-------- ------- ------- -------
Total from investment operations............ 3.47 4.92 (1.00) (0.54)
-------- ------- ------- -------
Less distributions:
Dividends from net investment income........ (0.38) (0.32) (0.27) (0.04)
Distributions from net realized capital
gains.................................... (0.48) -- (0.22) --
-------- ------- ------- -------
Total distributions......................... (0.86) (0.32) (0.49) (0.04)
-------- ------- ------- -------
Net asset value, end of period................ $ 21.83 $ 19.22 $ 14.62 $16.11
======== ======= ======= =======
Total return(a)............................... 18.28% 33.93% (6.23)% (3.23)%
======== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted).... $237,082 $72,634 $20,245 $2,754
======== ======= ======= =======
Ratio of expenses to average net assets..... 1.97%(b)(c) 2.21%(d) 1.98%(e) 2.83%(f)
======== ======= ======= =======
Ratio of net investment income to average
net assets............................... 2.15%(b) 2.03%(d) 2.34%(e) 1.15%(f)
======== ======= ======= =======
Portfolio turnover rate..................... 72% 77% 76% 233%
======== ======= ======= =======
Average broker commission rate(g)........... $ 0.0558 N/A N/A N/A
======== ======= ======= =======
</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 $149,660,567.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 2.23% and 2.01%,
respectively.
(e) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 2.45% and 1.87%,
respectively.
(f) Annualized.
(g) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
12
<PAGE> 137
AIM GLOBAL UTILITIES FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
SEPTEMBER 1,
1993*
YEAR ENDED DECEMBER 31, TO
--------------------------------- DECEMBER 31,
1996 1995 1994 1993
------- ------- ------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 14.60 $ 11.84 $ 14.08 $ 15.30
Income from investment operations:
Net investment income........................ 0.42 0.44 0.47 0.17
Net gains (losses) on securities (both
realized and unrealized).................. 1.44 2.73 (2.19) (0.98)
------- ------- ------- -------
Total from investment operations............. 1.86 3.17 (1.72) (0.81)
------- ------- ------- -------
Less distributions:
Dividends from net investment income......... (0.45) (0.41) (0.49) (0.17)
Distributions from net realized capital
gains..................................... -- -- -- (0.24)
Returns of capital........................... -- -- (0.03) --
------- ------- ------- -------
Total distributions.......................... (0.45) (0.41) (0.52) (0.41)
------- ------- ------- -------
Net asset value, end of period................. $ 16.01 $ 14.60 $ 11.84 $ 14.08
======= ======= ======= =======
Total return(a)................................ 12.98% 27.16% (12.35)% (5.32)%
======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)..... $79,530 $70,693 $42,568 $23,892
======= ======= ======= =======
Ratio of expenses to average net assets...... 1.96%(b)(c) 1.97% 2.07% 1.99%(d)
======= ======= ======= =======
Ratio of net investment income to average net
assets.................................... 2.83%(b) 3.44% 3.78% 3.38%(d)
======= ======= ======= =======
Portfolio turnover rate...................... 48% 88% 101% 76%
======= ======= ======= =======
Average broker commission rate(e)............ $0.0460 N/A N/A N/A
======= ======= ======= =======
</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 $75,949,144.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
(e) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
13
<PAGE> 138
AIM GROWTH FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 1, 1993*
--------------------------------------- TO
1996 1995 1994 DECEMBER 31, 1993
-------- -------- ------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 12.77 $ 10.21 $ 11.31 $ 12.83
Income from investment operations:
Net investment income (loss).......... (0.05) (0.08)(a) (0.06) (0.01)
Net gains (losses) on securities (both
realized and unrealized)........... 2.28 3.43 (a) (0.61) (0.14)
-------- -------- ------- --------
Total from investment operations...... 2.23 3.35 (0.67) (0.15)
-------- -------- ------- --------
Less distributions:
Distributions from net realized
capital gains...................... (0.68) (0.79) (0.43) (1.37)
-------- -------- ------- --------
Total distributions................... (0.68) (0.79) (0.43) (1.37)
-------- -------- ------- --------
Net asset value, end of period.......... $ 14.32 $ 12.77 $ 10.21 $ 11.31
======== ======== ======= ========
Total return(b)......................... 17.60% 33.00% (5.88)% (0.92)%
======== ======== ======= ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)........................... $280,807 $138,034 $38,448 $11,053
======== ======== ======= ========
Ratio of expenses to average net
assets............................. 2.03%(c)(d) 2.13% 2.18% 1.91% (e)
======== ======== ======= ========
Ratio of net investment income (loss)
to average net assets.............. (0.39)%(c) (0.65)% (0.94)% (0.72)%(e)
======== ======== ======= ========
Portfolio turnover rate............... 97% 87% 201% 192%
======== ======== ======= ========
Average broker commission rate(f)..... $ 0.0621 N/A N/A N/A
======== ======== ======= ========
</TABLE>
- ---------------
(a) Calculated using average shares outstanding.
(b) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods of less than one year.
(c) Ratios are based on average net assets of $213,327,146.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) Annualized.
(f) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
AIM HIGH YIELD FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 1, 1993*
------------------------------------------ TO
1996 1995 1994 DECEMBER 31, 1993
---------- -------- -------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 9.42 $ 8.92 $ 10.04 $ 9.96
Income from investment operations:
Net investment income................. 0.85 0.85 0.87 0.32
Net gains (losses) on securities (both
realized and unrealized)........... 0.47 0.52 (1.10) 0.07
---------- -------- -------- --------
Total from investment operations...... 1.32 1.37 (0.23) 0.39
---------- -------- -------- --------
Less distributions:
Dividends from net investment
income............................. (0.86) (0.87) (0.89) (0.31)
---------- -------- -------- --------
Net asset value, end of period.......... $ 9.88 $ 9.42 $ 8.92 $ 10.04
========== ======== ======== ========
Total return(a)......................... 14.68% 15.91% (2.48)% 4.00%
========== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)........................... $1,068,060 $557,926 $191,338 $31,264
========== ======== ======== ========
Ratio of expenses to average net
assets............................. 1.68%(b)(c) 1.73% 1.80% 1.93%(d)
========== ======== ======== ========
Ratio of net investment income to
average net assets................. 8.95%(b) 9.18% 9.27% 8.99%(d)
========== ======== ======== ========
Portfolio turnover rate............... 77% 61% 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 $808,336,751.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
14
<PAGE> 139
AIM INCOME FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 7, 1993*
--------------------------------- TO
1996 1995 1994 DECEMBER 31, 1993
------- ------- ------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 8.15 $ 7.18 $ 8.43 $ 8.95
Income from investment operations:
Net investment income........................ 0.50 0.53 0.52 0.19
Net gains (losses) on securities (both
realized and unrealized).................. 0.11 0.98 (1.23) (0.34)
------- ------- ------- --------
Total from investment operations............. 0.61 1.51 (0.71) (0.15)
------- ------- ------- --------
Less distributions:
Dividends from net investment income......... (0.53) (0.54) (0.42) (0.18)
Distributions from net realized capital
gains..................................... -- -- (0.01) (0.19)
Returns of capital........................... -- -- (0.11) --
------- ------- ------- --------
Total distributions.......................... (0.53) (0.54) (0.54) (0.37)
------- ------- ------- --------
Net asset value, end of period................. $ 8.23 $ 8.15 $ 7.18 $ 8.43
======= ======= ======= ========
Total return(a)................................ 7.87% 21.72% (8.46)% (0.75)%
======= ======= ======= ========
Ratios/supplemental data:
Net assets, end of period (000s omitted)..... $85,343 $44,304 $12,321 $ 3,602
======= ======= ======= ========
Ratio of expenses to average net assets...... 1.80%(b)(c) 1.79% 1.83%(d) 1.75%(d)(e)
======= ======= ======= ========
Ratio of net investment income to average net
assets.................................... 6.30%(b) 6.71% 6.69%(d) 6.24%(d)(e)
======= ======= ======= ========
Portfolio turnover rate...................... 80% 227% 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 $65,062,096.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) After expense reimbursements. Ratios of expenses and net investment income
to average net assets prior to expense reimbursements were 2.04% and 2.50%
(annualized) and 6.48% and 5.49% (annualized) for 1994 and 1993,
respectively.
(e) Annualized.
AIM INTERMEDIATE GOVERNMENT FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 7, 1993*
--------------------------------- TO
1996 1995 1994 DECEMBER 31, 1993
------- ------- ------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 9.69 $ 8.99 $ 10.04 $ 10.44
Income from investment operations:
Net investment income....................... 0.55 0.63 0.61 0.21
Net gains (losses) on securities (both
realized and unrealized)................. (0.41) 0.70 (1.02) (0.27)
------- ------- ------- --------
Total from investment operations............ 0.14 1.33 (0.41) (0.06)
------- ------- ------- --------
Less distributions:
Dividends from net investment income........ (0.51) (0.59) (0.50) (0.20)
Distributions from net realized capital
gains.................................... -- -- (0.04) (0.14)
Returns of capital.......................... (0.04) (0.04) (0.10) --
------- ------- ------- --------
Total distributions......................... (0.55) (0.63) (0.64) (0.34)
------- ------- ------- --------
Net asset value, end of period................ $ 9.28 $ 9.69 $ 8.99 $ 10.04
======= ======= ======= ========
Total return(a)............................... 1.61% 15.22% (4.13)% (0.52)%
======= ======= ======= ========
Ratios/supplemental data:
Net assets, end of period (000s omitted).... $79,443 $61,300 $23,415 $ 6,160
======= ======= ======= ========
Ratio of expenses to average net assets
(exclusive of interest expense)(b)....... 1.76%(c)(d) 1.86% 1.82% 1.71%(f)
======= ======= ======= ========
Ratio of net investment income to average
net assets(e)............................ 6.00%(c) 6.58% 6.56% 6.37%(f)
======= ======= ======= ========
Portfolio turnover rate..................... 134% 140% 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) Ratio of expenses to average net assets prior to reduction of advisory fee
and expense reimbursement for 1994 and 1993 were 1.87% and 2.18%
(annualized), respectively.
(c) Ratios are based on average net assets of $71,976,395.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) Ratio of net investment income to average net assets prior to reduction of
advisory fee and expense reimbursement for 1994 and 1993 were 6.50% and
5.90% (annualized), respectively.
(f) Annualized.
15
<PAGE> 140
AIM MUNICIPAL BOND FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 1, 1993*
-------------------------------- TO
1996 1995 1994 DECEMBER 31, 1993
------- ------- ------ ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 8.31 $ 7.78 $ 8.61 $ 8.71
Income from investment operations:
Net investment income................. 0.37 0.39 0.39 0.14
Net gains (losses) on securities (both
realized and unrealized)........... (0.13) 0.54 (0.78) 0.01
------- ------- ------ --------
Total from investment operations...... 0.24 0.93 (0.39) 0.15
------- ------- ------ --------
Less distributions:
Dividends from net investment
income............................. (0.36) (0.37) (0.38) (0.13)
Distributions from net realized
capital gains...................... -- -- (0.03) (0.11)
Returns of capital.................... -- (0.03) (0.03) (0.01)
------- ------- ------ --------
Total distributions................... (0.36) (0.40) (0.44) (0.25)
------- ------- ------ --------
Net asset value, end of period.......... $ 8.19 $ 8.31 $ 7.78 $ 8.61
======= ======= ====== ========
Total return(a)......................... 2.99% 12.14% (4.57)% 1.95%
======= ======= ====== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)........................... $33,770 $21,478 $9,175 $ 2,319
======= ======= ====== ========
Ratio of expenses to average net
assets(b).......................... 1.61%(c)(d) 1.68% 1.67% 1.65%(e)
======= ======= ====== ========
Ratio of net investment income to
average net assets(b).............. 4.49%(c) 4.46% 4.83% 4.91%(e)
======= ======= ====== ========
Portfolio turnover rate............... 26% 36% 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 of expenses and net investment income to average daily net assets
prior to expense reimbursements are 1.77%, 1.84% and 3.08% (annualized) and
4.37%, 4.66% and 3.48% (annualized) for 1995-1993, respectively.
(c) Ratios are based on average net assets of $27,530,145.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) Annualized.
16
<PAGE> 141
AIM VALUE FUND -- CLASS B SHARES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, OCTOBER 18, 1993*
---------------------------------------- TO
1996 1995 1994 DECEMBER 31, 1993
---------- ---------- -------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 26.65 $ 21.13 $ 20.82 $ 21.80
Income from investment operations:
Net investment income................. 0.20(a) (0.01) -- 0.02
Net gains (losses) on securities (both
realized and unrealized)........... 3.38 7.12 0.51 (0.21)
---------- ---------- -------- --------
Total from investment operations...... 3.58 7.11 0.51 (0.19)
---------- ---------- -------- --------
Less distributions:
Dividends from net investment
income............................. (0.21) -- -- (0.02)
Distributions from net realized
capital gains...................... (1.10) (1.59) (0.20) (0.77)
---------- ---------- -------- --------
Total distributions................... (1.31) (1.59) (0.20) (0.79)
---------- ---------- -------- --------
Net asset value, end of period.......... $ 28.92 $ 26.65 $ 21.13 $ 20.82
========== ========== ======== ========
Total return(b)......................... 13.57% 33.73% 2.46% (0.74)%
========== ========== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)........................... $4,875,933 $2,860,531 $680,119 $63,215
========== ========== ======== ========
Ratio of expenses to average net
assets(c).......................... 1.94%(d)(e) 1.94% 1.90% 1.85%(f)
========== ========== ======== ========
Ratio of net investment income (loss)
to average net assets(c)........... 0.82%(d) (0.08)% 0.00% (0.46)%(f)
========== ========== ======== ========
Portfolio turnover rate............... 126% 151% 127% 177%
========== ========== ======== ========
Average broker commission rate(g)..... $ 0.0436 N/A N/A N/A
========== ========== ======== ========
</TABLE>
- ---------------
(a) Calculated using average shares outstanding.
(b) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods of less than one year.
(c) The ratios of expenses to average net assets prior to waiver of advisory
fees were 1.96% and 1.96%, for 1996 and 1995, respectively. The ratio of net
investment income (loss) to average net assets prior to waiver of advisory
fees were 0.81% and (0.09%), for 1996 and 1995, respectively.
(d) Ratios are based on average net assets of $3,953,324,717.
(e) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(f) Annualized.
(g) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
* Date sales commenced.
17
<PAGE> 142
The following per share data, ratios and supplemental data for the Class A
shares, Class B shares and AIM Cash Reserve Shares of AIM MONEY MARKET FUND for
the years ended December 31, 1996, 1995 and 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 AIM CASH RESERVE SHARES
<TABLE>
<CAPTION>
CLASS A SHARES
---------------------------------------------------
OCTOBER 16,
YEAR ENDED DECEMBER 31, 1993 TO
----------------------------------- DECEMBER 31,
1996 1995 1994 1993
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income................. 0.0433 0.0495 0.0337 0.0048
-------- -------- -------- --------
Less distributions:
Dividends from net investment income.. (0.0433) (0.0495) (0.0337) (0.0048)
-------- -------- -------- --------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return(a)......................... 4.42% 5.06% 3.43% 2.27%(e)
======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................ $287,905 $221,487 $148,886 $ 81,460
======== ======== ======== ========
Ratio of expenses to average net
assets.............................. 1.07%(b)(c) 1.03% 0.97%(d) 1.00%(d)(e)
======== ======== ======== ========
Ratio of net investment income to
average net assets.................. 4.34%(b) 4.91% 3.53%(d) 2.27%(d)(e)
======== ======== ======== ========
<CAPTION>
CLASS B SHARES
---------------------------------------------------------
OCTOBER 16,
YEAR ENDED DECEMBER 31, 1993 TO
----------------------------------------- DECEMBER 31,
1996 1995 1994 1993
-------------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income................. 0.0360 0.0419 0.0259 0.0032
-------------- -------- -------- --------
Less distributions:
Dividends from net investment income.. (0.0360) (0.0419) (0.0259) (0.0032)
-------------- -------- -------- --------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ======== ======== ========
Total return(a)......................... 3.66% 4.27% 2.62% 1.51%(e)
============== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................ $ 91,148 $ 69,857 $ 33,999 $ 1,289
============== ======== ======== ========
Ratio of expenses to average net
assets.............................. 1.81%(b)(c) 1.78% 1.78%(f) 1.75%(e)(f)
============== ======== ======== ========
Ratio of net investment income to
average net assets.................. 3.60%(b) 4.14% 3.14%(f) 1.54%(e)(f)
============== ======== ======== ========
<CAPTION>
AIM CASH RESERVE SHARES
--------------------------------------------------------
OCTOBER 16,
YEAR ENDED DECEMBER 31, 1993 TO
---------------------------------------- DECEMBER 31,
1996 1995 1994 1993
------------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income................. 0.0433 0.0493 0.0337 0.0048
------------- -------- -------- --------
Less distributions:
Dividends from net investment income.. (0.0433) (0.0493) (0.0337) (0.0048)
------------- -------- -------- --------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ======== ======== ========
Total return(a)......................... 4.41% 5.04% 3.42% 2.27%(e)
============= ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted)............................ $ 315,470 $293,450 $359,952 $241,778
============= ======== ======== ========
Ratio of expenses to average net
assets.............................. 1.08%(b)(c) 1.04% 0.99%(g) 1.00%(e)(g)
============= ======== ======== ========
Ratio of net investment income to
average net assets.................. 4.32%(b) 4.92% 3.49%(g) 2.27%(e)(g)
============= ======== ======== ========
</TABLE>
- ---------------
(a) Does not deduct sales charges or contingent deferred sales charges, where
applicable.
(b) Ratios are based on average daily net assets as follows: Class A
Shares - $266,627,474, Class B Shares - $99,033,713 and AIM Cash Reserve
Shares - $385,881,111.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) Ratios of expenses and net investment income to average daily net assets
prior to waiver of advisory fees are 1.06% and 3.44% for 1994 and 1.20%
(annualized) and 2.07% (annualized) for 1993.
(e) Annualized.
(f) Ratios of expenses and net investment income to average daily net assets
prior to waiver of advisory fees are 1.87% and 3.05% for 1994 and 1.95%
(annualized) and 1.34% (annualized) for 1993.
(g) Ratios of expenses and net investment income to average daily net assets
prior to waiver of advisory fees are 1.08% and 3.40% for 1994 and 1.20%
(annualized) and 2.07% (annualized) for 1993.
18
<PAGE> 143
- --------------------------------------------------------------------------------
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. 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. Standardized total return
for Class C shares reflects the deduction of a 1% contingent deferred sales
charge, if applicable, on a redemption of shares held for one year.
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 and net asset value per share for Class B shares,
Class C shares and AIM Cash Reserve 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).
19
<PAGE> 144
- --------------------------------------------------------------------------------
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 total
assets invested in equity securities and a minimum of 30% and a maximum of 70%
of its total assets invested in (non-convertible) 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 Ratings Services
("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 1996, 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 also invest up to 25% of its total assets in convertible
securities. Compliance with all of the above percentage requirements may limit
the ability of the Fund to maximize total return. 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. The Fund may invest up to 25% of its total assets in convertible
securities. When AIM deems it appropriate, the Fund may purchase bonds issued by
the above types of companies, although investments in non-convertible bonds 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 1996, 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 foreign securities,
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,
20
<PAGE> 145
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 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. At least 65% of the value of the
Fund's assets will be invested in high yield debt securities. The Fund may also
invest in preferred stocks.
For a breakdown of the quality ratings of the Fund's investments as of
December 31, 1996, see the chart on page 24.
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, 1996, see the chart on page 24.
21
<PAGE> 146
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 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.
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. Accordingly, such
securities may involve risk of loss of principal and interest; however,
historically there have not been any defaults of such issues. 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 also invest in U.S. Government
Agency Mortgage-Backed Securities. Mortgage-backed securities consist of
interests in underlying mortgages with maturities of up to thirty years.
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, taxable municipal securities 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. 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.
The Fund must also comply with the requirements of Rule 2a-7 under the 1940
Act, which govern 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.
22
<PAGE> 147
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 the 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). For purposes of the foregoing percentage limitations,
municipal securities (i) which have been collateralized with U.S. Government
securities held in escrow until the municipal securities' refunding date or
final maturity, but (ii) which have not been re-rated by a NRSRO, will be
treated by the Fund as the equivalent of Aaa/AAA rated securities. During 1996,
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.
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<PAGE> 148
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 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 1996, 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 the various rating categories (based on
the higher of Standard and Poor's Corporation and Moody's Investors Service,
Inc. ratings as described in Appendix C), and in unrated securities determined
to be of comparable quality, was as follows:
<TABLE>
<CAPTION>
AIM HIGH AIM INCOME
YIELD FUND FUND
---------- ----------
<S> <C> <C>
AAA/Aaa..................................................... 0% 17.77%
AA/Aa....................................................... 0.35% 13.55%
A/A......................................................... 0.40% 15.03%
BBB/Baa..................................................... 0.21% 22.04%
BB/Ba....................................................... 10.30% 11.15%
B/B......................................................... 75.01% 18.66%
CCC/Caa..................................................... 6.21% 0.92%
CC/Ca....................................................... 0% 0%
C/C......................................................... 0% 0%
Unrated..................................................... 7.52% 0.88%
------ ------
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:
CASH MANAGEMENT AND TEMPORARY DEFENSIVE INVESTMENTS. A portion of each Fund's
assets may be held from time to time in cash, repurchase agreements, commercial
paper, taxable municipal securities or other Money Market Instruments when such
positions are deemed advisable in light of economic conditions or for daily cash
management purposes. In addition, each of the Funds may invest for temporary
defensive purposes all or a substantial portion of its assets in the foregoing
types of investments, although AIM MONEY MARKET FUND invests exclusively in
Money Market Instruments. None of the Funds (except AIM MONEY MARKET FUND) is
limited to investing in Money Market Instruments which are "First Tier"
securities as defined in Rule 2a-7 under the 1940 Act. To the extent that a Fund
(other than AIM MONEY MARKET FUND) invests in the foregoing types of
investments, its ability to achieve its investment objective may be adversely
affected.
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 secur-
24
<PAGE> 149
ity, 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 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, 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.
INVESTMENT IN OTHER INVESTMENT COMPANIES. Each of the Funds is permitted to
invest in other investment companies to the extent permitted by the 1940 Act,
and rules and regulations thereunder, and, if applicable, exemptive orders
granted by the SEC.
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
GLOBAL UTILITIES 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 in order to hedge the value of their respective portfolios
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 in order to hedge the value of their respective portfolios against
changes in market conditions. A stock index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar or other currency amount times the difference
between the stock index value at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying stocks in the index is made. 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. 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.
There are risks associated with investments in stock index futures contracts,
interest rate futures contracts, and options on such contracts. During certain
market conditions, purchases and sales of futures contracts may not completely
offset a decline or rise in the value of a Fund's portfolio. In the futures
markets, it may not always be possible to execute a buy or sell order at the
desired price, or to close out an open position due to market conditions, limits
on open positions and/or daily price fluctuations. Changes in the market value
of a Fund's portfolio may differ substantially from the changes anticipated by
the Fund when hedged positions were established and unanticipated price
movements in a futures contract may result in a loss substantially greater than
a Fund's initial investment in such contract. Successful use of futures
contracts and related options is dependent upon AIM's ability to predict
correctly movements in the direction of the applicable markets. No assurance can
be given that AIM's judgment in this respect will be correct.
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. See the Statement
of Additional Information for a description of a Fund's investments in futures
contracts and options on futures contracts, including certain additional risks.
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
25
<PAGE> 150
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.
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 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 ex-
26
<PAGE> 151
change 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.
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 and is an indirect wholly owned subsidiary of AMVESCAP plc.
AMVESCAP plc and its subsidiaries are an independent investment management group
engaged in institutional investment management and retail mutual fund businesses
in the United States, Europe and the Pacific Region. 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
100, Houston, Texas 77046, serves as the investment advisor to each Fund
pursuant to a master investment advisory agreement, dated as of February 28,
1997 (the "Advisory Agreement"). AIM was organized in 1976 and, together with
its subsidiaries, manages or advises 53 investment company portfolios. As of
July 15, 1997, the total assets of such investment company portfolios were
approximately $76.0 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
per-
27
<PAGE> 152
form or arrange for certain accounting 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
("Administrative Services Agreement"), dated as of February 28, 1997, 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 fund accounting services. In
addition, pursuant to the terms of a Transfer Agency and Service Agreement,
A I M Fund Services, Inc. ("AFS"), a wholly owned subsidiary of AIM and
registered transfer agent, receives a fee for its provision of transfer agency,
dividend distribution and disbursement and shareholder services to the Funds.
AFS' principal address is P.O. Box 4739, Houston, Texas 77210-4739.
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 approximately 125
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
subsidiaries 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. Claude C. Cody IV is Vice President of A I M Capital
Management, Inc. ("AIM Capital"), a wholly owned subsidiary of AIM; and has been
responsible for the Fund since its investment objective and policies were
changed to that of a balanced fund in 1993. Mr. Cody has been associated with
AIM and/or its subsidiaries since 1992 and has a total of 21 years of experience
as an investment professional. Robert G. Alley is Senior Vice President of AIM
Capital; Vice President of AIM and of the Trust; and also has been responsible
for the Fund since 1993. Mr. Alley has been associated with AIM and/or its
subsidiaries since 1992 and has a total of 25 years of experience as an
investment professional. Craig A. Smith is Vice President of AIM Capital and
also has been responsible for the Fund since 1996. Mr. Smith has been associated
with AIM since 1989 and has a total of eight years of experience as an
investment professional.
AIM Global Utilities Fund. Claude C. Cody IV and Robert G. Alley have been
responsible for the management of the Fund since 1992. Craig A. Smith has been
responsible for the management of the Fund since 1996. Background information
for Mr. Cody, Mr. Alley and Mr. Smith is discussed above with respect to the
management of AIM BALANCED FUND.
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 subsidiaries
since 1986 and has 14 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 subsidiaries
since 1989 and has a total of eight 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
and/or its subsidiaries since 1982 and has 23 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 13 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
and/or its subsidiaries since 1991 and has over 11 years of experience as an
investment professional.
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 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 14 years of experience as an investment professional.
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 and/or its
subsidiaries since 1989 and has a total of 15 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
and/or its subsidiaries since 1991 and has 10 years of experience as an
investment professional. Paula A. Permenter has been responsible for the Fund
since 1996. Ms. Permenter has been
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<PAGE> 153
associated with AIM and/or its subsidiaries since 1996 and has 11 years of
experience as an investment professional. Prior to joining AIM, she was an
Associate Trader and Investment Assistant with Van Kampen American Capital Asset
Management, Inc.
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 and/or its subsidiaries since 1987 and has a total of 29 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 and/or its subsidiaries since 1990 and has a total of eight years of
experience as an investment professional. Robert A. Shelton is Investment
Officer of AIM Capital and has been responsible for the Fund since 1997. Mr.
Shelton has been associated with AIM and/or its subsidiaries since 1995 and has
a total of six years of experience as an investment professional.
FEES AND EXPENSES. For the fiscal year ended December 31, 1996, 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's class were,
stated as a percentage of that class' 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............................ 0.61% 1.15% 1.97%
AIM Global Utilities Fund.................... 0.58% 1.17% 1.96%
AIM Growth Fund.............................. 0.69% 1.18% 2.03%
AIM High Yield Fund.......................... 0.50% 0.97% 1.68%
AIM Income Fund.............................. 0.46% 0.98% 1.80%
AIM Intermediate Government Fund............. 0.48% 1.00% 1.76%
AIM Municipal Bond Fund...................... 0.47% 0.80% 1.61%
AIM Value Fund............................... 0.61%* 1.11% 1.94%
</TABLE>
- ---------------
* Net of advisory fee waivers. Without such waivers, the amount would have been
0.63%
For the year ended December 31, 1996, AIM MONEY MARKET FUND paid 0.55% of its
average daily net assets to AIM as compensation for its advisory services, and
the Class A shares', Class B shares' and AIM Cash Reserve Shares' total expenses
for such period were 1.07%, 1.81% and 1.08% of each Class' average daily net
assets, respectively.
For the fiscal year ended December 31, 1996, 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........................................... .02%
AIM Global Utilities Fund................................... .03%
AIM Growth Fund............................................. .02%
AIM High Yield Fund......................................... .01%
AIM Income Fund............................................. .02%
AIM Intermediate Government Fund............................ .03%
AIM Money Market Fund....................................... .01%
AIM Municipal Bond Fund..................................... .02%
AIM Value Fund.............................................. .002%
</TABLE>
FEE WAIVERS. In order to increase the return 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. AIM is currently
voluntarily waiving a portion of its advisory fees payable by AIM VALUE FUND as
follows: 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 to
and including $2 billion, plus 0.60% of the Fund's average daily net assets in
excess of $2 billion. Fee waivers or reductions, other than those set forth in
the Advisory Agreement, may be rescinded at any time and without notice to
investors. During the year ended December 31, 1996, AIM VALUE FUND waived 0.02%
in advisory fees.
29
<PAGE> 154
DISTRIBUTOR. The Trust has entered into master distribution agreements
relating to the Funds (the "Distribution Agreements"), dated February 28, 1997,
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, Class B and Class C shares of the Funds and AIM Cash
Reserve 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.
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. Class A and C Plan. The Trust has adopted a Master
Distribution Plan applicable to Class A and Class C shares of the Funds (the
"Class A and C Plan") pursuant to Rule 12b-1 under the 1940 Act, to compensate
AIM Distributors for the purpose of financing any activity that is intended to
result in the sale of Class A and Class C shares of the Funds.
Under the Class A and C Plan, the Trust may compensate AIM Distributors an
aggregate amount of 0.25% of the average daily net assets of Class A shares of
each Fund on an annualized basis and an aggregate amount of 1.00% of the average
daily net assets of Class C shares of each Fund on an annualized basis.
The Class A and C Plan is designed to compensate AIM Distributors, on a
quarterly basis, for certain promotional and other sales-related costs, and to
implement a dealer incentive program which provides for periodic payments to
selected dealers who furnish continuing personal shareholder services to their
customers who purchase and own Class A or Class C shares of a Fund. Payments can
also be directed by AIM Distributors to selected institutions who have entered
into service agreements with respect to Class A and Class C shares of the Funds
and who provide continuing personal services to their customers who own Class A
and Class C shares of a Fund. The service fees payable to selected institutions
are calculated at the annual rate of 0.25% of the average daily net asset value
of those Fund shares that are held in such institution's customers' accounts
which were purchased on or after a prescribed date set forth in the Plan.
Of the aggregate amount payable under the Class A and C Plan, payments to
dealers and other financial institutions that provide continuing personal
shareholder services to their customers who purchase and own shares of a Fund,
in amounts of up to 0.25% of the average net assets of such Fund attributable to
the customers of such dealers or financial institutions are characterized as a
service fee, and that payments to dealers and other financial institutions in
excess of such amount and payments to AIM Distributors would be characterized as
an asset-based sales charge pursuant to the Class A and C Plan. The Class A and
C Plan also imposes a cap on the total amount of sales charges, including
asset-based sales charges, that may be paid by the Trust with respect to a Fund.
The Class A and C Plan does not obligate the Funds to reimburse AIM Distributors
for the actual expenses AIM Distributors may incur in fulfilling its obligations
under the Class A and C Plan on behalf of the Funds. Thus, under the Class A and
C Plan, 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. Payments
pursuant to the Plans are subject to any applicable limitations imposed by rules
of the National Association of Securities Dealers, Inc.
Class B Plan. 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.
Both Plans. 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
30
<PAGE> 155
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 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, Class C shares and, in the case of AIM MONEY
MARKET FUND, AIM Cash Reserve 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 shareholders of
Class A and Class C shares and AIM Cash Reserve Shares (of AIM MONEY MARKET
FUND) 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.
31
<PAGE> 156
THE TOLL-FREE NUMBER FOR ACCESS TO ROUTINE ACCOUNT INFORMATION AND SHAREHOLDER
ASSISTANCE IS
(800) 959-4246 (7:30 A.M. TO 6:00 P.M. CENTRAL TIME).
INVESTOR'S GUIDE
TO THE AIM FAMILY OF FUNDS--Registered Trademark--
- --------------------------------------------------------------------------------
INTRODUCTION TO THE AIM FAMILY OF FUNDS
THE AIM FAMILY OF FUNDS consists of the following mutual funds:
<TABLE>
<S> <C>
AIM ADVISOR CASH MANAGEMENT FUND(1),(2) AIM GLOBAL INCOME FUND
AIM ADVISOR FLEX FUND AIM GLOBAL UTILITIES FUND
AIM ADVISOR INCOME FUND(2) AIM GROWTH FUND
AIM ADVISOR INTERNATIONAL VALUE FUND AIM HIGH YIELD FUND
AIM ADVISOR LARGE CAP VALUE FUND AIM INCOME FUND
AIM ADVISOR MULTIFLEX FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM ADVISOR REAL ESTATE FUND AIM INTERNATIONAL EQUITY FUND
AIM AGGRESSIVE GROWTH FUND AIM LIMITED MATURITY TREASURY SHARES
AIM BALANCED FUND AIM MONEY MARKET FUND(1)
AIM BLUE CHIP FUND AIM MUNICIPAL BOND FUND
AIM CAPITAL DEVELOPMENT FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM CHARTER FUND AIM TAX-EXEMPT CASH FUND(1)
AIM CONSTELLATION FUND AIM TAX-FREE INTERMEDIATE SHARES
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM VALUE FUND
AIM GLOBAL GROWTH FUND AIM WEINGARTEN FUND
</TABLE>
(1) Class A shares of AIM TAX-EXEMPT CASH FUND, AIM Cash Reserve Shares of AIM
MONEY MARKET FUND, and Class A and Class C shares of AIM ADVISOR CASH
MANAGEMENT FUND, are offered to investors at net asset value, without
payment of a sales charge, as described below. Other funds, including the
Class A, Class B and Class C 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.
(2)Fund closed to new investments on August 4, 1997. However, until October 3,
1997 the Fund will continue to accept investments (i) from shareholders of
record on August 4, 1997 of AIM ADVISOR CASH MANAGEMENT FUND, AIM ADVISOR
FLEX FUND, AIM ADVISOR INCOME FUND, AIM ADVISOR INTERNATIONAL VALUE FUND, AIM
ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR MULTIFLEX FUND and AIM ADVISOR REAL
ESTATE FUND or (ii) on behalf of clients of selling group members who were
INVESCO Advisor Funds, Inc. selling group members on August 1, 1997. Please
refer to "Exchange Privilege" herein and the Fund's prospectus dated August
4, 1997.
IT IS IMPORTANT FOR SHAREHOLDERS CONSIDERING AN EXCHANGE TO CAREFULLY REVIEW
THE PROSPECTUS OF THE FUND WHOSE SHARES WILL BE ACQUIRED IN AN EXCHANGE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SHARES OF ANY FUND OTHER THAN
THE FUND(S) NAMED ON THE COVER PAGE OF THIS PROSPECTUS.
- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
HOW TO OPEN AN ACCOUNT. In order to purchase shares of any of The AIM Family
of Funds ("AIM Funds"), an investor must submit a fully completed new Account
Application form directly to A I M Fund Services, Inc. ("AFS" or the "Transfer
Agent") or through any dealer authorized by A I M Distributors, Inc. ("AIM
Distributors") to sell shares of the AIM Funds.
Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed IRS Form W-8 (for non-resident aliens) or Form
W-9 (certifying exempt status) accompanying the registration information will be
subject to backup withholding. See the Account Application for applicable
Internal Revenue Service penalties. The minimum initial investment is $500,
except for accounts initially established through an Automatic Investment Plan,
which requires a special authorization form (see "Special Plans") and for
certain retirement accounts. The minimum initial investment for accounts
established with an Automatic Investment Plan is $50. The minimum initial
investment for an Individual Retirement Arrangement ("IRA") is $250. There are
no minimum initial investment requirements applicable to
money-purchase/profit-sharing plans, 401(k) plans, IRA/Simplified Employee
Pension ("SEP") accounts, 403(b) plans or 457 (state deferred compensation)
plans (except that the minimum initial investment for salary deferrals for such
plans is $25), or for investment of dividends and distributions of any of the
AIM Funds into any existing AIM Funds account. A Salary Reduction SEP ("SARSEP")
may not be established after December 31, 1996; however existing SARSEP accounts
can remain in effect.
AFS' mailing address is:
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
MCF-A 07/97
A-1
<PAGE> 157
For additional information or assistance, investors should call the Client
Services Department of AFS at:
(800) 959-4246
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 (800) 347-4246.
HOW TO PURCHASE ADDITIONAL SHARES. The minimum investment for subsequent
purchases is $50. The minimum employee salary deferral investment for
participants in money-purchase/profit sharing plans, 401(k), IRA/SEP, 403(b) or
457 plans is $25. There are no such minimum investment requirements for
investment of dividends and distributions of any of the AIM Funds into any other
existing AIM Funds account.
Additional shares may be purchased directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors.
Direct investments may be made by mail or by wiring payment to AFS as follows:
SUBSEQUENT PURCHASES BY MAIL: Investors must indicate their account number and
the name of the Fund being purchased. The remittance slip from a confirmation
statement should be used for this purpose, and sent to AFS.
PURCHASES BY WIRE: To insure prompt credit to his account, an investor or his
dealer should call AFS' Client Services Department at (800) 959-4246 prior to
sending a wire to receive a reference number for the wire. The following wire
instructions should be used:
<TABLE>
<S> <C>
Beneficiary Bank ABA/Routing #: 113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: A I M Fund Services, Inc.
RFB: Fund name, Reference Number (16 character limit)
OBI: Shareholder Name, Shareholder Account Number
(70 character limit)
</TABLE>
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF PURCHASE OF THE AIM FUNDS
Shares of the AIM Funds, including Class A shares (the "Class A shares") of
AIM ADVISOR CASH MANAGEMENT FUND, AIM ADVISOR FLEX FUND, AIM ADVISOR INCOME
FUND, AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND,
AIM ADVISOR MULTIFLEX FUND, AIM ADVISOR REAL ESTATE FUND, AIM AGGRESSIVE GROWTH
FUND, AIM BALANCED FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM
CHARTER FUND, AIM CONSTELLATION FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM
GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM GLOBAL UTILITIES FUND, AIM
GROWTH FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT
FUND, AIM INTERNATIONAL EQUITY FUND, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND
FUND, AIM VALUE FUND and AIM WEINGARTEN FUND, collectively (other than AIM
AGGRESSIVE GROWTH FUND), the "Multiple Class Funds," may be purchased at their
respective net asset value plus a sales charge as indicated below, except that
Class A shares of AIM TAX-EXEMPT CASH FUND, Class A shares of AIM ADVISOR CASH
MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM MONEY MARKET FUND are sold
without a sales charge and Class B shares (the "Class B shares") and Class C
shares ("Class C shares") of the Multiple Class Funds (except Class C shares of
AIM ADVISOR CASH MANAGEMENT FUND) 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, Class B or
Class C shares (or, if applicable, AIM Cash Reserve 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 (800) 347-4246. 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-A 07/97
A-2
<PAGE> 158
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 ADVISOR FLEX FUND, AIM ADVISOR
INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR
MULTIFLEX FUND, AIM AGGRESSIVE GROWTH FUND, AIM BLUE CHIP FUND, AIM CAPITAL
DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM GLOBAL UTILITIES
FUND, AIM GROWTH FUND, AIM INTERNATIONAL EQUITY FUND, AIM MONEY MARKET FUND, AIM
VALUE FUND and AIM WEINGARTEN FUND.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions. See "All Groups of AIM Funds." PURCHASES OF $1,000,000 OR MORE ARE
AT NET ASSET VALUE, SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1% IF
SHARES ARE REDEEMED PRIOR TO 18 MONTHS FROM THE DATE SUCH SHARES WERE PURCHASED,
AS DESCRIBED UNDER THE CAPTION "HOW TO REDEEM SHARES -- CONTINGENT DEFERRED
SALES CHARGE PROGRAM FOR LARGE PURCHASES."
GROUP II. Certain AIM Funds are currently sold with a sales charge ranging
from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds are: the Class A shares of each of AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, AIM ADVISOR INCOME FUND, AIM ADVISOR REAL ESTATE FUND, 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 THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/ or advance a service fee on such
transactions. See "All Groups of AIM Funds." PURCHASES OF $1,000,000 OR MORE ARE
AT NET ASSET VALUE, SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1% IF
SHARES ARE REDEEMED PRIOR TO 18 MONTHS FROM THE DATE SUCH SHARES WERE PURCHASED,
AS DESCRIBED UNDER THE CAPTION "HOW TO REDEEM SHARES -- CONTINGENT DEFERRED
SALES CHARGE PROGRAM FOR LARGE PURCHASES."
MCF-A 07/97
A-3
<PAGE> 159
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 the Class A shares
of AIM TAX-FREE INTERMEDIATE SHARES.
<TABLE>
<CAPTION>
DEALER
CONCESSION
INVESTOR'S SALES CHARGE ----------
-------------------------- AS A
AS A AS A PERCENTAGE
PERCENTAGE PERCENTAGE OF THE
OF THE PUBLIC OF THE NET PUBLIC
AMOUNT OF INVESTMENT IN OFFERING AMOUNT OFFERING
SINGLE TRANSACTION PRICE INVESTED PRICE
----------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions.
ALL GROUPS OF AIM FUNDS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
In addition to amounts paid to dealers as a dealer concession out of the
initial sales charge paid by investors, AIM Distributors may, from time to time,
at its expense or as an expense for which it may be compensated under a
distribution plan, if applicable, pay a bonus or other consideration or
incentive to dealers who sell a minimum dollar amount of the shares of the AIM
Funds during a specified period of time. In some instances, these incentives may
be offered only to certain dealers who have sold or may sell significant amounts
of shares. At the option of the dealer, such incentives may take the form of
payment for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and their families to
places within or outside the United States. The total amount of such additional
bonus payments or other consideration shall not exceed 0.25% of the public
offering price of the shares sold. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the applicable AIM Fund's
shares or the amount that any particular AIM Fund will receive as proceeds from
such sales. Dealers may not use sales of the AIM Funds' shares to qualify for
any incentives to the extent that such incentives may be prohibited by the laws
of any state.
AIM Distributors may make payments to dealers and institutions who are dealers
of record for purchases of $1 million or more of Class A shares (or shares which
normally involve payment of initial sales charges), which are sold at net asset
value and are subject to a contingent deferred sales charge, for all AIM Funds
other than AIM LIMITED MATURITY TREASURY SHARES and AIM TAX-FREE INTERMEDIATE
SHARES as follows: 1% of the first $2 million of such purchases, plus 0.80% of
the next $1 million of such purchases, plus 0.50% of the next $17 million of
such purchases, plus 0.25% of amounts in excess of $20 million of such
purchases. See "Contingent Deferred Sales Charge Program for Large Purchases."
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), 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 4.00% 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.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price (0.60% of the
purchase price of the AIM ADVISOR INCOME FUND) of the Class C shares sold by the
dealer or institution, and will consist of a sales commission of 0.75% of the
purchase price (0.35% of the purchase price of the AIM ADVISOR INCOME FUND) of
the Class C shares sold plus an advance of the first year service fee of 0.25%
with respect to such shares. After the first full year, AIM Distributors will
make such payments quarterly to dealers and institutions based on the average
net asset value of Class C shares which are attributable to shareholders for
whom the dealers and institutions are designated as dealers of record. The
portion of the payments to AIM Distributors under the Class C Plan attributable
to Class C shares which constitutes an asset-based sales charge (0.75%) (0.35%
for AIM ADVISOR INCOME FUND) is intended in part to permit AIM Distributors to
recoup a portion of such on-going sales commission plus financing costs, if any.
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TIMING OF PURCHASE ORDERS. Orders for the purchase of shares of an AIM Fund
(other than AIM MONEY MARKET FUND, as described below) received prior to the
close of the New York Stock Exchange ("NYSE"), which is generally 4:00 p.m.
Eastern Time (and which is hereinafter referred to as "NYSE Close") on any
business day of an AIM Fund will be confirmed at the price next determined.
Orders received after NYSE Close 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 the Transfer Agent.
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 NYSE is open for business. It is expected that the NYSE will be closed
during the next twelve months on Saturdays and Sundays and on the days on which
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
are observed by the NYSE.
An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. However, in the event of a redemption or exchange of such
shares, the investor may be required to wait up to ten business days before the
redemption proceeds are sent. This delay is necessary in order to ensure that
the check has cleared. If the check does not clear, or if any investment order
must be cancelled due to nonpayment, the investor will be responsible for any
resulting loss to an AIM Fund or to AIM Distributors.
SPECIAL INFORMATION RELATING TO MULTIPLE CLASS FUNDS. The Multiple Class Funds
currently offer two or more classes of shares through separate distribution
systems (the "Multiple Distribution System"). Although each class of shares of a
particular Multiple Class Fund represents 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 ongoing expenses borne by each class of
shares and other relevant factors, such as whether his or her investment goals
are long-term or short-term.
CLASS A SHARES (except Class A shares of AIM ADVISOR CASH MANAGEMENT FUND)
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 Rule 12b-1 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 Rule 12b-1 Plan payments
associated with Class B shares. See "Management -- Distribution Plans."
CLASS C SHARES are sold without an initial sales charge. Thus the entire
purchase price of Class C shares is immediately invested in Class C shares.
Class C shares (except Class C shares of AIM ADVISOR CASH MANAGEMENT FUND)
are subject, however, to Rule 12b-1 Plan payments of 1.00% per annum on the
average daily net assets of a Multiple Class Fund attributable to Class C
shares. See the discussion under the caption "Management -- Distribution
Plans." In addition, Class C shares (except Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND) redeemed within one year from the date such shares
were purchased are subject to a 1.00% contingent deferred sales charge. No
contingent deferred sales charge will be imposed if Class C shares are
redeemed after one year from the date such shares were purchased.
Redemptions of Class C shares and associated charges are further described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Class A and Class C shares of AIM ADVISOR CASH MANAGEMENT FUND and AIM Cash
Reserve Shares of AIM MONEY MARKET FUND are sold without an initial sales
charge and are not subject to a contingent deferred sales charge. (A
contingent deferred sales charge may be imposed upon redemptions of Class A
and Class C shares of AIM ADVISOR CASH MANAGEMENT FUND when such shares
were purchased in an exchange. See "How to Redeem Shares -- Multiple
Distribution System -- Class C Shares" and "How to Redeem
Shares -- Contingent Deferred Sales Charge Program for Large Purchases").
AIM Cash Reserve Shares of AIM MONEY MARKET FUND are, however, subject to
the other fees and expenses described in the prospectus for AIM MONEY
MARKET FUND.
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TIMING OF PURCHASE, EXCHANGE AND REDEMPTION ORDERS (AIM MONEY MARKET FUND
ONLY). Orders for purchases, exchanges and redemptions of shares of AIM MONEY
MARKET FUND received prior to 12:00 noon Eastern Time or NYSE Close on any
business day of the Fund will be confirmed at the price next determined. Net
asset value is normally determined at 12:00 noon Eastern Time and NYSE Close on
each business day of AIM MONEY MARKET FUND.
SPECIAL INFORMATION RELATING TO AIM ADVISOR CASH MANAGEMENT FUND, AIM MONEY
MARKET FUND, AND AIM TAX-EXEMPT CASH FUND (THE "MONEY MARKET FUNDS"). 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 each 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. Purchases made by
payments in any other form, or payments in the form of federal funds received
after such time but prior to NYSE Close, 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.
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. If a fund determines that a shareholder has provided incorrect information
in opening an account with a fund or in the course of conducting subsequent
transactions with the fund related to such account, the fund may, in its
discretion, redeem the account and distribute the proceeds of such redemption to
the shareholder.
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 Class A shares of AIM
TAX-EXEMPT CASH FUND, Class A and Class C shares of AIM ADVISOR CASH MANAGEMENT
FUND, AIM Cash Reserve Shares of AIM MONEY MARKET FUND and Class B and Class C
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.
The term "purchaser" means:
- an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a pension,
profit-sharing, or other benefit plan established exclusively for the
benefit of any such person, such as an IRA, a single-participant
money-purchase/profit-sharing plan or an individual participant in a 403(b)
Plan (unless such 403(b) plan qualifies as the purchaser as defined below);
- 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) and 457 plans, although more than one beneficiary or participant is
involved;
- a Simplified Employee Pension ("SEP"), Salary Reduction and other Elective
Simplified Employee Pension account ("SARSEP") where the employer has
notified AIM Distributors in writing that all of its related employee SEP or
SARSEP accounts should be linked;
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- 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. ("AIM") or A I M
Capital Management, Inc. ("AIM Capital").
Investors or dealers seeking to qualify orders for a reduced initial sales
charge must identify such orders and, if necessary, support their qualification
for the reduced charge. AIM Distributors reserves the right to determine whether
any purchaser is entitled, by virtue of the foregoing definition, to the reduced
sales charge. No person or entity may distribute shares of the AIM Funds without
payment of the applicable sales charge other than to persons or entities who
qualify for a reduction in the sales charge as provided herein.
(1) LETTERS OF INTENT. A purchaser, as previously defined, may pay reduced
initial sales charges by completing the appropriate section of the account
application and by fulfilling a Letter of Intent ("LOI"). The LOI privilege is
also available to holders of the Connecticut General Guaranteed Account,
established for tax qualified group annuities, for contracts purchased on or
before June 30, 1992. The LOI confirms such purchaser's intention as to the
total investment to be made in shares of the AIM Funds (except for
(i) Class A shares of AIM TAX-EXEMPT CASH FUND, Class A and Class C shares of
AIM ADVISOR CASH MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM MONEY
MARKET FUND and (ii) Class B and Class C shares of the Multiple Class Funds)
within the following 13 consecutive months. By marking the LOI section on the
account application and by signing the account application, the purchaser
indicates that he understands and agrees to the terms of the LOI and is bound by
the provisions described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI. At any time during the 13-month
period after meeting the original obligation, a purchaser may revise his
intended investment amount upward by submitting a written and signed request.
Such a revision will not change the original expiration date. By signing an LOI,
a purchaser is not making a binding commitment to purchase additional shares,
but if purchases made within the 13-month period do not total the amount
specified, the investor will pay the increased amount of sales charge as
described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the initial
purchase (or subsequent purchases if necessary) the Transfer Agent will escrow
in the form of shares an appropriate dollar amount (computed to the nearest full
share). All dividends and any capital gain distributions on the escrowed shares
will be credited to the purchaser. All shares purchased, including those
escrowed, will be registered in the purchaser's name. If the total investment
specified under this LOI is completed within the 13-month period, the escrowed
shares will be promptly released. If the intended investment is not completed,
the purchaser will pay the Transfer Agent the difference between the sales
charge on the specified amount and the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration date, he
irrevocably constitutes and appoints the Transfer Agent as his attorney to
surrender for redemption any or all shares, to make up such difference within 60
days of the expiration date.
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) Class A shares of
AIM TAX-EXEMPT CASH FUND, Class A and Class C shares of AIM ADVISOR CASH
MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM MONEY MARKET FUND and (ii)
Class B and Class C 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) Class A shares of AIM TAX-EXEMPT CASH FUND, Class A and Class C
shares of AIM ADVISOR CASH MANAGEMENT FUND, and AIM Cash Reserve Shares of AIM
MONEY MARKET FUND and (ii) Class B and Class C 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
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initial sales charge of 5.50%, the reduced initial sales charge of 5.25% will
apply to the full $20,000 purchase and not just to the $15,000 in excess of the
$25,000 breakpoint. To qualify for obtaining the discount applicable to a
particular purchase, the purchaser or his dealer must furnish AFS with a list of
the account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at
net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and distributions from a fund
(see "Dividends, Distributions and Tax Matters"); (b) exchanges of shares of
certain other funds (see "Exchange Privilege"); (c) use of the reinstatement
privilege (see "How to Redeem Shares"); or (d) a merger, consolidation or
acquisition of assets of a fund.
Shareholders of record of Class A shares of AIM WEINGARTEN FUND and AIM
CONSTELLATION FUND on September 8, 1986, and shareholders of record of Class A
shares of AIM CHARTER FUND on November 17, 1986, may purchase additional Class A
shares of the particular AIM Fund(s) whose shares they owned on such date, at
net asset value (without payment of a sales charge) for as long as they
continuously own Class A shares of such AIM Fund(s) having a market value of at
least $500. In addition, discretionary advised clients of any investment
advisors whose clients held Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND on September 8, 1986, or who held Class A shares of AIM
CHARTER FUND on November 17, 1986, and have held such Class A shares at all
times subsequent to such date, may purchase Class A shares of the applicable AIM
Fund(s) at the net asset value of such shares.
The following persons may purchase shares of the AIM Funds through AIM
Distributors without payment of an initial sales charge: (a) A I M Management
Group Inc. ("AIM Management") and its affiliated companies; (b) any current or
retired officer, director, trustee or employee, or any member of the immediate
family (including spouse, 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,
children, parents and parents of spouse) of any such person, or of CIGNA
Corporation or of any of its affiliated companies, or of First Data Investor
Services Group (formerly The Shareholders Services Group, Inc.); (e) any
investment company sponsored by CIGNA Investments, Inc. or any of its affiliated
companies for the benefit of its directors' deferred compensation plans; (f)
discretionary advised clients of AIM or AIM Capital; (g) registered
representatives and employees of dealers who have entered into agreements with
AIM Distributors (or financial institutions that have arrangements with such
dealers with respect to the sale of shares of the AIM Funds) and any member of
the immediate family (including spouse, 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,
similar specialized investment services or investment company transaction
services for 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 total amount invested in the
plan is at least $1,000,000, (2) the sponsor signs a $1,000,000 LOI, (3) such
shares are purchased by an employer-sponsored plan with at least 100 eligible
employees, or (4) all of the plan's transactions are executed through a single
financial institution or service organization who has entered into an agreement
with AIM Distributors with respect to their use of the AIM Funds in connection
with such accounts. Section 403(b) plans sponsored by public educational
institutions will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees.
Participants in such plans will be eligible for reduced sales charges based
solely on the aggregate value of their individual investments in the applicable
AIM Fund. PLEASE NOTE THAT TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR
SUCH PLANS. AIM Distributors may pay investment dealers or other financial
service firms for share purchases of the Load Funds (as defined on page A-10
herein) sold at net asset value to an employee benefit plan in accordance with
this paragraph 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 and up to 0.10% of the net asset value of any AIM Limited
Maturity Treasury Shares 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:
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(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."
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SPECIAL PLANS
Except as noted below, each AIM Fund provides the special plans described
below for the convenience of its shareholders. Once established, there is no
obligation to continue to invest through a plan, and a shareholder may terminate
a plan at any time.
Special plan applications and further information, including details of any
fees which are charged to a shareholder investing through a plan, may be
obtained by written request, directed to AFS at the address provided under "How
to Purchase Shares," or by calling the Client Services Department of AFS at
(800) 959-4246. 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 shares which are not subject to a contingent deferred sales charge, 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 shares subject to a contingent deferred sales charge, can
only arrange for monthly or quarterly withdrawals under a Systematic Withdrawal
Plan. Payment of this amount can be made on any day of the month the shareholder
specifies, except the thirtieth or thirty-first 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. With respect to shares subject to a
contingent deferred sales charge (all classes) no contingent deferred sales
charge 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
shares subject to a contingent deferred sales charge 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 account value at the time the shareholder
elects to participate in the Systematic Withdrawal Plan.
Under a Systematic Withdrawal Plan, all shares are to be held by the Transfer
Agent and all dividends and distributions are reinvested in shares of the
applicable AIM Fund by the Transfer Agent. To provide funds for payments made
under the Systematic Withdrawal Plan, the Transfer Agent redeems sufficient full
and fractional shares at their net asset value in effect at the time of each
such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the Multiple Class Funds, AIM Cash
Reserve Shares of AIM MONEY MARKET FUND and Class A shares of AIM ADVISOR CASH
MANAGEMENT FUND), it is disadvantageous to effect such purchases while a
Systematic Withdrawal Plan is in effect.
The Systematic Withdrawal Plan may be terminated at any time upon 10 days'
prior notice to AFS. Each AIM Fund bears its share of the cost of operating the
Systematic Withdrawal Plan. Each AIM Fund reserves the right to initiate a fee
for each withdrawal (not to exceed its cost), but there is no present intent to
do so.
AUTOMATIC INVESTMENT PLAN. Shareholders who wish to make monthly or quarterly
investments may establish an Automatic Investment Plan. Under this plan, on or
about the tenth and/or twenty-fifth day of the applicable month, a draft is
drawn on the shareholder's bank account in the amount specified by the
shareholder (minimum $50 per investment, per account). The proceeds of the draft
are invested in shares of the designated AIM Fund at the applicable offering
price determined on the date of the draft. An Automatic Investment Plan may be
discontinued upon 10 days' prior notice to the Transfer Agent or AIM
Distributors.
AUTOMATIC DIVIDEND INVESTMENT PLAN. Shareholders may elect to have all
dividends and distributions declared by an AIM Fund paid in cash or invested at
net asset value, without payment of an initial sales charge, either in shares of
the same AIM Fund or invested in shares of another AIM Fund. For each of the
Multiple Class Funds, dividends and distributions attributable to Class A shares
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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; dividends and distributions attributable to Class C
shares may be reinvested in Class C shares of the same fund or in Class C shares
of another Multiple Class Fund; and dividends and distributions attributable to
AIM Cash Reserve Shares of AIM MONEY MARKET FUND may be reinvested in additional
shares of such fund, in Class A shares of another Multiple Class Fund or in
shares of another AIM Fund which is not a Multiple Class Fund. See "Dividends,
Distributions and Tax Matters -- Dividends and Distributions" for a description
of payment dates for these options. In order to qualify to have dividends and
distributions of one AIM Fund invested in shares of another AIM Fund, the
following conditions must be satisfied: (a) the shareholder must have an account
balance in the dividend paying fund of at least $5,000; (b) the account must be
held in the name of the shareholder (i.e., the account may not be held in
nominee name); and (c) the shareholder must have requested and completed an
authorization relating to the reinvestment of dividends into another AIM Fund.
An authorization may be given on the account application or on an authorization
form available from AIM Distributors. An AIM Fund will waive the $5,000 minimum
account value requirement if the shareholder has an account in the fund selected
to receive the dividends and distributions with a value of at least $500.
DOLLAR COST AVERAGING. Shareholders may elect to have a specified amount
automatically exchanged, either monthly or quarterly (on or about the 10th or
25th day of the applicable month), from one of their accounts into one or more
AIM Funds, subject to the terms and conditions described under the caption
"Exchange Privilege -- Terms and Conditions of Exchanges." The account from
which exchanges are to be made must have a value of at least $5,000 when a
shareholder elects to begin this program, and the exchange minimum is $50 per
transaction. All of the accounts that are part of this program must have
identical registrations. The net asset value of shares purchased under this
program may vary, and may be more or less advantageous than if shares were not
exchanged automatically. There is no charge for entering the Dollar Cost
Averaging program. Sales charges may apply, as described under the caption
"Exchange Privilege."
PROTOTYPE RETIREMENT PLANS. The AIM Funds (except for AIM TAX-FREE
INTERMEDIATE SHARES, AIM TAX-EXEMPT CASH FUND, AIM MUNICIPAL BOND FUND and AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT) have made the following prototype
retirement plans available to corporations, individuals and employees of
non-profit organizations and public schools: combination money-
purchase/profit-sharing plans; 403(b) plans; IRA plans; SARSEP plans; and SEP
plans (collectively, "retirement accounts"). Information concerning these plans,
including the custodian's fees and the forms necessary to adopt such plans, can
be obtained by calling or writing the AIM Funds or AIM Distributors. Shares of
the AIM Funds are also available for investment through existing 401(k) plans
(for both individuals and employers) adopted under the Code. The plan custodian
currently imposes an annual $10 maintenance fee with respect to each retirement
account for which it serves as the custodian. This fee is generally charged in
December. Each AIM Fund and/or the custodian reserve the right to change this
maintenance fee and to initiate an establishment fee (not to exceed its cost).
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- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
TERMS AND CONDITIONS OF EXCHANGES. Shareholders of the AIM Funds may
participate in an exchange privilege as described below. The exchange privilege
is also available to holders of the Connecticut General Guaranteed Account,
established for tax-qualified group annuities, for contracts purchased on or
before June 30, 1992. AIM Distributors acts as distributor for the AIM Funds,
which represent a range of different investment objectives and policies. As set
forth under the caption "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions," shares of certain of the AIM
Funds, including the Class A shares of the Multiple Class Funds (except AIM
ADVISOR CASH MANAGEMENT FUND), listed below and 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; Class A shares
(or shares which normally involve the payment of initial sales charges) of
certain of the AIM Funds, listed below and 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 Class A shares or
shares of certain other funds, listed below and referred to herein as the "No
Load Funds," are sold at net asset value, without payment of a sales charge.
<TABLE>
<S> <C> <C>
LOAD FUNDS: LOWER LOAD FUNDS:
AIM ADVISOR FLEX FUND -- AIM GLOBAL GROWTH AIM LIMITED MATURITY TREASURY SHARE
CLASS A FUND -- CLASS A AIM TAX-FREE INTERMEDIATE
AIM ADVISOR INCOME FUND -- AIM GLOBAL INCOME SHARES -- CLASS A
CLASS A FUND -- CLASS A
AIM ADVISOR INTERNATIONAL AIM GLOBAL UTILITIES NO LOAD FUNDS:
VALUE FUND -- CLASS A FUND -- CLASS A AIM ADVISOR CASH MANAGEMENT FUND
AIM ADVISOR LARGE CAP AIM GROWTH FUND -- CLASS A -- CLASS A
VALUE FUND -- CLASS A AIM HIGH YIELD FUND -- CLASS A AIM MONEY MARKET FUND
AIM ADVISOR MULTIFLEX AIM INCOME FUND -- CLASS A -- AIM CASH RESERVE SHARES
FUND -- CLASS A AIM INTERMEDIATE GOVERNMENT AIM TAX-EXEMPT CASH FUND -- CLASS A
AIM ADVISOR REAL ESTATE FUND -- CLASS A
FUND -- CLASS A AIM INTERNATIONAL EQUITY
AIM AGGRESSIVE GROWTH FUND -- CLASS A
FUND -- CLASS A AIM MONEY MARKET
AIM BALANCED FUND -- CLASS A FUND -- CLASS A
AIM BLUE CHIP FUND -- CLASS A AIM MUNICIPAL BOND
AIM CAPITAL DEVELOPMENT FUND -- CLASS A
FUND -- CLASS A AIM TAX-EXEMPT BOND FUND
AIM CHARTER FUND -- CLASS A OF CONNECTICUT -- CLASS A
AIM CONSTELLATION AIM VALUE FUND -- CLASS A
FUND -- CLASS A AIM WEINGARTEN FUND -- CLASS A
AIM GLOBAL AGGRESSIVE GROWTH
FUND -- CLASS A
</TABLE>
Shares of any AIM Fund may be exchanged for shares of any other AIM Fund on
the terms described on the chart below, except that (i) effective August 4, 1997
(except with respect to shares of AIM ADVISOR CASH MANAGEMENT FUND, AIM ADVISOR
FLEX FUND, AIM ADVISOR INCOME FUND, AIM ADVISOR INTERNATIONAL VALUE FUND, AIM
ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR MULTIFLEX FUND and AIM ADVISOR REAL
ESTATE FUND), no shares of any Load Fund, Class C of a Multiple Class Fund,
Lower Load Fund or No Load Fund may be exchanged for shares of AIM ADVISOR CASH
MANAGEMENT FUND or AIM ADVISOR INCOME FUND; (ii) effective October 3, 1997 no
share of any Load Fund, Class C of a Multiple Class Fund, Lower Load Fund or No
Load Fund may be exchanged for shares of AIM ADVISOR CASH MANAGEMENT FUND or AIM
ADVISOR INCOME FUND; (iii) 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; (iv) LOWER LOAD FUND SHARE PURCHASES
OF $1,000,000 OR MORE AND AIM Cash Reserve Shares of AIM MONEY MARKET FUND and
AIM TAX-EXEMPT CASH 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; (v) Class A shares and AIM
LIMITED MATURITY TREASURY SHARES may be exchanged for Class A shares or AIM
LIMITED MATURITY TREASURY SHARES, (vi) Class B shares may be exchanged only for
Class B shares; (vii) Class C shares may only be exchanged for Class C shares;
(viii) Class A shares of AIM ADVISOR CASH MANAGEMENT FUND may be exchanged for
Class A shares of any Load Fund, Lower Load Fund or No-Load Fund at net asset
value; (ix) Class C shares of AIM ADVISOR CASH MANAGEMENT FUND may be exchanged
for Class C shares of any Multiple Class Fund at net asset value; and (x) AIM
Cash Reserve Shares of AIM MONEY MARKET FUND may not be exchanged for Class A
shares of AIM MONEY MARKET FUND or for Class B or Class C shares.
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Broker-dealers and institutions of record for Class A or Class C shares
purchased pursuant to an exchange from Class A or Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND will be compensated according to the sales commission or
concession that would apply if these Class A or Class C share purchases had been
purchased in a manner other than pursuant to an exchange.
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 FUNDS:
LOWER LOAD NO LOAD ------------------------------
FROM: TO: LOAD FUNDS FUNDS FUNDS CLASS B CLASS C
----- -------------- ----------------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Load Funds....... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Lower Load
Funds.......... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
No Load Funds.... Offering Price if No Load shares Net Asset Value if No Net Asset Value Not Applicable Not Applicable
were directly purchased. Net Load shares were
Asset Value if No Load shares acquired upon exchange
were acquired upon exchange of of shares of any Load
shares of any Load Fund or any Fund or any Lower Load
Lower Load Fund. Fund; otherwise,
Offering Price.
Multiple Class
Funds:
Class B........ Not Applicable Not Applicable Not Applicable Net Asset Value Not Applicable
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 Not Applicable
Lower Load
Funds.......... Net Asset Value if shares were Net Asset Value Net Asset Value Not Applicable 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 Net Asset Value if No Net Asset Value Not Applicable Not Applicable
were directly purchased. Net Load shares were
Asset Value if No Load shares acquired upon exchange
were acquired upon exchange of of shares of any Load
shares of any Load Fund. Fund or any Lower Load
Difference in sales charge will Fund; otherwise, Of-
apply if No Load shares were fering Price.
acquired upon exchange of Lower
Load Fund shares.
Multiple Class
Funds:
Class B........ Not Applicable Not Applicable Not Applicable Net Asset Value Not Applicable
Class C........ Not Applicable 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, Class B and Class C shares of a Multiple Class Fund
cannot be exchanged for each other), except that AIM Cash Reserve Shares of AIM
MONEY MARKET FUND may be exchanged for Class A shares of another Multiple Class
Fund; (b) the dollar amount of the exchange must be at least equal to the
minimum investment applicable to the shares of the fund acquired through such
exchange; (c) the shares of the fund acquired through exchange must be qualified
for sale in the state in which the shareholder resides; (d) the exchange must be
made between accounts having identical registrations and addresses; (e) the full
amount of the purchase price for the shares being exchanged must have already
been received by the fund; (f) the account from which shares have been exchanged
must be coded as having a certified taxpayer identification number on file or,
in the alternative, an appropriate Internal Revenue Service ("IRS") Form W-8
(certificate of foreign status) or Form W-9 (certifying exempt status) must have
been received by the fund; (g) newly acquired shares (through either an initial
or subsequent investment) are held in an account for at least ten business days,
and all other shares are held in an account for at least one day, prior to the
exchange; and (h) certificates representing shares must be returned before
shares can be exchanged. There is no fee for exchanges among the AIM Funds.
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.
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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.
Shares of any AIM Fund (other than AIM MONEY MARKET FUND) to be exchanged are
redeemed at their net asset value as determined at NYSE Close on the day that an
exchange request in proper form (described below) is received. Exchange requests
received after NYSE Close will result in the redemption of shares at their net
asset value at NYSE Close on the next business day. See "Terms and Conditions of
Purchase of the AIM Funds -- Timing of Purchase, Exchange and Redemption Orders
(AIM MONEY MARKET FUND only)" for information regarding the timing of exchange
orders for AIM MONEY MARKET FUND. 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, 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 the release of the
exchange proceeds is delayed for the foregoing five-day period, such shareholder
will not begin to accrue dividends until the sixth business day after the
exchange. Shares purchased by check may not be exchanged until it is determined
that the check has cleared, which may take up to ten business days from the date
that the check is received. See "Terms and Conditions of Purchase of the AIM
Funds -- Timing of Purchase Orders."
In the event of unusual market conditions, AIM Distributors reserves the right
to reject any exchange request, if, in the judgment of AIM Distributors, the
number of requests or the total value of the shares that are the subject of the
exchange places a material burden on a fund. For example, the number of
exchanges by investment managers making market timing exchanges may be limited.
EXCHANGES BY MAIL. Investors exchanging their shares by mail should send a
written request to AFS. The request should contain the account registration and
account number, the dollar amount or number of shares to be exchanged, and the
names of the funds from which and into which the exchange is to be made. The
request should comply with all of the requirements for redemption by mail,
except those required for redemption of IRAs. See "How to Redeem Shares."
EXCHANGES BY TELEPHONE. Shareholders or their agents may request an exchange
by telephone. If a shareholder does not wish to allow telephone exchanges by any
person in his account, he should decline that option on the account application.
AIM Distributors has made arrangements with certain dealers and investment
advisory firms to accept telephone instructions to exchange shares between any
of the AIM Funds. AIM Distributors reserves the right to impose conditions on
dealers or investment advisors who make telephone exchanges of shares of the
funds, including the condition that any such dealer or investment advisor enter
into an agreement (which contains additional conditions with respect to
exchanges of shares) with AIM Distributors. To exchange shares by telephone, a
shareholder, dealer or investment advisor who has satisfied the foregoing
conditions must call AFS at (800) 959-4246. If a shareholder is unable to reach
AFS by telephone, he may also request exchanges by telegraph or use overnight
courier services to expedite exchanges by mail, which will be effective on the
business day received by the Transfer Agent as long as such request is received
prior to NYSE Close. The Transfer Agent and AIM Distributors will not be liable
for any loss, expense or cost arising out of any telephone exchange request that
they reasonably believe to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions if they do not follow
reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security Number and current address, and mailings of confirmations
promptly after the transaction.
EXCHANGES OF CLASS B AND CLASS C SHARES. A contingent deferred sales charge
will not be imposed in connection with exchanges among Class B shares or among
Class C shares. For purposes of determining a shareholder's holding period of
Class B or Class C shares in the calculation of the applicable contingent
deferred sales charge, the period of time during which Class B or Class C shares
were held prior to an exchange will be added to the holding period of the
applicable Class B or Class C shares (except for Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND) 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. 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 attrib-
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utable 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 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.
Class C Shares. Class C 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 a
1% contingent deferred sales charge. No deferred sales charge will be imposed
(i) on redemptions of Class C shares following one year from the date such
shares were purchased; (ii) on Class C shares acquired through reinvestment of
dividends and distributions attributable to Class C shares; (iii) on amounts
that represent capital appreciation in the shareholder's account above the
purchase price of the Class C shares; (iv) on redemptions of additional
purchases of shares of AIM ADVISOR FLEX FUND, AIM ADVISOR INCOME FUND, AIM
ADVISOR INTERNATIONAL VALUE FUND, AIM ADVISOR LARGE CAP VALUE FUND, AIM ADVISOR
MULTIFLEX FUND, and AIM ADVISOR REAL ESTATE FUND, by shareholders of record on
April 30, 1995 of these funds. Shareholders whose broker/dealers maintain a
single omnibus account with the Transfer Agent on behalf of those shareholders,
perform sub-accounting functions with respect to those shareholders, and are
unable to segregate shareholders of record prior to April 30, 1995 from
shareholders whose accounts were opened after that date will be subject to a
CDSC on all purchases made after March 1, 1996; or (v) on Class C shares of AIM
ADVISOR CASH MANAGEMENT FUND except in certain cases when the shares were
purchased in an exchange. Redemptions of shares of AIM ADVISOR CASH MANAGEMENT
FUND are generally not subject to a contingent deferred sales charge; however, a
contingent deferred sales charge may be applicable to redemptions of shares of
AIM ADVISOR CASH MANAGEMENT FUND if the redeemed shares were exchanged from
another Class C share fund and the one year holding period in such fund has not
been completed.
Contingent deferred sales charges on Class B and Class C shares will be waived
on redemptions (1) following the death or post-purchase disability, as defined
in Section 72(m)(7) of the Code, of a shareholder or a settlor of a living trust
(provided AIM Distributors is notified of such death or post-purchase disability
at the time of the redemption request and is provided with satisfactory evidence
of such death or post-purchase 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 or Class C 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, (5) effected by AIM of its investment in
Class B or Class C shares and (6) of Class C shares where such investor's dealer
of record, due to the nature of the investor's account, notifies AIM
Distributors prior to the time of investment that the dealer waives the payment
otherwise payable to the dealer described in the fifth paragraph under the
caption "Terms and Conditions of Purchase of the AIM Funds -- All Groups of AIM
Funds.".
Waiver category (1) above applies only to redemptions of Class B or Class C
shares held at the time of death or initial determination of post-purchase
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 or Class C shares of one or more Multiple Class
Funds;
MCF-A 07/97
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(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 and Class C 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, Class A shares of AIM ADVISOR CASH MANAGEMENT FUND or AIM Cash Reserve
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 shares are being redeemed in connection
with employee terminations or withdrawals, and (a) the total amount invested in
a Plan 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 death or post-purchase disability, as
defined in Section 72(m)(7) of the Code, of a shareholder or a settlor of a
living trust; (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; (4) redemptions of shares purchased by an investor in amounts of
$1,000,000 or more where such investor's dealer of record, due to the nature of
the investor's account, notifies AIM Distributors prior to the time of
investment that the dealer waives the payments otherwise payable to the dealer
as described in the third paragraph under the caption "Terms and Conditions of
Purchase of the AIM Funds -- All Groups of AIM Funds"; and (5) 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 A shares at the time the shareholder elects to participate in the
Systematic Withdrawal Plan.
REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to the
Transfer Agent. Upon receipt of a redemption request in proper form, payment
will be made as soon as practicable, but in any event will normally be made
within seven days after receipt. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders."
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the Fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnerships, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.
In addition to these requirements, shareholders who have invested in a fund to
establish an IRA, should include the following information along with a written
request for either partial or full liquidation of fund shares: (a) a statement
as to whether or not the shareholder has attained age 59- 1/2; and (b) a
statement as to whether or not the shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.
REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by telephone.
If a shareholder does not wish to allow telephone redemptions by any person in
his account, he should decline that option on the account application. The
telephone redemption feature can be used only if: (a) the redemption proceeds
are to be mailed to the address of record or wired to the pre-authorized bank
account as indicated on the account application; (b) there has been no change of
address of record on the account within the preceding 30 days; (c) the shares to
be redeemed are not in certificate form; (d) the person requesting the
redemption can provide proper identification information; and (e) the proceeds
of the redemption do not exceed $50,000. Accounts in AIM Distributors' prototype
retirement plans (such as IRA and IRA/SEP) or 403(b) plans are not eligible for
the telephone redemption option. AIM
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Distributors has made arrangements with certain dealers and investment advisors
to accept telephone instructions for the redemption of shares. AIM Distributors
reserves the right to impose conditions on these dealers and investment
advisors, including the condition that they enter into agreements (which contain
additional conditions with respect to the redemption of shares) with AIM
Distributors. The Transfer Agent and AIM Distributors will not be liable for any
loss, expense or cost arising out of any telephone redemption request effected
in accordance with the authorization set forth at that item of the account
application if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions if they do not follow reasonable procedures for verification of
telephone transactions. Such reasonable procedures may include recordings of
telephone transactions (maintained for six months), requests for confirmation of
the shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction.
EXPEDITED REDEMPTIONS (AIM MONEY MARKET FUND ONLY). If a redemption order is
received prior to 11:30 a.m. Eastern Time, the redemption will be effective on
that day and AIM MONEY MARKET FUND will endeavor to transmit payment on that
same business day. If the redemption order is received after 11:30 a.m. and
prior to NYSE Close, the redemption will be made at the next determined net
asset value and payment will generally be transmitted on the next business day.
REDEMPTIONS BY CHECK (AIM TAX-EXEMPT CASH FUND, AIM ADVISOR CASH MANAGEMENT
FUND and AIM Cash Reserve 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, AIM ADVISOR CASH MANAGEMENT FUND and
the AIM Cash Reserve Shares of AIM MONEY MARKET FUND. This privilege does not
apply to retirement accounts or qualified plans. Checks may be drawn in any
amount of $250 or more. Checks drawn against insufficient shares in the account,
against shares held less than ten business days, or in amounts of less than the
applicable minimum will be returned to the payee. The payee of the check may
cash or deposit it in the same way as an ordinary bank check. When a check is
presented to the Transfer Agent for payment, the Transfer Agent will cause a
sufficient number of shares of such fund to be redeemed to cover the amount of
the check. Shareholders are entitled to dividends on the shares redeemed through
the day on which the check is presented to the Transfer Agent for payment.
TIMING AND PRICING OF REDEMPTION ORDERS. Shares of the various AIM Funds
(other than AIM MONEY MARKET FUND) are redeemed at their net asset value next
computed after a request for redemption in proper form (including signature
guarantees and other required documentation for written redemptions) is received
by the Transfer Agent, except that shares that are subject to a contingent
deferred sales charge, 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 prior to
NYSE Close on any business day of an AIM Fund will be confirmed at the price
determined as of the close of that day. Orders received after NYSE Close will be
confirmed at the price determined on the next business day of an AIM Fund.
Redemptions of shares of AIM MONEY MARKET FUND received prior to 12:00 noon or
NYSE Close on any business day of the Fund will be confirmed at the price next
determined. It is the responsibility of the dealer to ensure that all orders are
transmitted on a timely basis. 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 NYSE Close on any
business day of an AIM Fund and will be confirmed at the price determined as of
the close of that day. No AIM Fund will accept requests which specify a
particular date for redemption or which specify any special conditions.
Payment of the proceeds of redeemed shares is normally mailed within seven
days following the redemption date. However, in the event of a redemption of
shares purchased by check, the investor may be required to wait up to ten
business days before the redemption proceeds are sent. See "Terms and Conditions
of Purchase of the AIM Funds -- Timing of Purchase Orders." A charge for special
handling (such as wiring of funds or expedited delivery services) may be made by
the Transfer Agent. The right of redemption may not be suspended or the date of
payment upon redemption postponed except under unusual circumstances such as
when trading on the NYSE is restricted or suspended. Payment of the proceeds of
redemptions relating to shares for which checks sent in payment have not yet
cleared will be delayed until it is determined that the check has cleared, which
may take up to ten business days from the date that the check is received.
SIGNATURE GUARANTEES. A signature guarantee is designed to protect the
investor, the AIM Funds, AIM Distributors, and their agents by verifying the
signature of each investor seeking to redeem, transfer, or exchange shares of an
AIM Fund. Examples of when signature guarantees are required are: (1)
redemptions by mail in excess of $50,000; (2) redemptions by mail if the
proceeds are to be paid to someone other than the name(s) in which the account
is registered; (3) written redemptions requesting proceeds to be sent by wire to
other than the bank of record for the account; (4) redemptions requesting
proceeds to be sent to a new address or an address that has been changed within
the past 30 days; (5) requests to transfer the registration of shares to another
owner; (6) telephone exchange and telephone redemption authorization forms; (7)
changes in previously designated wiring instructions; and (8) written
redemptions or exchanges of shares previously reported as lost, whether or not
the redemption amount is under $50,000 or the proceeds are to be sent to the
address of record. These requirements may be waived or modified upon notice to
shareholders.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the Securities and
Exchange Commission ("SEC"), and further provided that such guarantor
institution is listed in one of the reference guides contained in the Transfer
Agent's current Signature Guarantee Standards and Procedures, such as
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certain domestic banks, credit unions, securities dealers, or securities
exchanges. The Transfer Agent will also accept signatures with either: (1) a
signature guaranteed with a medallion stamp of the STAMP Program, or (2) a
signature guaranteed with a medallion stamp of the NYSE Medallion Signature
Program, provided that in either event, the amount of the transaction involved
does not exceed the surety coverage amount indicated on the medallion. For
information regarding whether a particular institution or organization qualifies
as an "eligible guarantor institution," an investor should contact the Client
Services Department of AFS.
REINSTATEMENT PRIVILEGE (CLASS A SHARES AND LIMITED MATURITY TREASURY SHARES
ONLY). Within 90 days of a redemption, a shareholder may invest all or part of
the redemption proceeds in Class A shares of any AIM Fund (except Class A shares
of AIM ADVISOR CASH MANAGEMENT FUND) and AIM Limited Maturity Treasury Shares at
the net asset value next computed after receipt by the Transfer Agent of the
funds to be reinvested; provided, however, if the redemption was made from AIM
Limited Maturity Treasury Shares or Class A shares of AIM TAX-FREE INTERMEDIATE
SHARES, the reinvested proceeds will be subject to the difference in sales
charge between the shares redeemed and the shares the proceeds are reinvested
in. The shareholder must ask the Transfer Agent for such privilege at the time
of reinvestment. A realized gain on the redemption is taxable, and reinvestment
may alter any capital gains payable. If there has been a loss on the redemption
and shares of the same fund are repurchased, 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 another AIM Fund at a reduced sales
charge 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; however, the shareholder's basis in the fund shares purchased will
include the sales charge. 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 and who subsequently reinvest a portion or
all of the value of the redeemed shares in Class A shares of any AIM Fund within
90 days after such redemption may do so at net asset value if such privilege is
claimed at the time of reinvestment. Such reinvested proceeds will not be
subject to either a front-end sales charge at the time of reinvestment or an
additional contingent deferred sales charge upon subsequent redemption. In order
to exercise this reinvestment privilege, the shareholder must notify the
Transfer Agent of his or her intent to do so at the time of reinvestment. This
reinvestment privilege does not apply to Class B or Class C shares.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each AIM Fund is determined
as of 4:00 p.m. Eastern Time (12:00 noon Eastern Time and NYSE Close with
respect to AIM MONEY MARKET FUND), on each "business day" of a fund as
previously defined. In the event the NYSE closes early (i.e. before 4:00 p.m.
Eastern Time) on a particular day, the net asset value of an AIM Fund's share
will be determined as of the close of the NYSE on such day. For purposes of
determining net asset value per share, futures and options contracts generally
will be valued 15 minutes after the close of trading of the NYSE.The net asset
value per share is calculated by subtracting a class' liabilities from its
assets and dividing the result by the total number of class shares outstanding.
The determination of net asset value per share is made in accordance with
generally accepted accounting principles. Among other items, liabilities include
accrued expenses and dividends payable, and 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.
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.
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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 ADVISOR CASH MANAGEMENT FUND.......... declared daily; paid monthly annually annually
AIM ADVISOR FLEX FUND..................... declared and paid quarterly quarterly annually
AIM ADVISOR INCOME FUND................... declared and paid monthly monthly annually
AIM ADVISOR INTERNATIONAL VALUE FUND...... declared and paid annually annually annually
AIM ADVISOR LARGE CAP VALUE FUND.......... declared and paid quarterly quarterly annually
AIM ADVISOR MULTIFLEX FUND................ declared and paid quarterly quarterly annually
AIM ADVISOR REAL ESTATE FUND.............. declared and paid quarterly quarterly annually
AIM AGGRESSIVE GROWTH FUND................ declared and paid annually annually annually
AIM BALANCED FUND......................... declared and paid quarterly annually annually
AIM BLUE CHIP FUND........................ declared and paid annually annually annually
AIM CAPITAL DEVELOPMENT FUND.............. declared and paid annually annually annually
AIM CHARTER FUND.......................... declared and paid quarterly annually annually
AIM CONSTELLATION FUND.................... declared and paid annually annually annually
AIM GLOBAL AGGRESSIVE GROWTH FUND......... declared and paid annually annually annually
AIM GLOBAL GROWTH FUND.................... declared and paid annually annually annually
AIM GLOBAL INCOME FUND.................... declared daily; paid monthly annually annually
AIM GLOBAL UTILITIES FUND................. declared daily; paid monthly annually annually
AIM GROWTH FUND........................... declared and paid annually annually annually
AIM HIGH YIELD FUND....................... declared daily; paid monthly annually annually
AIM INCOME FUND........................... declared daily; paid monthly annually annually
AIM INTERMEDIATE GOVERNMENT FUND.......... declared daily; paid monthly annually annually
AIM INTERNATIONAL EQUITY FUND............. declared and paid annually annually annually
AIM LIMITED MATURITY TREASURY SHARES...... declared daily; paid monthly annually annually
AIM MONEY MARKET FUND..................... declared daily; paid monthly at least annually annually
AIM MUNICIPAL BOND FUND................... declared daily; paid monthly annually annually
AIM TAX-EXEMPT BOND FUND OF CONNECTICUT... declared daily; paid monthly annually annually
AIM TAX-EXEMPT CASH FUND.................. declared daily; paid monthly at least annually annually
AIM TAX-FREE INTERMEDIATE SHARES.......... declared daily; paid monthly annually annually
AIM VALUE FUND............................ declared and paid annually annually annually
AIM WEINGARTEN FUND....................... declared and paid annually annually annually
</TABLE>
In determining the amount of capital gains, if any, available for
distribution, net capital gains are offset against available net capital losses,
if any, carried forward from previous fiscal periods.
All dividends and distributions of an AIM Fund are automatically reinvested on
the payment date in full and fractional shares of such fund, unless the
shareholder has made an alternate election as to the method of payment.
Dividends and distributions attributable to a class 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 like shares of another
Multiple Class Fund, to the extent permitted. For funds that do not declare a
dividend daily, such dividends and distributions will be reinvested at the net
asset value per share determined on the ex-dividend date. For funds that declare
a dividend daily, such dividends and distributions will be reinvested at the net
asset value per share determined on the payable date. Shareholders may elect, by
written notice to the Transfer Agent, to receive such distributions, or the
dividend portion thereof, in cash, or to invest such dividends and distributions
in shares of another fund in the AIM Funds; provided that (i) dividends and
distributions attributable to Class B shares may only be reinvested in Class B
shares, (ii) dividends and distributions attributable to Class C shares may only
be reinvested in Class C shares (except Class C shares of AIM ADVISOR CASH
MANAGEMENT FUND) (iii) dividends and distributions attributable to Class A
shares or AIM Limited Maturity Treasury Shares may not be reinvested in Class A
shares of AIM ADVISOR CASH MANAGEMENT FUND or Class B or Class C shares, and
(iv) dividends and distributions attributable to the AIM Cash Reserve Shares of
AIM MONEY MARKET FUND may not be reinvested in the Class A shares of that Fund
or in any Class B or Class C shares. Investors who have not previously selected
such a reinvestment option on the account application form may contact the
Transfer Agent at any time to obtain a form to authorize such reinvestments in
another AIM Fund. Such reinvestments into the AIM Funds are not subject to sales
charges, and shares so purchased are automatically credited to the account of
the shareholder.
Dividends on Class B and Class C shares (except Class C shares of AIM ADVISOR
CASH MANAGEMENT FUND) are expected to be lower than those for Class A shares or
AIM Cash Reserve Shares because of higher distribution fees paid by Class B and
Class C shares (except Class C shares of AIM ADVISOR CASH MANAGEMENT FUND).
Dividends on all shares may also be affected by other class-specific expenses.
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Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to the Transfer Agent and are effective as to
any subsequent payment if such notice is received by the Transfer Agent prior to
the record date of such payment. Any dividend and distribution election remains
in effect until the Transfer Agent receives a revised written election by the
shareholder.
Any dividend or distribution paid by a fund which does not declare dividends
daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes, as
discussed below.
TAX MATTERS
Each AIM Fund has qualified and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Code. As long as a fund
qualifies for this tax treatment, it is not subject to federal income taxes on
net investment income and capital gains that are distributed to shareholders.
Each fund, for purposes of determining taxable income, distribution requirements
and other requirements of Subchapter M, is treated as a separate corporation.
Therefore, no fund may offset its gains against another fund's losses and each
fund must individually comply with all of the provisions of the Code which are
applicable to its operations.
TAX TREATMENT OF DISTRIBUTIONS -- GENERAL. Because each AIM Fund intends to
distribute substantially all of its net investment income and net realized
capital gains to its shareholders, it is not expected that any such fund will be
required to pay any federal income tax. Each AIM Fund also intends to meet the
distribution requirements of the Code to avoid the imposition of a
non-deductible 4% excise tax calculated as a percentage of certain undistributed
amounts of taxable ordinary income and capital gain net income. Nevertheless,
shareholders normally are subject to federal income taxes, and any applicable
state and local income taxes, on the dividends and distributions received by
them from a fund whether in the form of cash or additional shares of a fund,
except for tax-exempt dividends paid by AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND, and AIM TAX-FREE
INTERMEDIATE SHARES (the "Tax-Exempt Funds") which are exempt from federal tax.
Dividends paid by a fund (other than capital gain distributions) may qualify for
the federal 70% dividends received deduction for corporate shareholders to the
extent of the qualifying dividends received by the fund on domestic common or
preferred stock. It is not likely that dividends received from AIM ADVISOR CASH
MANAGEMENT FUND, AIM ADVISOR INCOME FUND, AIM ADVISOR INTERNATIONAL VALUE FUND,
AIM ADVISOR REAL ESTATE 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, 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. Certain dividends declared in October, November or December of a calendar
year are taxable to shareholders as though received on December 31 of that year
if paid to shareholders during January of the following calendar 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. With
respect to tax-exempt shareholders, distributions from the Funds will not be
subject to federal income taxation to the extent permitted under the applicable
tax-exemption.
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 ordinary 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 rise to a federal
alternative minimum tax liability for shareholders, and may invest up to 20% of
their net assets in such securities and
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other taxable securities. For additional information concerning the alternative
minimum tax and certain collateral tax consequences of the receipt of
exempt-interest dividends, see the Statements of Additional Information
applicable to the Tax-Exempt Funds.
The Tax-Exempt Funds may pay dividends to shareholders which are taxable, but
will endeavor to avoid investments which would result in taxable dividends. The
percentage of dividends which constitute exempt-interest dividends, and the
percentage thereof (if any) which constitute an item of tax preference, will be
determined annually. This percentage may differ from the actual percentages for
any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains, whether received in cash or additional shares, and regardless of
the length of time a particular shareholder may have held his shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Tax-Exempt Funds to pay exempt-interest dividends might be adversely affected.
AIM INTERMEDIATE GOVERNMENT FUND and AIM LIMITED MATURITY TREASURY
SHARES -- SPECIAL TAX INFORMATION. Certain states exempt from state income taxes
dividends paid by mutual funds out of interest on U.S. Treasury and certain
other U.S. Government obligations, and investors should consult with their own
tax advisors concerning the availability of such exemption.
AIM ADVISOR INTERNATIONAL VALUE FUND, 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, AIM LIMITED MATURITY TREASURY SHARES AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT, AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE INTERMEDIATE SHARES, for
which The Bank of New York, 90 Washington Street, 11th Floor, 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 passes 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 (800) 959-4246. 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. If several members of a household own shares of the same fund, only one
annual or semi-annual report will be mailed to that address. To receive
additional copies, please call (800) 347-4246, or write to A I M Distributors,
Inc., P.O. Box 4739, Houston, Texas 77210-4739. A Statement of Additional
Information has been filed with the SEC and is available upon request and
without charge, by writing or calling AIM Distributors. The SEC maintains a Web
site at http://www.sec.gov that contains the Statement of Additional
Information, material incorporated by reference, and other information regarding
the Fund. This Prospectus omits certain information contained in the
registration statement filed with the SEC. Copies of the registration statement,
including items omitted from this Prospectus, may be obtained from the SEC by
paying the charges prescribed under its rules and regulations.
MCF-A 07/97
A-20
<PAGE> 176
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTION OF MONEY MARKET INSTRUMENTS
The following list does not purport to be an exhaustive list of all Money
Market Instruments, and the Funds reserve the right to invest in Money Market
Instruments other than those listed below:
U.S. GOVERNMENT DIRECT OBLIGATIONS -- Bills, notes and bonds issued by the U.S.
Treasury.
U.S. GOVERNMENT AGENCIES SECURITIES -- Certain federal agencies such as the
Government National Mortgage Association have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of these agencies, while not direct obligations of the
U.S. Government, are either backed by the full faith and credit of the United
States or are guaranteed by the Treasury or supported by the issuing agencies'
right to borrow from the Treasury.
BANKERS' ACCEPTANCES -- A bill of exchange or time draft drawn on and accepted
by a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT -- A negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market.
COMMERCIAL PAPER -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months.
REPURCHASE AGREEMENTS -- A repurchase agreement is a contractual undertaking
whereby the seller of securities (limited to U.S. Government securities,
including securities issued or guaranteed by the U.S. Treasury or the various
agencies and instrumentalities of the U.S. Government, including mortgage-backed
securities issued by U.S. Government agencies) agrees to repurchase the
securities at a specified price on a future date determined by negotiations.
MASTER NOTES -- Unsecured demand notes that permit investment of fluctuating
amounts of money at varying rates of interest pursuant to arrangements with
issuers who meet the quality criteria of a Fund. The interest rate on a master
note may fluctuate based upon changes in specified interest rates or be reset
periodically according to a prescribed formula or may be a set rate. Although
there is no secondary market in master notes, if such notes have a demand
feature, the payee may demand payment of the principal amount of the note on
relatively short notice.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks or corporations,
may carry variable or floating rates of interest. Such instruments bear interest
at rates which are not fixed, but which vary with changes in specified market
rates or indices, such as a Federal Reserve composite index.
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<PAGE> 177
APPENDIX B
- --------------------------------------------------------------------------------
DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED
BY U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES
AIM INTERMEDIATE GOVERNMENT FUND may invest in "Agency Securities," as defined
in the Prospectus, including some or all of those listed below. The following
list does not purport to be an exhaustive list of all Agency Securities, and the
Fund reserves the right to invest in Agency Securities other than those listed
below.
EXPORT-IMPORT BANK CERTIFICATES -- are certificates of beneficial interest and
participation certificates issued and guaranteed by the Export-Import Bank of
the United States.
FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS -- are bonds issued by a
cooperatively owned, nationwide system of banks and associations supervised by
the Farm Credit Administration, an independent agency of the U.S. Government.
FEDERAL HOME LOAN BANK NOTES AND BONDS -- are notes and bonds issued by the
Federal Home Loan Bank System.
FHA DEBENTURES -- are debentures issued by the Federal Housing Administration
of the U.S. Government.
FHA INSURED NOTES -- are bonds issued by the Farmers Home Administration of
the U.S. Government.
FEDERAL HOME LOAN MORTGAGE CORPORATION ("FHLMC") BONDS -- are bonds issued and
guaranteed by FHLMC, a corporate instrumentality of the U.S. Government. The
Federal Home Loan Banks own all the capital stock of FHLMC, which obtains its
funds by selling mortgages (as well as participation interests in the mortgages)
and by borrowing funds through the issuance of debentures and otherwise.
FHLMC PARTICIPATION CERTIFICATES OR "FREDDIE MACS" -- represent undivided
interests in specified groups of conventional mortgage loans (and/or
participation interests in those loans) underwritten and owned by FHLMC. At
least 95% of the aggregate principal balance of the whole mortgage loans and/or
participations in a group formed by FHLMC typically consist of single-family
mortgage loans, and not more than 5% consists of multi-family loans. FHLMC
Participation Certificates are not guaranteed by, and do not constitute a debt
or obligation of, the U.S. Government or any Federal Home Loan Bank. FHLMC
Participation Certificates are issued in fully registered form only, in original
unpaid principal balances of $25,000, $100,000, $200,000, $500,000, $1 million
and $5 million. FHLMC guarantees to each registered holder of a Participation
Certificate, to the extent of such holder's pro rata share (i) the timely
payment of interest accruing at the applicable certificate rate on the unpaid
principal balance outstanding on the mortgage loans, and (ii) collection of all
principal on the mortgage loans without any offset or deductions. Pursuant to
these guaranties, FHLMC indemnifies holders of Participation Certificates
against any reduction in principal by reason of charges for property repairs,
maintenance, and foreclosure.
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") BONDS -- are bonds issued and
guaranteed by the Federal National Mortgage Association, a federally chartered
and privately-owned corporation.
FNMA PASS-THROUGH CERTIFICATES OR "FANNIE MAES" -- are mortgage pass-through
certificates issued and guaranteed by FNMA. FNMA Certificates represent a
fractional undivided ownership interest in a pool of mortgage loans either
provided from FNMA's own portfolio or purchased from primary lenders. The
mortgage loans included in the pool are conventional, insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. FNMA
Certificates are not backed by, nor entitled to, the full faith and credit of
the U.S. Government.
Loans not provided from FNMA's own portfolio are purchased only from primary
lenders that satisfy certain criteria developed by FNMA, including depth of
mortgage origination experience, servicing experience and financial capacity.
FNMA may purchase an entire loan pool from a single lender, and issue
Certificates backed by that loan pool alone, or may package a pool made up of
loans purchased from various lenders.
Various types of mortgage loans, and loans with varying interest rates, may be
included in a single pool, although each pool will consist of mortgage loans
related to one-family or two-to-four family residential properties.
Substantially all FNMA mortgage pools currently consist of fixed interest rate
and growing equity mortgage loans, although FNMA mortgage pools may also consist
of adjustable interest rate mortgage loans or other types of mortgage loans.
Each mortgage loans must conform to FNMA's published requirements or guidelines
with respect to maximum principal amount, loan-to-value ratio, loan term,
underwriting standards and insurance coverage.
All mortgage loans are held by FNMA as trustee pursuant to a trust indenture
for the benefit of Certificate holders. The trust indenture gives FNMA
responsibility for servicing or administering the loans in a pool. FNMA
contracts with the lenders or other servicing institutions to perform all
services and duties customary to the servicing of mortgages, as well as duties
specifically prescribed by FNMA, and under FNMA supervision. FNMA may remove
service providers for cause.
The pass-through rate on FNMA Certificates is the lowest annual interest rate
borne by an underlying mortgage loan in the pool, less a fee to FNMA as
compensation for servicing and for FNMA's guarantee. Lenders servicing the
underlying mortgage loans receive as
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<PAGE> 178
compensation a portion of the fee paid to FNMA, the excess yields on pooled
loans with coupon rates above the lowest rate borne by any mortgage loan in the
pool and certain other amounts collected, such as late charges.
The minimum size of a FNMA pool is $1 million of mortgage loans. Registered
holders purchase Certificates in amounts not less than $25,000.
FNMA Certificates are marketed by the servicing lender banks, usually through
securities dealers. The lender of a single lender pool typically markets all
Certificates based on that pool, and lenders of multiple lender pools market
Certificates based on a pro rata interest in the aggregate pool. The amounts of
FNMA Certificates currently outstanding is limited.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") CERTIFICATES OR "GINNIE
MAES" -- are mortgage-backed securities which represent a partial ownership
interest in a pool of mortgage loans issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations. Each mortgage loan included
in the pool is either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. A "pool" or group of such mortgages
is assembled, and, after being approved by GNMA, is offered to investors through
securities dealers. GNMA is a U.S. Government corporation within the Department
of Housing and Urban Development.
The Portfolio will purchase only GNMA Certificates of the "modified
pass-through" type, which entitle the holder to receive its proportionate share
of all interest and principal payments owed on the mortgage pool, net of fees
paid to the issuer and GNMA, regardless of whether or not the mortgagor actually
makes the payment. GNMA Certificates differ from bonds in that the principal is
paid back monthly by the borrower over the term of the loan rather than returned
in a lump sum at maturity. Payment of principal of and interest on GNMA
Certificates of the "modified pass-through" type is guaranteed by GNMA and
backed by the full faith and credit of the U.S. Government.
The average life of a GNMA Certificate is likely to be substantially less than
the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is
not possible to accurately predict the average life of a particular issue of
GNMA Certificates. However, statistics published by the FHA indicate that the
average life of a single-family dwelling mortgage with 25- to 30-year maturity,
the type of mortgage which backs the vast majority of GNMA Certificates, is
approximately 12 years. It is therefore customary practice to treat GNMA
Certificates as 30-year mortgage-backed securities which prepay fully in the
twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates may vary from their coupon
rates for the following reasons: (i) Certificates may be issued at a premium or
discount, rather than at par; (ii) Certificates may trade in the secondary
market at a premium or discount after issuance; (iii) interest is earned and
compounded monthly which has the effect of raising the effective yield earned on
the Certificates; and (iv) the actual yield of each Certificate is affected by
the prepayment of mortgages included in the mortgage pool underlying the
Certificates and the rate at which principal so prepaid is reinvested. In
addition, prepayment of mortgages included in the mortgage pool underlying a
GNMA Certificate purchased at a premium may result in a loss to the Portfolio.
Due to the large amount of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things, the
level of market rates, the Certificate's coupon rate and the prepayment
experience of the pool of mortgages backing each Certificate.
GENERAL SERVICES ADMINISTRATION PARTICIPATION CERTIFICATES -- are
participation certificates issued by the General Services Administration of the
U.S. Government.
MARITIME ADMINISTRATION BONDS -- are bonds issued and provided by the
Department of Transportation of the U.S. Government.
NEW COMMUNITIES DEBENTURES -- are debentures issued in accordance with the
provisions of Title IV of the Housing and Urban Development Act of 1968, as
supplemented and extended by Title VII of the Housing and Urban Development Act
of 1970, the payment of which is guaranteed by the U.S. Government.
PUBLIC HOUSING NOTES AND BONDS -- are short-term project notes and long-term
bonds issued by public housing and urban renewal agencies in connection with
programs administered by the Department of Housing and Urban Development of the
U.S. Government, the payment of which is secured by the U.S. Government.
SBA DEBENTURES -- are debentures fully guaranteed as to principal and interest
by the Small Business Administration of the U.S. Government.
SLMA DEBENTURES -- are debentures backed by the Student Loan Marketing
Association.
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<PAGE> 179
TITLE XI BONDS -- are bonds issued in accordance with the provisions of Title
XI of the Merchant Marine Act of 1936, as amended, the payment of which is
guaranteed by the U.S. Government.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY BONDS -- are bonds issued by
the Washington Metropolitan Area Transit Authority and are guaranteed by the
Secretary of Transportation of the U.S. Government.
A-24
<PAGE> 180
APPENDIX C
- --------------------------------------------------------------------------------
DESCRIPTIONS OF RATING CATEGORIES
The following are descriptions of ratings assigned by Moody's Investors
Service, Inc. ("Moody's") and Standard and Poor's Ratings Services ("S&P") to
certain debt securities in which AIM HIGH YIELD FUND and AIM INCOME FUND may
invest. See the Statement of Additional Information for descriptions of other
Moody's and S&P rating categories and those of other rating agencies.
MOODY'S: Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. 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 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.
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.
S&P: 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 highest 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 lowest degree of speculation and
C the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or large exposures
to adverse conditions.
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<PAGE> 181
APPLICATION INSTRUCTIONS
SOCIAL SECURITY OR TAXPAYER ID NUMBER. Investors should make sure that the
social security number or taxpayer identification number (TIN) which appears in
Section 1 of the Application complies with the following guidelines:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GIVE SOCIAL SECURITY GIVE TAXPAYER I.D.
ACCOUNT TYPE NUMBER OF: ACCOUNT TYPE NUMBER OF:
<S> <C> <C> <C>
Individual Individual Trust, Estate, Pension Trust, Estate, Pension
Plan Trust Plan Trust and not
personal TIN of fiduciary
Joint Individual First individual listed in the
"Account Registration" portion
of the Application
Unif. Gifts to Minor Corporation, Partnership, Corporation, Partnership,
Minors/Unif. Other Organization Other Organization
Transfers to Minors
Legal Guardian Ward, Minor or
Incompetent
Sole Proprietor Owner of Business Broker/Nominee Broker/Nominee
</TABLE>
- --------------------------------------------------------------------------------
Applications without a certified TIN will not be accepted unless the applicant
is a nonresident alien, foreign corporation or foreign partnership and has
attached a completed IRS Form W-8.
BACKUP WITHHOLDING. Each AIM Fund, and other payers, must, according to IRS
regulations, withhold 31% of redemption payments and reportable dividends
(whether paid or accrued) in the case of any shareholder who fails to provide
the Fund with a TIN and a certification that he is not subject to backup
withholding.
An investor is subject to backup withholding if:
(1) the investor fails to furnish a correct TIN to the Fund, or
(2) the IRS notifies the Fund that the investor furnished an incorrect TIN, or
(3) the investor is notified by the IRS that the investor is subject to backup
withholding because the investor failed to report all of the interest and
dividends on such investor's tax return (for reportable interest and
dividends only), or
(4) the investor fails to certify to the Fund that the investor is not subject
to backup withholding under (3) above (for reportable interest and
dividend accounts opened after 1983 only), or
(5) the investor does not certify his TIN. This applies only to reportable
interest, dividend, broker or barter exchange accounts opened after 1983,
or broker accounts considered inactive during 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies.
Certain payees and payments are exempt from backup withholding and information
reporting and such entities should check the box "Exempt from Backup
Withholding" on the Application. A complete listing of such exempt entities
appears in the Instructions for the Requester of 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 Code.
IRS PENALTIES -- Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject to a $500 penalty imposed by the IRS and to certain
criminal penalties including fines and/or imprisonment.
MCF-A 07/97
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<PAGE> 182
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-in-fact to surrender for redemption any and all unissued
shares held by the Transfer Agent in the designated account(s), or in any other
account with any of the AIM Funds, present or future, which has the identical
registration as the designated account(s), with full power of substitution in
the premises. The Transfer Agent and AIM Distributors are thereby authorized and
directed to accept and act upon any telephone redemptions of shares held in any
of the account(s) listed, from any person who requests the redemption proceeds
to be applied to purchase shares in any one or more of the AIM Funds, provided
that such fund is available for sale and provided that the registration and
mailing address of the shares to be purchased are identical to the registration
of the shares being redeemed. An investor acknowledges by signing the form that
he understands and agrees that the Transfer Agent and AIM Distributors may not
be liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction. The Transfer Agent
reserves the right to cease to act as attorney-in-fact 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-in-fact 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 attorney-in-fact 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-A 07/97
B-2
<PAGE> 183
[AIM LOGO
APPEARS THE AIM FAMILY OF FUNDS--Registered Trademark--
HERE]
<TABLE>
<S> <C> <C>
Investment Advisor
A I M Advisors, Inc. TABLE OF CONTENTS
11 Greenway Plaza, Suite 100 INVESTMENT OBJECTIVES.................... 2
Houston, TX 77046-1173 SUMMARY.................................. 2
THE FUNDS................................ 4
Table of Fees and Expenses............. 4
Transfer Agent Financial Highlights................... 7
A I M Fund Services, Inc. Performance............................ 19
P.O. Box 4739 About the Funds........................ 19
Houston, TX 77210-4739 Investment Programs.................... 20
Certain Investment Strategies and
Policies............................... 24
Custodian Management............................. 27
State Street Bank and Trust Company Organization of the Trust.............. 31
225 Franklin Street INVESTOR'S GUIDE TO THE AIM FAMILY OF
Boston, MA 02110 FUNDS--Registered Trademark--.......... A-1
Introduction to The AIM Family of
Funds.................................. A-1
The Bank of New York How to Purchase Shares................. A-1
90 Washington Street Terms and Conditions of Purchase of the
New York, NY 10286 AIM Funds........................... A-2
[AIM Municipal Bond Fund only] Special Plans.......................... A-9
Exchange Privilege..................... A-11
How to Redeem Shares................... A-13
Principal Underwriter Determination of Net Asset Value....... A-17
A I M Distributors, Inc. Dividends, Distributions and Tax
P.O. Box 4739 Matters................................ A-18
Houston, TX 77210-4739 General Information.................... A-20
Appendix A............................. A-21
Appendix B............................. A-22
Independent Accountants Appendix C............................. A-25
KPMG Peat Marwick LLP
700 Louisiana Application Instructions................. B-1
NationsBank Bldg.
Houston, TX 77002
</TABLE>
For more complete information about any other fund in The AIM Family of
Funds--Registered Trademark--, including charges and expenses, please
call (800) 347-4246 or write to A I M Distributors, Inc. and request a free
prospectus. Please read the prospectus carefully before you invest or send
money.
<PAGE> 184
APPENDIX IV
Reproduced below is a discussion of the performance of AIM Intermediate
Government Fund for the six-month period ended June 30,1997, that was prepared
by the officers and AIM and was included in its Semi-annual Report dated June
30, 1997.
The Managers' Overview
AIM INTERMEDIATE GOVERNMENT FUND PROVIDES
ATTRACTIVE CURRENT INCOME DESPITE VOLATILE MARKET
A roundtable discussion with the Fund management team for AIM Intermediate
Government Fund for the six months ended June 30, 1997.
- -------------------------------------------------------------------------------
Q. IT WAS A TUMULTUOUS ENVIRONMENT FOR BONDS. HOW DID THE FUND PERFORM DURING
THE REPORT- ING PERIOD?
A. The first quarter was particularly trying for bond investors, and the Fund
made little progress. Improved market conditions during the second quarter
enabled the Fund to generate most of its gain for the reporting period. The
Fund's current income remained strong throughout the period. The Fund's
30-day yield on Class A and Class B shares was 6.45% and 5.97%,
respectively, as of June 30, 1997. Total return was 3.03% for Class A
shares and 2.60% for Class B shares in the six months ended June 30, 1997.
That compared favorably to the 2.64% total return for the Lipper
Intermediate U.S. Government Funds Index.
Q. CONCERNS OVER THE ECONOMY AND HIGHER INTEREST RATES DOMINATED THE PERIOD.
HOW DID THAT AFFECT BOND INVESTMENTS?
A. The bond market sold off sharply through the end of April, when the
benchmark 30-year U.S. Treasury bond hit a peak weekly closing yield of
7.13% in reaction to reports of vigorous growth in the economy. Indicators
seemed pointed either to an acceleration in inflation or to action by the
Federal Reserve to stave off price pressures. But the market later
rebounded nearly as sharply, owing to, in various measures, an apparent
slowdown in the economy plus the absence of inflation. The rally in bonds
took the yield on the benchmark 30-year U.S. Treasury bond to 6.78% by June
30--the lowest level since late February.
Q. WHAT TRIGGERED THE TURNAROUND?
A. The rally in bonds was touched off in April by news that the Consumer Price
Index (CPI) had risen 0.1%--half the increase expected by analysts, a trend
that continued into June. That news, combined with lower than expected
increases in employment costs and a record six consecutive declines in
producers prices, encouraged some analysts to speculate that the chances
the Fed will tighten monetary policy again this year are diminishing.
Indeed, following the increase in short-term interest rates in March, the
Fed elected to leave rates unchanged in May. Investors looking for greater
diversification amid a record stock market turned to bonds. Bond and income
funds witnessed an inflow of $2.75 billion in May, compared with an inflow
of $759.9 million in April.
Q. HOW DID THESE FACTORS AFFECT THE FUND?
A. The Fund lost ground early in the reporting period as fixed-income
securities were pressured by economic uncertainty and the resulting
increase in interest rates. However, the Fund's performance was cushioned
by its strong participation in the mortgage market. Mortgage-backed
securities--which comprised 64% of the Fund as of June 30--tend to benefit
from rising interest rates. When mortgage rates top 8%, homeowners are
discouraged from refinancing and the rate of mortgage prepayments slows
appreciably. Continuing the trend from 1996, mortgage-backed securities
outperformed U.S. Treasury securities of equivalent duration. That
advantage diminished somewhat as interest rates declined in May and bonds
rebounded sharply with encouraging economic reports. The Fund's invest
=========================================================================
CURRENT YIELD ADVANTAGE
-------------------------------------------------------------------------
As of 6/30/97
FUND CLASS A 30-DAY YIELD 6.45%
2-YEAR U.S. TREASURY NOTE 6.03*
6-MONTH CD 5.65**
=========================================================================
5.97% was the 30-day yield for the Fund's Class B shares. *Government
securities, such as U.S. Treasury bills, notes, and bonds offer a high degree
of safety and are guaranteed as to the timely payment of principal and interest
if held to maturity. **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 Bank Rate Monitor. Fund shares are not
insured, and their value will vary with market conditions.
------------------------------------------------------------
Investors looking for
greater diversification amid
a record stock market
turned to bonds.
------------------------------------------------------------
See important Fund & index disclosures inside front cover.
2
<PAGE> 185
ment in U.S. Treasury securities, about 15% of the portfolio, gained as
rates drifted lower. In addition, prices for U.S. Treasury securities were
aided by a narrowing of supply during the reporting period as fewer issues
were offered at auction. That also served to narrow yield spreads of
government securities across maturity levels.
Q. How are mortgage-backed securities affected by declining interest rates?
A. Declining interest rates encourage mortgage prepayments. That means
investors in mortgage-backed securities receive their investment back when
reinvestment rates are lower. And analysts anticipate that homeowners may
be able to refinance their mortgages more cheaply in the coming months than
last December. Nonetheless, mortgage analysts have suggested that there is
strong support for mortgage-backed securities from bidders who are
well-equipped to handle periodic prepayment risk and are not likely to
reduce their mortgage portfolios dramatically. Federally chartered agencies
like Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation, who buy mortgages from banks and thrifts, play a key role as a
strong and continuing source of demand for mortgage-backed securities.
Q. What is your outlook for the fixed-income market?
A. Fixed-income funds should fare well as long as the economy grows in a 2% to
3% range. And indications are that the fair weather should continue--the
Federal Reserve has described the current economic environment as ideal.
Inflation--bond investors' worst enemy--is showing no signs of a resurgence
and the supply of U.S. Treasury bonds is growing slowly, which tightens
demand and helps cushion the price of those securities. Interest rates
should remain stable--long-term rates have even declined slightly. However,
market watchers don't anticipate substantially lower rates for U.S.
Treasury bonds from current levels. That lessens the likelihood of
significant prepayment risk for mortgage-backed securities. Key factors we
see driving the government securities market in coming months include:
o The Fed indicated recently that no further monetary policy changes may
be necessary in 1997.
o Foreign demand for U.S. government issues is up sharply.
o Recently passed legislation for a balanced budget should contribute to a
further reduction in the supply of U.S. Treasury debt issues.
===============================================================================
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
As of 6/30/97
Mortgage-Backed Obligations 64.3%
U.S. Treasury Obligations 14.6%
U.S. Agency Obligations 10.0%
Cash Equivalents 11.1%
BREAKDOWN OF MORTGAGE-BACKED OBLIGATIONS
Federal National Mortgage Assn. 61.4%
Federal Home Loan Mortgage Corp. 24.6
Government National Mortgage Assn. 14.0
S&P RATING AAAf
WEIGHTED AVERAGE MATURITY 8.96 years
DURATION 4.06 years
===============================================================================
FUND MANAGERS USE WEIGHTED AVERAGE MATURITY AND DURATION TO MANAGE RISK
In the box above showing the Fund's portfolio composition, we indicate the
weighted average maturity and duration. These both measure the effects of time
on the portfolio, but there the similarity ends:
o Weighted average maturity is an average of the term to maturity remaining
on each of the Fund's bond holdings.
o Duration is the average time it takes to receive the interest and the
principal on a bond.
For example, if we compared two bonds of identical quality and maturity,
the two bonds could have the same weighted average maturity. However, the bond
with the higher coupon would have the lower duration because the investor would
collect all payments in a shorter average amount of time. Using these tools,
fund managers can manage the sensitivity of a portfolio to changes in interest
rates. A longer duration on a bond or a portfolio, like a longer weighted
average maturity, indicates more sensitivity to interest rate changes because
the investment is committed for a longer period. During periods of rising
interest rates as noted earlier in 1997, the Fund's managers tend to shorten
one or both of these measures to reduce the impact on the Fund's share values.
See important Fund & index disclosures inside front cover.
3
<PAGE> 186
APPENDIX V
Reproduced below is a discussion of the performance of AIM Advisors
Income Fund for the fiscal year ended December 31, 1996, that was prepared by
its officers and investment advisor and included in its Annual Report dated
December 31, 1996.
INVESCO ADVISOR REAL ESTATE FUND
MARKET PERSPECTIVE
Boosted by strong fourth quarter return performance of 18.9%, 1996 was an
exceptional year for the REIT market. Total return for the year of 35.3%, as
reported by the NAREIT Equity Index, exceeded all other broad measures of stock
performance. The exceptional performance may in part be explained by investor
interest in the diversification benefits of REITs relative to the S&P 500.
During July's broader market volatility, the S&P 500 and the Russell 2000 (small
capitalization stocks) Index declined by -4.4% and -8.7%, respectively. In
contrast, REITs were up a modest 0.4% during July. Real estate securities are
tending to perform more like their underlying real estate earnings and less like
the general stock market.
PORTFOLIO COMMENTS
Total return for the INVESCO Advisor Real Estate Fund was 36.4% for 1996.
During the year, the fund benefited from being appropriately overweighted in the
hotel and industrial/office sectors. Since inception (5/1/95), the Real Estate
Fund has produced an average annual return of 26.9%.
During 1996, following a pattern similar to that of 1995, REITs, which operate
in the office (+51.8%) and hotel (+49.2%) sectors, were again the star
performers. Another strong sector, regional mall REITs (+44.6%) recovered from a
dismal 1995. Returns are generally reflecting the improved real estate
fundamentals being experienced by REITs which operate in these property sectors.
We believe there are four primary reasons which continue to make REITs worthy
of investment consideration. The first reason is a high dividend yield. The
second factor that makes REITs a worthy consideration is solid real estate
fundamentals. The third factor is portfolio diversification. And finally,
long-term REIT industry growth is quite favorable.
REAL ESTATE FUND
TOTAL RETURN PERFORMANCE*
[LOGO OF GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Invesco Advisor Real Estate Fund NAREIT CPI Treasury Bill
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
05/1/95 25,000 25,000 25,000 25,000
12/95 27,282 28,859 25,302 25,811
12/96 37,220 39,034 26,150 27,168
- ----------------------------------------------------------------------------------------
</TABLE>
INVESCO Advisor Real Estate Fund's average annual total returns for the period
ended December 31, 1996 is:*
1 year: 36.43%; and, since inception (May 1, 1995): 26.89%
INVESCO ADVISOR INCOME FUND
MARKET PERSPECTIVE
The Lehman Government/Corporate Index return was a lackluster 2.9% in 1996 as
interest rates generally rose. The bond market was a roller coaster ride during
the year with long treasury bonds starting out at 5.9%, and then going to 7.2%
in June before settling back to 6.6% at year-end. Not surprisingly, this pattern
was similar to that of Gross Domestic Product growth rates. The latest Consumer
Price Index figures are also causing a bit of concern to bondholders, rising to
a 3.3% rate after bottoming at 2.3% in May, 1994.
PORTFOLIO COMMENTS
The INVESCO Advisor Income Fund posted a return of -1.2% for 1996. Because of
poor returns in the first half of the year when interest rates were rising, the
fund trailed the broader fixed income benchmarks.
The fund's investment discipline revolves around three factors: the
portfolio's average maturity, the sector allocation, and individual security
selections. The fund's maturity strategy is slightly defensive, which means that
its average maturity (currently 6.7 years) is a little shorter than the
market's. This strategy generally provides more protection in down or bearish
markets where interest rates are rising and bond prices are falling. The sector
allocation is
5
<PAGE> 187
determined by the relative attractiveness of corporate bonds and mortgage secu-
rities compared with U.S. Treasury
Securities. The fund is primarily invested in high quality, government bonds.
INCOME FUND
TOTAL RETURN PERFORMANCE*
[LOGO OF GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Invesco Adviser LBG/CBI CPI Treasury Bill
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/86 25,000 25,000 25,000 25,000
1987 24,775 25,573 26,239 26,550
1988 26,160 27,511 27,300 28,438
1989 28,548 31,428 28,539 30,915
1990 30,781 34,030 30,511 33,407
1991 34,616 39,519 31,375 35,313
1992 36,257 42,515 32,330 36,573
1993 38,936 47,145 33,179 37,741
1994 38,236 45,472 34,052 39,420
1995 46,311 54,220 34,948 41,714
1996 45,742 55,787 36,119 43,908
- -------------------------------------------------------------------------
</TABLE>
INVESCO Advisor Income Fund's average annual total returns for the periods ended
December 31, 1996 are:*
1 year: -1.23%; 3 years: 5.52%; 5 years: 5.73%;
and, 10 years: 6.23%
*Total return assumes reinvestment of dividends and capital gain
distributions. Past performance is not a guarantee of future results. Investment
return and principal value will vary so that, when redeemed, an investor's
shares may be worth more or less than when purchased. The S&P 500 is an
unmanaged index of common stocks considered representative of the broad market.
The Lehman Government/Corporate Index (LBG/CBI) is an unmanaged index considered
representative of the broad bond market. Consumer Price Index (CPI) is a
representative index of inflation in the economy. European Australian, Far East
(EAFE) Index is an unmanaged index of stocks considered representative of
foreign markets. National Association of Real Estate Investment Trust (NAREIT)
Index is an unmanaged index of common stocks of all tax-qualified equity REITs
listed on major U.S. exchanges or OTC. Flex Benchmark is 60% S&P 500 and 40%
LBG/CBI. MultiFlex Benchmark is 20% S&P 500, 20% LBG/CBI, 20% Russell 2000 Index
(an index of the 2,000 smallest common stocks), 20% NAREIT and 20% EAFE.
INVESCO Advisor Funds, Inc.
STATEMENT OF INVESTMENT SECURITIES
December 31, 1996
<TABLE>
- ---------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- ---------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR FLEX FUND
COMMON STOCKS 68.17%
BASIC MATERIALS 2.53%
Dow Chemical Co........................................ 60,000 $ 4,702,500
Imperial Chemical Industries PLC, ADR.................. 50,000 2,600,000
Imperial Tobacco Group PLC, ADR*....................... 87,500 1,129,030
Westvaco Corp.......................................... 135,000 3,881,250
------------
12,312,780
------------
CAPITAL GOODS 7.07%
Boeing Co.............................................. 60,000 6,382,500
COMPAQ Computer Corp.*................................. 100,000 7,425,000
General Electric Co.................................... 75,000 7,415,625
Lockheed Martin Corp................................... 70,000 6,405,000
Snap-On Tools Corp..................................... 60,000 2,137,500
Whirlpool Corp......................................... 100,000 4,662,500
------------
34,428,125
------------
CONSUMER CYCLICAL 9.39%
Deluxe Corp............................................ 150,000 4,912,500
Ford Motor Co.......................................... 175,000 5,578,125
Gannett Co., Inc....................................... 50,000 3,743,750
K Mart Corp.*.......................................... 250,000 2,593,750
Liz Claiborne, Inc..................................... 100,000 3,862,500
McDonald's Corp........................................ 110,000 4,977,500
Penney (J.C.) Co., Inc................................. 85,000 4,143,750
Reebok International, Ltd.............................. 100,000 4,200,000
Rite-Aid Corp.......................................... 75,000 2,981,250
Tandy Corp............................................. 60,000 2,640,000
V.F. Corp.............................................. 90,000 6,075,000
------------
45,708,125
------------
CONSUMER STAPLES 17.28%
Abbott Laboratories.................................... 100,000 5,075,000
American Brands, Inc................................... 110,000 5,458,750
American Home Products Corp............................ 100,000 5,862,500
Anheuser-Busch Cos., Inc............................... 150,000 6,000,000
Archer-Daniels-Midland Co.............................. 300,000 6,600,000
Columbia/HCA Healthcare, Inc........................... 150,000 6,112,500
Fleming Cos., Inc...................................... 100,000 1,725,000
Genuine Parts Co....................................... 100,000 4,450,000
Heinz (H.J.) Co........................................ 150,000 5,362,500
Lilly (Eli) & Co....................................... 90,000 6,570,000
Mylan Laboratories, Inc................................ 350,000 5,862,500
Philip Morris Cos., Inc................................ 65,000 7,320,625
Schering-Plough Corp................................... 100,000 6,475,000
</TABLE>
6
<PAGE> 188
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
of AIM Funds Group ("AFG") dated January 2, 1998 which may be obtained at no
charge by writing AFG, 11 Greenway Plaza, Suite 100, Houston, Texas 77046 or by
calling (800) 347-4246.
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.
A Statement of Additional Information for AIM Money Market Fund
("Money Market") and AIM Intermediate Fund ("Intermediate Government") dated
August 4, 1997 has been filed with the SEC, and is incorporated by reference
herein and is attached hereto as Appendix I (the "AFG Statement of Additional
Information").
The date of this Statement of Additional Information is
January 2, 1998.
TABLE OF CONTENTS
ADDITIONAL INFORMATION ABOUT AFG, MONEY MARKET AND
INTERMEDIATE GOVERNMENT . . . . . . . . . . . . . . . . . . . . B-2
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . B-2
AFG STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . . . . Appendix I
AAFI SEMI-ANNUAL REPORT . . . . . . . . . . . . . . . . . . . Appendix II
<PAGE> 189
ADDITIONAL INFORMATION ABOUT AFG, MONEY MARKET AND
AIM INTERMEDIATE GOVERNMENT
Additional information about AFG, Money Market and Intermediate Government
is contained in the AFG Statement of Additional Information. For more
information with respect to AFG, Money Market and Intermediate Government
concerning the following topics, please refer to the AFG 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, Money Market and Intermediate Government; (ii) see
the discussion "Investment Objectives and Policies," "Investment Restrictions"
for further information regarding the investment objectives and policies of
Money Market and Intermediate Government; (iii) see the discussion "Management
of the Trust" for further information regarding management of Money Market and
Intermediate Government; (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 Money Market
and Intermediate Government; (v) see the discussion "Portfolio Transactions and
Brokerage" for further information regarding brokerage allocation and other
practices relating to Money Market and Intermediate Government; (vi) see the
discussion "General Information About the Trust" for further information
regarding the shares of beneficial interest in Money Market and Intermediate
Government; (vii) see the discussion "How to Purchase and Redeem Shares,"
"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 Money Market and Intermediate
Government securities being offered; (viii) see the discussion "Tax Matters"
for a discussion of the tax status of Money Market and Intermediate Government;
(ix) see the discussion "The Distributor" for further information regarding
Money Market's and Intermediate Government's distributor; and (x) see the
discussion "Performance Information" for further information regarding the
calculation of Money Market's and Intermediate Government's performance data.
Information regarding control persons and principal holders of Money
Market's and Intermediate Government's securities is set forth under the
discussion "Ownership of Money Market, Intermediate Government, Cash Management
and Income Fund Shares" in the Combined Proxy Statement and Prospectus
relating to this Statement of Additional Information.
FINANCIAL INFORMATION
FINANCIAL INFORMATION FOR MONEY MARKET AND INTERMEDIATE GOVERNMENT
The Financial Statements for Money Market and Intermediate Government are
set forth under the heading "Financial Statements" in the AFG Statement of
Additional Information attached hereto as Appendix I.
B-2
<PAGE> 190
FINANCIAL INFORMATION FOR AIM ADVISOR CASH MANAGEMENT FUND ("CASH MANAGEMENT")
AND AIM ADVISOR INCOME FUND ("INCOME FUND")
The unaudited Financial Statements for Cash Management and Income Fund
for the six-month period ended June 30, 1997 are set forth in the Semi-Annual
Report of AAFI dated June 30, 1997, which is incorporated herein and attached
hereto as Appendix II.
B-3
<PAGE> 191
APPENDIX I
STATEMENT OF
ADDITIONAL INFORMATION
AIM FUNDS GROUP
AIM BALANCED FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM GLOBAL UTILITIES FUND AIM MONEY MARKET FUND
AIM GROWTH FUND AIM MUNICIPAL BOND FUND
AIM HIGH YIELD FUND AIM VALUE FUND
AIM INCOME FUND
11 Greenway Plaza
Suite 100
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 AIM DISTRIBUTORS,
INC., P.O. BOX 4739, HOUSTON, TEXAS 77210-4739, OR BY CALLING (800) 347-4246
_________________________
Statement of Additional Information Dated: August 4, 1997
Relating to the Prospectus Dated: August 4, 1997
<PAGE> 192
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
AIM Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
AIM Global Utilities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Lending Portfolio Securities: All Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Covered Call Options: All Funds except AIM Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . 14
Put Options: AIM Global Utilities Fund, AIM Growth Fund and AIM Value Fund . . . . . . . . . . . . . . . . . 14
Combined Option Positions: AIM Global Utilities Fund, AIM Growth Fund and AIM Value Fund . . . . . . . . . . 15
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
Foreign Exchange Transactions: All Funds (except AIM Intermediate Government Fund, AIM Money Market Fund and
AIM Municipal Bond Fund) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Rule 144A Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
AIM Balanced Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
AIM Global Utilities Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
AIM Growth Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
AIM Income Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
AIM Intermediate Government Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
AIM Money Market Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
AIM Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
AIM Value Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
i
<PAGE> 193
<TABLE>
<S> <C>
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
THE DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
HOW TO PURCHASE AND REDEEM SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
QUALIFYING FOR A REDUCED FRONT-END SALES CHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
PROGRAMS AND SERVICES FOR SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Dividend Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
REDEMPTIONS PAID IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
DESCRIPTION OF MONEY MARKET INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Money Market Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
MISCELLANEOUS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Custodians and Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
RATINGS OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-1
</TABLE>
ii
<PAGE> 194
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 August 4, 1997, 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 (800)
347-4246. 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. The Trust Agreement was also
amended on September 25, 1995 to reflect a name change of AIM Government
Securities Fund to AIM INTERMEDIATE GOVERNMENT FUND. The Trust Agreement was
amended on May 1, 1997 to change the name AIM MONEY MARKET FUND Class C shares
to AIM MONEY MARKET FUND AIM Cash Reserve Shares. 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 redemption and the rights
1
<PAGE> 195
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 three separate classes
of shares: Class A shares, Class B shares and Class C shares. AIM MONEY MARKET
FUND offers four separate classes of shares: Class A shares, Class B shares,
Class C shares and AIM Cash Reserve 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>
Each Fund may also compare its performance to performance data of
similar mutual funds as published by the following services:
2
<PAGE> 196
Bank Rate Monitor Stanger
Donoghue's Weisenberger
Mutual Fund Values (Morningstar) Lipper Analytical Services
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
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
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 (i) the
largest holdings in the Fund's portfolio, (ii) certain selling group members
and/or (iii) certain institutional shareholders.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. 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:
n
P(1+T) =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.
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).
3
<PAGE> 197
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, 1996 were as follows:
<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31, 1996
--------------------------------------
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS
-------------- ------ ------- --------
<S> <C> <C> <C>
AIM Balanced Fund . . . . . . . . . . . . . . . . . . . . 13.58% 12.93% 10.84%
AIM Global Utilities Fund . . . . . . . . . . . . . . . . 7.61% 8.12% 12.26%*
AIM Growth Fund . . . . . . . . . . . . . . . . . . . . . 12.08% 8.23% 11.01%
AIM High Yield Fund . . . . . . . . . . . . . . . . . . . 9.95% 12.15% 10.79%
AIM Income Fund . . . . . . . . . . . . . . . . . . . . . 3.42% 7.76% 8.27%
AIM Intermediate Government Fund . . . . . . . . . . . . . -2.51% 4.49% 6.85%*
AIM Municipal Bond Fund . . . . . . . . . . . . . . . . . -1.04% 5.57% 6.58%
AIM Value Fund . . . . . . . . . . . . . . . . . . . . . . 8.22% 15.80% 17.73%
</TABLE>
* The inception dates of the Class A shares of AIM GLOBAL UTILITIES
FUND and AIM INTERMEDIATE GOVERNMENT FUND were January 18, 1988 and
April 28, 1987, 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, 1996, were as
follows:
<TABLE>
<CAPTION>
CLASS B SHARES: PERIODS ENDED DECEMBER 31, 1996
-------------- -------------------------------
1 YEAR SINCE INCEPTION**
------ -----------------
<S> <C> <C>
AIM Balanced Fund . . . . . . . . . . . . . . . . 13.28% 11.26%
AIM Global Utilities Fund . . . . . . . . . . . . 7.98% 4.61%
AIM Growth Fund . . . . . . . . . . . . . . . . . 12.60% 11.30%
AIM High Yield Fund . . . . . . . . . . . . . . . 9.68% 8.64%
AIM Income Fund . . . . . . . . . . . . . . . . . 2.87% 4.63%
AIM Intermediate Government Fund . . . . . . . . . -3.39% 2.68%
AIM Municipal Bond Fund . . . . . . . . . . . . . -2.01% 2.72%
AIM Value Fund . . . . . . . . . . . . . . . . . . 8.57% 13.83%
</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 INCOME FUND and AIM INTERMEDIATE GOVERNMENT FUND was September
7, 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 AIM Cash Reserve Shares, for
the year ended December 31, 1996 were -1.32%, -1.34% and 4.41%, respectively;
and since inception (October 16, 1993) were 2.35%, 2.51% and 4.16%,
respectively.
The average annual total returns for each Fund, with respect to its
Class C shares, are not available as the inception date of Class C shares was
August 4, 1997.
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:
4
<PAGE> 198
n
P(1+U) =ERV
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:
n
P(1+V) =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:
6
YIELD = 2[((a-b)/(c x d) + 1) -1]
Where a = dividends and interest earned during a stated 30-day
period. For purposes of this calculation, dividends
are accrued rather than recorded on the ex-dividend
date. Interest earned under this formula must
generally be calculated based on the yield to maturity
of each obligation (or, if
more appropriate, based on yield to call date).
b = 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> 199
The yields for each of the named Funds were as follows:
<TABLE>
<CAPTION>
30 DAYS ENDED DECEMBER 31, 1996*
---------------------------------
CLASS A SHARES CLASS B SHARES
-------------- --------------
<S> <C> <C>
AIM Balanced Fund . . . . . . . . . . . . . . . . . . 2.42% 1.71%
AIM Global Utilities Fund . . . . . . . . . . . . . . 2.54% 1.92%
AIM High Yield Fund . . . . . . . . . . . . . . . . . 8.74%** 8.40%**
AIM Income Fund . . . . . . . . . . . . . . . . . . . 6.07% 5.63%
AIM Intermediate Government Fund . . . . . . . . . . . 6.11% 5.62%
AIM Municipal Bond Fund . . . . . . . . . . . . . . . 4.64%*** 4.03%***
</TABLE>
* Yield is not available for the Class C shares of the Funds as the
inception date for Class C shares was August 4, 1997.
** 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 39.6%, for the
Class A shares and Class B shares of AIM MUNICIPAL BOND FUND was
7.68% and 6.67%, respectively.
The standard formula for calculating annualized yield for AIM MONEY
MARKET FUND, as described in the Prospectus, is as follows:
Y = V - V X 365
1 0
------ ---
V 7
0
Where Y = annualized yield.
V = the value of a hypothetical pre-existing account in
0 the Fund having a balance of one share at the
beginning of a stated seven-day period.
V = the value of such an account at the end of the
1 stated period.
The annualized yield for each of the Class A and Class B shares and AIM
Cash Reserve Shares of AIM MONEY MARKET FUND for the 7 days ended December 31,
1996, was 4.50%, 3.76% and 4.49%, respectively. The annualized yield for Class
C shares of AIM MONEY MARKET FUND is not available as the inception date for
Class C shares was August 4, 1997.
The standard formula for calculating effective annualized yield for AIM
MONEY MARKET FUND, as described in the Prospectus, is as follows:
365/7
EY = (Y+1) -1
Where EY = effective annualized yield.
Y = annualized yield, as determined above.
The effective annualized yield for each of the Class A and Class B
shares and AIM Cash Reserve Shares of AIM MONEY MARKET FUND for the 7 days
ended December 31, 1996 was 4.60%, 3.83% and 4.59%, respectively. The effective
annualized yield for Class C shares of AIM MONEY MARKET FUND is not available
as the inception date for Class C shares was August 4, 1997.
For the purpose of determining 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> 200
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 a 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; (3)
certain products and/or services provided to the Funds, the cost of which will
be included in Fund expenses reported to shareholders; and (4) 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. In such cases, the Funds' trades may be
executed directly by selling dealers or by other broker-dealers with which
selling dealers have clearing arrangements.
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.
7
<PAGE> 201
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 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, 1996, AIM BALANCED FUND, AIM GLOBAL
UTILITIES FUND, AIM GROWTH FUND, AIM HIGH YIELD FUND and AIM VALUE FUND
directed certain brokerage transactions to broker-dealers that provided AIM
with research, statistical and other information: $11,294,709, $4,063,774,
$40,751,154, $23,835 and $757,518,402, respectively. For the same period, AIM
BALANCED FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM HIGH YIELD FUND
and AIM VALUE FUND paid the following in related brokerage commissions:
$26,205, $9,634, $58,204, $150 and $1,107,865, 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 such 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 to 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 decrease in portfolio turnover rate for AIM INCOME FUND from 1995 to
1996 resulted from less volatile markets and thus a reduced need to restructure
the Fund's portfolio holdings.
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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 HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE
GOVERNMENT 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 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
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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.
As of December 31, 1996, the following Funds entered into repurchase
agreements with the following regular brokers, as that term is defined in Rule
10b-1 under the 1940 Act, having the noted market values.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Merrill Lynch,
HSBC Securities, Pierce Fenner & Morgan Stanley & UBS Securities
Inc. Smith Inc. Co. Inc. Inc.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM Balanced Fund N/A N/A N/A $ 14,800,000
- -------------------------------------------------------------------------------------------------------------
AIM Global Utilities Fund N/A N/A N/A 4,071,574
- -------------------------------------------------------------------------------------------------------------
AIM High Yield Fund N/A N/A N/A 46,218,974
- -------------------------------------------------------------------------------------------------------------
AIM Income Fund $ 210,059 N/A N/A 6,589,941
- -------------------------------------------------------------------------------------------------------------
AIM Money Market Fund 30,000,000 N/A N/A 30,000,000
- -------------------------------------------------------------------------------------------------------------
AIM Value Fund 19,021,553 $427,359,031 $30,000,000 N/A
- -------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1996, AIM VALUE FUND held an amount of common stock
issued by Merrill Lynch & Co. Inc. having a market value of $57,050,000.
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, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
FUND 1996 1995 1994
---- ------------ --------------------------------
(000) (000) (000)
<S> <C> <C> <C>
AIM Balanced Fund . . . . . . . . . . . . . $357 $117 $86
AIM Global Utilities Fund . . . . . . . . . 275 596 799
AIM Growth Fund . . . . . . . . . . . . . . 929 520 803
AIM High Yield Fund . . . . . . . . . . . . 87 -0- -0-
AIM Income Fund . . . . . . . . . . . . . . 11 4 106
AIM Intermediate Government Fund . . . . . -0- -0- -0-
AIM Municipal Bond Fund . . . . . . . . . . -0- -0- -0-
AIM Value Fund . . . . . . . . . . . . . . 29,515 17,964 6,611
</TABLE>
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 a 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.
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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 HIGH YIELD FUND, AIM INCOME FUND, AIM
INTERMEDIATE GOVERNMENT 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 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, to meet anticipated short-term cash
needs such as dividend payments or redemptions of shares, or for temporary
defensive purposes. 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 AIM 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 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
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<PAGE> 205
or systems for ratings, 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, but not limited to, 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, 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
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
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<PAGE> 206
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 related 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
imposed in the past 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.
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
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<PAGE> 207
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. 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. Each of AIM GLOBAL UTILITIES FUND,
AIM GROWTH FUND and AIM VALUE FUND, as non-fundamental policies (a) will not
write covered call options which exceed 25% of the value of their respective
net assets, (b) will not write, sell or purchase uncovered call options,
straddles, spreads or combinations thereof, and (c) will only write covered
call options for hedging purposes and will not use leverage in doing so.
PUT OPTIONS: AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND AND AIM VALUE FUND
Each of AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND and AIM VALUE FUND
may purchase put options on securities. A put option constitutes a hedge
against a decline in the price of a security owned by a Fund. It may be sold
at a profit or loss depending upon changes in the price of the underlying
security. A put option may be exercised at a profit, provided that the amount
of the decline in the price of the underlying security below the option
exercise price during the option period exceeds the option premium, or a put
option may expire without value. The maximum loss exposure involved in the
purchase of a put option is the cost of the option contract. Each of AIM
GLOBAL UTILITIES FUND, AIM GROWTH FUND and AIM VALUE FUND, as non-fundamental
policies (a) will not purchase put options which exceed 25% of the value of
their respective net assets, (b) will not write or sell put options,
straddles, spreads or combinations thereof, and (c) will only purchase put
options for hedging purposes and will not use leverage in doing so. A Fund
will not purchase
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<PAGE> 208
a put option if, immediately thereafter, the aggregate value of the securities
underlying all put options, determined as of the dates such options were
purchased, would exceed 5% of the net assets of the Fund.
COMBINED OPTION POSITIONS: AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND AND AIM
VALUE FUND
The Funds, for hedging purposes, may combine purchases and sales of
options to adjust the risk and return characteristics of a Fund's overall
position. For example, a Fund may purchase a put option and write a covered
call option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. This technique, called a "straddle," enables the Fund to offset the
cost of purchasing a put option with the premium received from writing the call
option. However, by selling the call option, the Fund gives up the ability for
potentially unlimited profit from the put option. Another possible combined
position would involve writing a covered call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written covered call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
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 its custodian, 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 cost of the futures contracts (less any related
margin deposits), will be segregated with a Fund's custodian to collateralize
the position and ensure that the use of such futures contracts is unleveraged.
Unlike when a
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<PAGE> 209
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 its custodian for the account of the broker a stated amount, as
called for by the particular contract, of cash or U.S. Treasury bills. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in securities transactions in
that futures contract margin does not involve the borrowing of funds by the
customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or
good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. Subsequent payments, called "variation margin," to and from
the broker will be made on a daily basis as the price of the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable. 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 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 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.
Interest Rate Futures Contracts - AIM BALANCED FUND, AIM GLOBAL
UTILITIES FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE
GOVERNMENT 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.
Foreign Currency Futures Contracts - All Funds (except AIM
INTERMEDIATE GOVERNMENT FUND, AIM MONEY MARKET FUND and AIM MUNICIPAL BOND
FUND)
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Futures contracts may also be used to hedge the risk of changes in the
exchange rates 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
in order to hedge the value of its portfolio against changes in market
conditions. 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.
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.
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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 risk 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 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
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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.
FOREIGN EXCHANGE TRANSACTIONS: ALL FUNDS (EXCEPT AIM INTERMEDIATE GOVERNMENT
FUND, AIM MONEY MARKET FUND AND AIM MUNICIPAL BOND FUND)
Purchases and sales of foreign securities are usually made with
foreign currencies, and consequently a Fund may from time to time hold cash
balances in the form of foreign currencies and multinational currency units.
Such foreign currencies and multinational currency units will usually be
acquired on a spot (i.e., cash) basis at the spot rate prevailing in foreign
exchange markets, and will result in currency conversion costs to a Fund. The
Funds attempt to purchase and sell foreign currencies on as favorable a basis
as practicable; however, some price spread on foreign exchange transactions (to
cover service charges) may be incurred, particularly when a Fund changes
investments from one country to another, or when U.S. dollars are used to
purchase foreign securities. Certain countries could adopt policies which
would prevent the Funds from transferring cash out of such countries, and the
Funds may be affected either favorably or unfavorably by fluctuations in
relative exchange rates while they hold foreign currencies.
RULE 144A SECURITIES
Each of the Funds may purchase securities which, while privately
placed, are eligible for purchase and sale pursuant to Rule 144A under the
Securities Act of 1933 (the "1933 Act"). This Rule permits certain qualified
institutional buyers, such as the Funds, to trade in privately placed
securities even though such securities are not registered under the 1933 Act.
AIM, under the supervision of the Trust's Board of Trustees, will consider
whether securities purchased under Rule 144A are illiquid and thus subject to
the Funds' restriction of investing no more than 15% of its net assets (10% in
the case of AIM MONEY MARKET FUND) in illiquid securities. Determination of
whether a Rule 144A security is liquid or not is a question of fact. In making
this determination AIM will consider the trading markets for the specific
security taking into account the unregistered nature of a Rule 144A security.
In addition, AIM could consider the (i) frequency of trades and quotes, (ii)
number of dealers and potential purchasers, (iii) dealer undertakings to make a
market, and (iv) nature of the security and of market place trades (for
example, the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer). The liquidity of Rule 144A securities
will also be monitored by AIM and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, a Fund's holdings of
illiquid securities will be reviewed to determine what, if any, action is
required to assure that such Fund does not invest more than 15% of its net
assets (10% in the case of AIM MONEY MARKET FUND) in illiquid securities.
Investing in Rule 144A securities could have the effect of increasing the
amount of each Fund's investments in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
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
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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), and except that the Fund may purchase
securities of other investment companies to the extent permitted by
applicable law or exemptive order.
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 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.
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, except that the Fund may purchase
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securities of other investment companies to the extent permitted by
applicable law or exemptive order.
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 that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive
order.
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.
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. Buy or sell commodities or commodity contracts, although
the Fund may purchase and sell financial futures contracts and options
thereon for hedging purposes.
8. 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.
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),
and except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive
order.
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 that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive
order.
3. Concentrate 25% or more of its investments in a particular
industry.
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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.
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. Buy or sell commodities or commodity contracts, although
the Fund may invest in financial futures 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.
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.
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5. Purchase or sell commodities or commodity contracts, other
than financial futures contracts and options thereon.
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,
except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive
order.
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.
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),
and except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive
order.
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 that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive
order.
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
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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.
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. Invest in securities with unlimited liability except for
assessability allowed by statutes with respect to wages.
12. Issue senior securities except to the extent permitted by
the 1940 Act, including permitted borrowing.
AIM INTERMEDIATE GOVERNMENT 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, and except
that the Fund may purchase securities of other investment companies to
the extent permitted by applicable law or exemptive order).
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), and except that the Fund may purchase
securities of other investment companies to the extent permitted by
applicable law or exemptive order.
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.
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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.
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.
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 (a) U.S. Government securities,
including securities issued by its agencies and instrumentalities, (b)
to the extent permitted by Rule 2a-7 under the 1940 Act, as amended
from time to time, and (c) that the Fund may purchase securities of
other investment companies to the extent permitted by applicable law
or exemptive order.
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.
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, and
except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive
order). 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.
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.
26
<PAGE> 220
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.
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, and
except that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive
order).
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 that the Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive
order.
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.
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
27
<PAGE> 221
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. Buy or sell commodities or commodity contracts, although
the Fund may invest in financial futures 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.
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 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, except that a Fund may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order; or (3) purchase or retain the securities of any issuer if those officers
and trustees of the Trust or officers and directors of AIM 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 July 15, 1997, 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 2.80% of the outstanding AIM
Cash Reserve Shares of AIM MONEY MARKET FUND, and 1.65% of the outstanding
Class A shares of AIM MUNICIPAL BOND FUND.
28
<PAGE> 222
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 July 15, 1997, and the percentage 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 - MLTC TTEE FBO 7.21% -0-
Class A shares Qualified Retirement Plans
Merrill Lynch Grp Empl Svcs
265 Davidson Ave. 4th Fl.
Somerset, NJ 08873
Merrill Lynch, Pierce, 6.71% -0-
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
Wachovia Bank of North Carolina 5.07% -0-
TTEE Vencor Inc. 401K Master Tr
DTD 01/01/97
301 N. Main St.
P.O. Box 3073
Winston-Salem, NC 27150
Class B shares Merrill Lynch, Pierce, 12.24% -0-
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
AIM Global Utilities Fund - Merrill Lynch, Pierce, 7.61% -0-
Class B shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
AIM Growth Fund - Merrill Lynch, Pierce, 17.89% -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> 223
<TABLE>
<CAPTION>
Percent
Owned of
Percent Record
Name and Address Owned of and
Fund of Owner Record* Beneficially
- ---- --------------------- -------- ------------
<S> <C> <C> <C>
AIM High Yield Fund - Merrill Lynch, Pierce, 7.67% -0-
Class A shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
Class B shares Merrill Lynch, Pierce, 17.14% -0-
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
AIM Income Fund - Merrill Lynch, Pierce, 5.77% -0-
Class A shares Fenner & Smith
Mutual Fund Operations
P.O. Box 45286
Jacksonville, FL 32232-5286
Class B shares Merrill Lynch, Pierce, 10.77% -0-
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
AIM Intermediate Government Fund - Merrill Lynch, Pierce, 8.14% -0-
Class A shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
Class B shares Merrill Lynch, Pierce, 15.87% -0-
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
AIM Money Market Fund - Charles T. Bauer and 5.40% -0-
AIM Cash Reserve Shares Ruth J. Bauer
11 Greenway Plaza, Suite 100
Houston, TX 77046
</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> 224
<TABLE>
<CAPTION>
Percent
Owned of
Percent Record
Name and Address Owned of and
Fund of Owner Record* Beneficially
- ---- --------------------- -------- ------------
<S> <C> <C> <C>
AIM Municipal Bond Fund - Merrill Lynch, Pierce 9.59% -0-
Class B shares Fenner Smith
Mutual Fund Operations
P.O. Box 45286
Jacksonville, FL 32232-5286
AIM Value Fund - Merrill Lynch, Pierce, 10.31% -0-
Class A shares Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
Class B shares Merrill Lynch, Pierce, 16.74% -0-
Fenner & Smith
Mutual Fund Operations
P. O. Box 45286
Jacksonville, FL 32232-5286
</TABLE>
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The trustees and officers of the Trust and their principal occupations
during at least the last five years are set forth below. Unless otherwise
indicated, the address of each trustee and officer is 11 Greenway Plaza,
Suite 100, Houston, Texas 77046.
__________________________________
* The Trust has no knowledge as to whether all or any portion of the shares
owned of record only are also owned beneficially.
31
<PAGE> 225
<TABLE>
<CAPTION>
=================================================================================================================
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
=================================================================================================================
<S> <C> <C>
*CHARLES T. BAUER (78) Trustee and Chairman of the Board of Directors, A I M Management
11 Greenway Plaza, Suite 100 Chairman Group Inc., A I M Advisors, Inc., A I M Capital
Houston, TX 77046 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
Chairman and Director, AMVESCAP plc.
- -----------------------------------------------------------------------------------------------------------------
BRUCE L. CROCKETT (53) Trustee Director, ACE Limited (insurance company). Formerly,
906 Frome Lane Director, President and Chief Executive Officer,
McLean, VA 22102 COMSAT Corporation (international communications
company).
- -----------------------------------------------------------------------------------------------------------------
OWEN DALY II (72) Trustee Director, Cortland Trust Inc. (investment company).
Six Blythewood Road Formerly, Director, CF & I Steel Corp., Monumental
Baltimore, MD 21210 Life Insurance Company and Monumental General
Insurance Company; and Chairman of the Board of
Equitable Bancorporation.
- -----------------------------------------------------------------------------------------------------------------
JACK FIELDS (45) Trustee Formerly, Member of the U.S. House of
2607 Old Humble Road Representatives.
Humble, Texas 77396
- -----------------------------------------------------------------------------------------------------------------
**CARL FRISCHLING (60) Trustee Partner, Kramer, Levin, Naftalis & Frankel (law
919 Third Avenue firm). Director, ERD Waste, Inc. (waste management
New York, NY 10022 company), Aegis Consumer Finance (auto leasing
company) and Lazard Funds, Inc. (investment
companies). Formerly, Partner, Reid & Priest (law
firm); and prior thereto, Partner, Spengler
Carlson Gubar Brodsky & Frischling (law firm).
- -----------------------------------------------------------------------------------------------------------------
*ROBERT H. GRAHAM (50) Trustee and Director, President and Chief Executive Officer,
11 Greenway Plaza, Suite 100 President A I M Management Group Inc.; Director and President,
Houston, TX 77046 A I M Advisors, Inc.; Director and Senior Vice
President, A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services, Inc.,
A I M Institutional Fund Services, Inc. and Fund
Management Company; and Director, AMVESCAP plc.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* A trustee who is an "interested person" of the Trust as defined in the
1940 Act.
** A trustee who is an "interested person" of the Trust and A I M
Advisors, Inc. as defined in the 1940 Act.
32
<PAGE> 226
<TABLE>
<CAPTION>
=================================================================================================================
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
=================================================================================================================
<S> <C> <C>
JOHN F. KROEGER (72) Trustee Director, Flag Investors International Fund, Inc.,
37 Pippins Way Flag Investors Emerging Growth Fund, Inc., Flag
Morristown, NJ 07960 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 (54) Trustee Attorney in private practice in Houston, Texas.
6363 Woodway, Suite 825
Houston, TX 77057
- -----------------------------------------------------------------------------------------------------------------
IAN W. ROBINSON (74) Trustee Formerly, Executive Vice President and Chief
183 River Drive Financial Officer, Bell Atlantic Management Services,
Tequesta, FL 33469 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 (57) Trustee Executive Vice President, Development and Operations,
Transco Tower, 50th Floor Hines Interests Limited Partnership (real estate
2800 Post Oak Blvd. development).
Houston, TX 77056
- -----------------------------------------------------------------------------------------------------------------
***JOHN J. ARTHUR (52) Senior Vice Senior Vice President and Treasurer, A I M Advisors,
11 Greenway Plaza, Suite 100 President and Inc.; Vice President and Treasurer, A I M Management
Houston, TX 77046 Treasurer 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.
- -----------------------------------------------------------------------------------------------------------------
GARY T. CRUM (49) Senior Vice Director and President, A I M Capital Management,
11 Greenway Plaza, Suite 100 President Inc.; Director and Senior Vice President, A I M
Houston, TX 77046 Management Group Inc. and A I M Advisors, Inc.; and
Director, A I M Distributors, Inc. and AMVESCAP plc.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
*** Mr. Arthur and Ms. Relihan are married to each other.
33
<PAGE> 227
<TABLE>
<CAPTION>
=================================================================================================================
POSITIONS HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
=================================================================================================================
<S> <C> <C>
SCOTT G. LUCAS (38) Senior Vice Director and Senior Vice President, A I M Capital
11 Greenway Plaza, Suite 100 President Management, Inc.; and Vice President,
Houston, TX 77046 A I M Management Group Inc. and A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------
***CAROL F. RELIHAN (42) Senior Vice Senior Vice President, General Counsel and Secretary,
11 Greenway Plaza, Suite 100 President A I M Advisors, Inc.; Vice President, General Counsel
Houston, TX 77046 and Secretary and Secretary, A I M Management Group Inc.; Vice
President and General Counsel, Fund Management
Company; and Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc., A I M
Fund Services, Inc. and A I M Institutional Fund
Services, Inc.
- -----------------------------------------------------------------------------------------------------------------
DANA R. SUTTON (38) Vice President and Vice President and Fund Controller, A I M Advisors,
11 Greenway Plaza, Suite 100 Assistant Inc.; and Assistant Vice President and Assistant
Houston, TX 77046 Treasurer Treasurer, Fund Management Company.
- -----------------------------------------------------------------------------------------------------------------
ROBERT G. ALLEY (48) Vice President Senior Vice President, A I M Capital Management,
11 Greenway Plaza, Suite 100 Inc.; and Vice President, A I M Advisors, Inc.
Houston, TX 77046 Formerly, Senior Fixed Income Money Manager, Waddell
and Reed, Inc.
- -----------------------------------------------------------------------------------------------------------------
STUART W. COCO (42) Vice President Senior Vice President, A I M Capital Management,
11 Greenway Plaza, Suite 100 Inc.; and Vice President, A I M Advisors, Inc.
Houston, TX 77046
- -----------------------------------------------------------------------------------------------------------------
MELVILLE B. COX (53) Vice President Vice President and Chief Compliance Officer, A I M
11 Greenway Plaza, Suite 100 Advisors, Inc., A I M Capital Management, Inc., A I M
Houston, TX 77046 Distributors, Inc., A I M Fund Services, Inc., A I M
Institutional Fund Services, Inc. and Fund Management
Company.
- -----------------------------------------------------------------------------------------------------------------
KAREN DUNN KELLEY (37) Vice President Senior Vice President, A I M Capital Management,
11 Greenway Plaza, Suite 100 Inc.; and Vice President, A I M Advisors, Inc.
Houston, TX 77046
- -----------------------------------------------------------------------------------------------------------------
JONATHAN C. SCHOOLAR (36) Vice President Director and Senior Vice President, A I M Capital
11 Greenway Plaza, Suite 100 Management, Inc.; and Vice President, A I M Advisors,
Houston, TX 77046 Inc.
=================================================================================================================
</TABLE>
The standing committees of the Board of Trustees are the Audit
Committee, the Investments Committee and the Nominating and Compensation
Committee.
- ---------------
*** Mr. Arthur and Ms. Relihan are married to each other.
34
<PAGE> 228
The members of the Audit Committee are Messrs. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. 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), Fields, Frischling, Kroeger, Pennock, Robinson and Sklar. 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, Fields, Kroeger, Pennock (Chairman), Robinson 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 dis-interested 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.
Remuneration of Trustees
Each trustee is reimbursed for expenses incurred in connection with
each meeting of the Board of Trustees or any committee thereof. Each Trustee
who is not also an officer of the Trust is compensated for his services
according to a fee schedule which recognizes the fact that such trustee also
serves as a director or trustee of other AIM Funds. 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.
35
<PAGE> 229
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust:
<TABLE>
<CAPTION>
====================================================================================================
RETIREMENT
AGGREGATE BENEFITS TOTAL
COMPENSATION ACCRUED COMPENSATION
FROM THE BY ALL AIM FROM ALL AIM
TRUSTEE TRUST(1) FUNDS(2) FUNDS(3)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------
Bruce L. Crockett 16,392 38,621 68,000
- -----------------------------------------------------------------------------------------------------
Owen Daly II 16,273 82,607 68,000
- -----------------------------------------------------------------------------------------------------
Jack Fields(4) 0 0 0
- -----------------------------------------------------------------------------------------------------
Carl Frischling 16,392 56,683 68,000(5)
- -----------------------------------------------------------------------------------------------------
Robert H. Graham 0 0 0
- -----------------------------------------------------------------------------------------------------
John F. Kroeger 15,795 83,654 66,000
- -----------------------------------------------------------------------------------------------------
Lewis F. Pennock 16,034 33,702 67,000
- -----------------------------------------------------------------------------------------------------
Ian W. Robinson 16,392 64,973 68,000
- -----------------------------------------------------------------------------------------------------
Louis S. Sklar 16,031 47,593 66,500
=====================================================================================================
</TABLE>
- ------------
(1) The total amount of compensation deferred by all Trustees of the Trust
during the fiscal year ended December 31, 1996, including amounts earned
thereon, was $67,102.
(2) During the fiscal year ended December 31, 1996, the total amount of
expenses allocated to the Trust in respect of such retirement benefits was
$98,998. Data reflects compensation estimated for the calendar year ended
December 31, 1996.
(3) Each Trustee serves as a director or trustee of a total of 11 registered
investment companies advised by AIM. Data reflect total compensation for the
calendar year ended December 31, 1996.
(4) Mr. Fields did not serve as a Trustee during the fiscal year ended
December 31, 1996.
(5) See also page 38 regarding fees earned by Mr. Frischling's law firm.
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 "Applicable
AIM Funds"). Each eligible trustee is entitled to receive an annual benefit
from the Applicable AIM Funds commencing on the first day of the calendar
quarter coincident
36
<PAGE> 230
with or following his date of retirement equal to 75% of the retainer paid or
accrued by the Applicable AIM Funds for such trustee during the twelve-month
period immediately preceding the trustee's retirement (including amounts
deferred under a separate agreement between the Applicable AIM Funds and the
trustee) for the number of such Trustee's years of service (not in excess of 10
years of service) completed with respect to any of the Applicable AIM Funds.
Such benefit is payable to each eligible trustee in quarterly installments. 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 ten 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
Applicable AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible trustee upon retirement assuming the retainer amount
reflected below and various years of service. The estimated credited years of
service for Messrs. Crockett, Daly, Frischling, Kroeger, Pennock, Robinson and
Sklar are 9, 10, 19, 19, 15, 9 and 7 years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
Annual Retainer Paid By All AIM Funds
<TABLE>
<CAPTION>
$80,000
=================
<S> <C> <C>
10 $60,000
-----------------
Number of 9 $54,000
Years of -----------------
Service With 8 $48,000
Applicable -----------------
AIM Funds 7 $42,000
-----------------
6 $36,000
-----------------
5 $30,000
=================
</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 their deferral accounts shall be deemed to be
invested. Distributions from the deferring trustees' deferral accounts will be
paid in cash, generally in equal quarterly installments over a period of five
(5) or ten (10) years (depending on the Agreement) 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
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.
37
<PAGE> 231
During the year ended December 31, 1996, 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
and AIM VALUE FUND each paid $3,320, $3,406, $3,719, $7,485, $3,564, $3,411,
$4,488, $3,549, and $18,622, respectively, in legal fees to Mr. Frischling's
law firm, Kramer, Levin, Naftalis & Frankel for services rendered.
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,
both dated February 28, 1997, with AIM.
AIM and the Trust have adopted a Code of Ethics which requires
investment personnel and certain other employees (a) to pre-clear personal
securities transactions subject to the Code of Ethics, (b) to file reports or
duplicate confirmations regarding such transactions, (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, and (d) to abide by certain other provisions under
the Code of Ethics. The Code of Ethics also prohibits investment personnel and
all other AIM employees from purchasing securities in an initial public
offering. Personal trading reports are reviewed periodically by AIM, and the
Board of Trustees reviews quarterly and annual reports (including information
on any substantial violations of the Code of Ethics). Sanctions for violations
of the Code of Ethics may include censure, monetary penalties, suspension or
termination of employment.
The Master Investment 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 was approved by the Trust's Board of Trustees
(including the affirmative vote of all the Qualified Trustees) on December 11,
1996. The Master Investment Advisory Agreement was approved by the Funds'
shareholders on February 7, 1997. The agreement became effective as of February
28, 1997 and provides that either party may terminate such agreement on 60
days' written notice without penalty. The 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"). AIM Management is
an indirect wholly owned subsidiary of AMVESCAP plc. AMVESCAP plc and its
subsidiaries are an independent investment management group engaged in
institutional investment management and retail mutual fund business in the
United States, Europe and the Pacific Region.
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 role of
the trustees is not to approve specific investments, but rather to exercise a
control and review function.
Pursuant to the Master Investment Advisory Agreement, AIM receives a
fee from each of AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT 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:
38
<PAGE> 232
<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>
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 daily 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:
39
<PAGE> 233
<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 a 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 paid by such Fund shall be reduced by the amount
of such excess. The amount of any such reduction to be borne by AIM shall be
deducted from the monthly investment advisory 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 paid to AIM the following management fees net of any expense
limitations and fee waivers for the years ended December 31, 1996, 1995 and
1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
AIM Balanced Fund...................... $2,151,655 $666,619 $137,235
AIM Global Utilities Fund.............. 1,397,762 1,256,220 $1,226,429
AIM Growth Fund........................ 2,874,943 1,715,406 1,012,632
AIM High Yield Fund.................... 9,277,005 5,717,303 3,881,526
AIM Income Fund........................ 1,510,254 1,176,249 1,110,855
AIM Intermediate Government Fund....... 1,188,121 996,681 734,086
AIM Money Market Fund.................. 4,136,659 2,589,822 2,057,756
AIM Municipal Bond Fund................ 1,417,007 1,356,225 1,327,611
AIM Value Fund......................... 50,259,125 25,332,486 6,674,684
</TABLE>
For the fiscal years ended December 31, 1996, 1995 and 1994, AIM waived
advisory fees for each Fund as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
AIM Balanced Fund .................... -0- $24,176 $201,586
AIM Global Utilities Fund............. -0- -0- -0-
AIM Growth Fund ...................... -0- -0- -0-
AIM High Yield Fund .................. -0- -0- -0-
AIM Income Fund ...................... -0- -0- -0-
AIM Intermediate Government Fund ..... -0- -0- -0-
AIM Money Market Fund ................ -0- -0- 387,205
AIM Municipal Bond Fund .............. -0- -0- -0-
AIM Value Fund ....................... $1,562,359 502,799 -0-
</TABLE>
For the fiscal years ended December 31, 1996, 1995 and 1994, AIM
reimbursed expenses as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
AIM Balanced Fund .................... -0- -0- -0-
AIM Global Utilities Fund............. -0- -0- -0-
AIM Growth Fund ...................... -0- -0- -0-
AIM High Yield Fund .................. -0- -0- -0-
AIM Income Fund ...................... -0- -0- $18,200
AIM Intermediate Government Fund ..... -0- -0- 31,200
AIM Money Market Fund ................ -0- -0- -0-
AIM Municipal Bond Fund .............. -0- $13,200 10,100
AIM Value Fund ....................... -0- -0- -0-
</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.
40
<PAGE> 234
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, 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 approved by the Trust's Board of Trustees (including the
Qualified Trustees) on December 11, 1996, and became effective as of February
28, 1997.
The Funds 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,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
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 Balanced Fund....................$ 72,493 .02% $ 67,928 .07% $ 81,734 .18%
AIM Global Utilities Fund..............80,256 .03% 69,813 .03% 171,972 .08%
AIM Growth Fund........................72,903 .02% 67,618 .03% 134,789 .09%
AIM High Yield Fund....................98,734 .01% 82,116 .01% 313,218 .04%
AIM Income Fund........................75,132 .02% 82,185 .03% 154,517 .07%
AIM Intermediate Government Fund.......71,348 .03% 71,765 .04% 92,487 .06%
AIM Money Market Fund..................58,665 .01% 55,020 .01% 209,642 .05%
AIM Municipal Bond Fund................71,857 .02% 65,899 .02% 103,945 .04%
AIM Value Fund........................196,586 .002% 137,307 .003% 884,123 .06%
</TABLE>
In addition, the Transfer Agency and Service Agreement between the
Trust and A I M Fund Services, Inc. ("AFS"), a registered transfer agent and
wholly-owned subsidiary of AIM, provides that AFS will perform certain
shareholder services for the Funds for a fee per account serviced. The Transfer
Agency and Service Agreement provides that AFS will receive a per account fee
plus out-of-pocket expenses to process orders for purchases, redemptions and
exchanges of shares; prepare and transmit payments for dividends and
distributions declared by the Funds; maintain shareholder accounts and provide
shareholders with information regarding the Funds and their accounts. The
Transfer Agency and Service Agreement became effective on November 1, 1994.
THE DISTRIBUTION PLANS
THE CLASS A AND C PLAN. The Trust has adopted a Master Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act relating to the Class A and Class
C shares of the Funds and the AIM Cash Reserve Shares of AIM MONEY MARKET FUND
(collectively, the "Covered Classes"). Such plan (the "Class A and 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 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;
supplemental payments to dealers and other institutions such as asset-based
sales charges or as payments of service fees under shareholder service
arrangements; and costs of administering the Class A Plan.
41
<PAGE> 235
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 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.
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.
42
<PAGE> 236
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, 1996, the various classes of the Funds
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............................................ $ 513,190 $ 1,496,606
AIM Global Utilities Fund.................................... 409,087 759,491
AIM Growth Fund.............................................. 511,145 2,133,271
AIM High Yield Fund.......................................... 2,631,156 8,083,368
AIM Income Fund.............................................. 656,254 650,621
AIM Intermediate Government Fund............................. 437,596 719,764
AIM Money Market Fund........................................ 666,569 990,337
AIM Municipal Bond Fund...................................... 691,812 275,301
AIM Value Fund............................................... 10,740,282 39,533,247
</TABLE>
For the year ended December 31, 1996, the AIM Cash Reserve Shares
of AIM MONEY MARKET FUND paid $964,703 to AIM Distributors pursuant to the
Class A and C Plan.
Class C shares commenced operations on August 4, 1997.
An estimate by category of actual fees paid by the following Funds
under the Class A and C Plan during the year ended December 31, 1996 were
allocated as follows:
<TABLE>
<CAPTION>
PRINTING COMPENSATION
ADVERTISING AND MAILING SEMINARS TO DEALERS
----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
AIM Balanced Fund..................................... $ 25,048 $ 3,006 $ 8,016 $ 477,120
AIM Global Utilities Fund.............................. 3,894 973 973 403,247
AIM Growth Fund........................................ 8,661 962 2,887 498,635
AIM High Yield Fund.................................... 80,319 10,907 25,781 2,514,149
AIM Income Fund........................................ 10,395 1,040 3,119 641,700
AIM Intermediate Government Fund....................... 10,525 1,052 3,157 422,862
AIM Money Market Fund-Class A Shares................... 24,450 3,056 7,131 631,932
AIM Municipal Bond Fund................................ 11,714 1,952 3,904 674,242
AIM Value Fund......................................... 382,710 51,961 121,908 10,183,703
</TABLE>
Class C shares commenced operations on August 4, 1997.
During the year ended December 31, 1996, actual fees paid by AIM Cash
Reserve Shares of AIM MONEY MARKET FUND were allocated as follows: $147,912 was
spent on advertising, $19,988 was spent on printing and mailing, $45,973 was
spent on seminars and $750,830 was spent on compensation to Dealers.
Class C shares commenced operations on August 4, 1997.
An estimate by category of actual fees paid by the following Funds
under the Class B Plan during the year ended December 31, 1996 were allocated
as follows:
43
<PAGE> 237
<TABLE>
<CAPTION>
COMPENSATION COMPENSATION
PRINTING AND TO TO
ADVERTISING MAILING SEMINARS UNDERWRITERS DEALERS
----------- ------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
AIM Balanced Fund............................ $ 183,303 $ 24,040 $ 57,094 $ 1,123,887 $ 108,282
AIM Global Utilities Fund.................... 43,646 5,952 13,887 569,800 126,206
AIM Growth Fund.............................. 203,719 27,963 63,912 1,601,364 236,313
AIM High Yield Fund.......................... 825,825 111,976 258,945 6,067,579 819,043
AIM Income Fund.............................. 74,335 10,045 22,099 488,419 55,723
AIM Intermediate Government Fund............. 66,086 9,012 20,026 540,123 84,517
AIM Money Market Fund........................ 111,529 15,072 34,162 743,395 86,179
AIM Municipal Bond Fund...................... 25,523 3,927 6,872 206,615 32,364
AIM Value Fund............................... 3,917,186 536,025 1,255,059 29,672,016 4,152,961
</TABLE>
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, 1998 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 voting upon such
44
<PAGE> 238
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 C Plan and the
Class B Plan are: The Class A and 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 shares and AIM Cash Reserve Shares as compared to 1.00%
of such assets of each Fund's Class B and Class C 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, dated February 28, 1997, with AIM Distributors
relating to the Class A and Class C shares of the Funds and the AIM Cash Reserve
Shares of AIM MONEY MARKET FUND was approved by the Board of Trustees on
June 11, 1997. A Master Distribution Agreement, dated February 28, 1997,
with AIM Distributors relating to the Class B shares of the Funds was also
approved by the Board of Trustees on December 11, 1996. 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 and Class C 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 of 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.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares.
After the first full year, AIM Distributors will make such payments quarterly
to dealers and institutions based on the average net asset value of Class C
shares which are attributable to shareholders for whom the dealers and
institutions are designated as dealers of record. The portion of the payments
to AIM Distributors under the Class C Plan attributable to Class C shares which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
AIM Distributors to recoup a portion of such on-going sales commission plus
financing costs, if any.
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 payments to AIM Distributors. Termination of the
Class B Plan or the Distribution Agreement for Class B shares would not affect
the obligation of a Fund and its Class B shareholders to pay Contingent
Deferred Sales Charges.
45
<PAGE> 239
The following chart reflects the total sales charges paid in
connection with the sale of Class A shares of each Fund and the amount retained
by AIM Distributors for the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
AIM Balanced Fund................$ 3,212,414 $ 611,603 $ 979,475 $ 165,692 $ 379,087 $ 63,481
AIM Global Utilities Fund........ 545,746 95,058 745,539 106,920 1,198,533 168,696
AIM Growth Fund.................. 1,266,626 219,373 892,904 146,533 255,624 37,866
AIM High Yield Fund.............. 10,452,011 1,965,594 8,338,447 1,388,106 5,149,515 808,554
AIM Income Fund.................. 1,346,651 248,078 914,135 154,679 554,349 94,637
AIM Intermediate Government Fund. 1,056,724 204,498 876,411 144,669 644,604 108,048
AIM Money Market Fund............ 3,696,001 736,782 2,845,276 494,184 996,876 182,129
AIM Municipal Bond Fund.......... 624,162 122,269 684,242 116,667 527,008 82,774
AIM Value Fund................... 46,277,225 7,792,991 52,075,064 7,659,031 22,815,744 3,063,899
</TABLE>
The following chart reflects the contingent deferred sales charges
paid by Class A and Class B shareholders for the years ended December 31, 1996,
1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
AIM Balanced Fund...........................................................$ 50,028 $ 92,409 $ 28,532
AIM Global Utilities Fund................................................... 145,184 167,444 107,127
AIM Growth Fund............................................................. 105,215 169,092 51,475
AIM High Yield Fund......................................................... 976,702 655,591 391,108
AIM Income Fund............................................................. 65,445 48,320 16,712
AIM Intermediate Government Fund............................................ 82,525 101,233 70,431
AIM Money Market Fund....................................................... 211,316 256,618 81,600
AIM Municipal Bond Fund..................................................... 49,906 31,956 18,017
AIM Value Fund.............................................................. 1,988,299 2,052,439 584,611
</TABLE>
Class C shares commenced operations August 4, 1997.
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 interests 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."
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<PAGE> 240
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 at (800) 959-4246 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 ("NYSE") is
restricted, as determined by applicable rules and regulations of the SEC, (b)
the NYSE is closed for other than customary weekend and holiday closings, (c)
the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposition of portfolio securities or the
valuation of the net assets of a 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.
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<PAGE> 241
For example, at the close of business on December 31, 1996, AIM VALUE
FUND - Class A shares had 174,979,851 shares outstanding, net assets of
$5,100,060,952 and a net asset value per share of $29.15. The offering price,
therefore, was $30.85.
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 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 the close of trading on the NYSE
(generally 4:00 p.m. Eastern time) on each business day of the Fund. In the
event the NYSE closes early (i.e., before 4:00 p.m. Eastern time) on a
particular day, the net asset value of a Fund is determined as of the close of
the NYSE on such day. 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) attributable to a particular class, less all its
liabilities (including accrued expenses and dividends payable) attributable to
that class, by the number of shares outstanding of that Class and rounding the
resulting per share net asset value to the nearest one cent. Determination of
the 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
48
<PAGE> 242
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
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 the close of trading of the NYSE (generally
4:00 p.m. Eastern time) on each business day of the Fund. In the event the NYSE
closes early (i.e., before 4:00 p.m. Eastern time) on a particular day, the net
asset value of a Fund is determined as of the close of the NYSE on such day.
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) attributable to a particular class, less all its liabilities
(including accrued expenses and dividends payable) attributable to that class,
by the total number of shares outstanding of that class. 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. 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 or absent a last sales price, at the mean between the closing
bid and asked prices on that day. 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. For purposes of
determining net asset value per share, futures and options contracts generally
will be valued 15 minutes after the close of trading of the NYSE.
49
<PAGE> 243
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 each Fund's shares are
determined at such times. Foreign currency exchange rates are also generally
determined prior the close of the NYSE. 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 NYSE 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 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.
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<PAGE> 244
The Code and the regulations promulgated thereunder are constantly
subject to change, and interpretations of the Code and the regulations may be
modified or affected at any time by Congress, the Department of the Treasury or
judicial decision. It should be noted that any such change could be applied
retroactively.
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 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, 1996, detail the amount of capital loss
carryover for FIT purposes to which the Fund is entitled, subject to certain
limitations. 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 1996, none of the dividends paid from
income was taxable as ordinary income; however, this may
51
<PAGE> 245
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 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 Fund
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 Fund Services, Inc., P.O. Box 4739, Houston, Texas
77210-4739, toll free at (800) 959-4246.
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<PAGE> 246
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 or Class C shares, dividends attributable to Class B
shares may only be reinvested in Class B shares, dividends attributable to Class
C shares may only be reinvested in Class C shares and dividends attributable to
AIM Cash Reserve Shares may be reinvested in Class A shares or AIM Cash Reserve
Shares. There is no sales charge for these investments; initial investment
minimums apply. See "Dividends, Distributions and Tax Matters -- Dividends and
Distributions" in the Prospectus. To effect this option, please contact your
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 Fund Services, 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) has received a short-term rating (or that has been issued
by an issuer that has received a short-term rating with respect to a class of
debt obligations, or any debt obligation within that class, that is comparable
in priority and security with
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<PAGE> 247
the security) by the Requisite NRSROs* in the highest short-term
rating category for debt obligations (within which there may be
sub-categories or gradations indicating relative standing); or
(ii) is a security described in paragraph (a)(9)(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 short-term rating,
with respect to a class of debt obligations (or any debt obligation
within that class) that now is comparable in priority and security
with the security, in the highest short-term rating category for debt
obligations (within which there may be sub-categories or gradations
indicating relative standing); or
(iii) is an Unrated Security** that is of comparable quality
to a security meeting the requirements of clauses (i) and (ii) above,
as determined by the Board of Trustees; or
(iv) is a security by a registered investment company that is
a money market fund; or
(v) is a Government Security (as defined in Section 2(a)(16)
of the 1940 Act).
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 Fund 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 calendar days or
less that has received a short-term rating (or that has been
issued by an issuer that has received a short-term rating
with respect to a class of debt obligations, or any debt
obligation within that class, that is comparable in priority
and security with the security) by the Requisite NRSROs in
one of the two highest short-term rating categories (within
which there may be sub-categories or gradations indicating
relative standing); or
(ii) a security:
(A) that at the time of issuance had a remaining
maturity of more than 397 calendar days but that has
a remaining maturity of 397 calendar days or less;
and
- --------
* "Requisite NRSROS" 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 class of debt
obligations of an issuer at the time the Fund purchases or rolls over the
security, that NRSRO. At present the NRSROs are: Standard & Poor's Rating
Services ("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.
** An "Unrated Security" is generally a security (i) with a remaining
maturity of 397 calendar days or less issued by an issuer that did not, at
the time the security was acquired or rolled over by the Fund, have a
current short-term rating assigned by any NRSRO, either as to the
particular security or as to any other class of debt 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
short-term rating with respect to a class of debt obligations now
comparable in priority and security; and (iii) that is rated but which is
the subject of an external credit support agreement not in effect when the
security (or the issuer) was assigned its rating, unless the security has a
rating from an NRSRO reflecting the existence of the credit support
agreement.
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(B) whose issuer has received from the Requisite NRSROs
a rating with respect to a class of debt obligations
(or any debt obligation within that class) that is
now comparable in priority and security with the
security, in one of the two highest short-term
rating categories (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 that is not a demand
feature is an Eligible Security upon a finding that
the issuer of the commitment presents a minimal risk
of default;
(B) a security that at the time of issuance had a
remaining maturity of more than 397 calendar days
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 received a
long-term rating from any NRSRO that is not within
the NRSRO's three highest long-term ratings
categories (within which there may be sub-categories
or gradations indicating relative standing);
(C) an asset backed security shall not be an Eligible
Security unless it has a debt rating from an NRSRO;
and
(D) a security that is subject to a demand feature shall
not be an Eligible Security unless:
(1) the demand feature has received a
short-term rating from an NRSRO (or the
issuer of the demand feature has received
from an NRSRO a short-term rating with
respect to a class of debt obligations or
any debt obligation within that class that
is comparable in priority and security to
the demand feature); and
(2) the issuer of the demand feature, or
another institution, undertakes to notify
promptly the holder of the security in the
event that the demand feature is
substituted with a demand feature provided
by another issuer.
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; however, 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.
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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 that security, provided that the Fund may invest more than 5% 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 for temporary or emergency purposes, such as 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 only when the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. Reverse repurchase agreements are considered
borrowings by a Fund under the 1940 Act.
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, 700
Louisiana, NationsBank Building, Houston, Texas 77002, 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.
CUSTODIANS 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, except for AIM MUNICIPAL BOND FUND, for which the Bank of New York,
90 Washington Street, 11th Floor, New York, New York 10286, is the custodian.
Under its respective contract with the Trust, each 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 Custodians and
the Transfer Agent such compensation as may be agreed upon from time to time.
Texas Commerce Bank National Association, 712 Main, Houston, Texas
77002, serves as Sub-Custodian for retail purchases of the AIM Funds.
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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.
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.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa to B. The modifier 1 indicates that the company
ranks in the higher end of its generic rating category; the
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modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
company ranks in the lower end of its generic rating category.
MOODY'S MUNICIPAL BOND RATINGS
Aaa: Bonds 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 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 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 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 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 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 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 rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds 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: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa to B. The modifier 1 indicates that the issue
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 category.
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.
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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 variable rate demand obligation (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,
investors should be alert to the fact that 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.
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.
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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:
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 highest 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. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or large exposure
to adverse conditions.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option
or demand feature as part of their structure.
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 (for
example, AAA/A-1+). With short-term demand debt, the note rating symbols are
used with the commercial paper rating symbols (for example, SP-1+/A-1+).
S&P MUNICIPAL NOTE RATINGS
A 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
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note); and source of payment (the more the issue depends is on the market for
its refinancing, the more likely it is to be treated as a note).
Note rating symbols and definitions are as follows:
SP-1: Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2: 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: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B: Issues with this rating are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt with this rating is in payment 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.
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 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.
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Bonds carrying 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.
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.
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RATINGS OUTLOOK
An outlook is used to describe the most likely direction of any rating
change over the intermediate term. It is described as "Positive" or "Negative."
The absence of a designation indicates a stable outlook.
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.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer or possible recovery value in
bankruptcy, 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 that, 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.
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.
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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.
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.
64
<PAGE> 258
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.
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.
65
<PAGE> 259
FINANCIAL STATEMENTS
FS-1
<PAGE> 260
INDEPENDENT AUDITORS' REPORT
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, 1996, and the related statement of operations
for the year then ended, the statement of changes in 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 three-year period then ended, the four-month period
ended December 31, 1993, and each of the years in the six-
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, 1996, 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, 1996, 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
three-year period then ended, the four-month period ended
December 31, 1993, and each of the years in the six-year
period ended August 31, 1993, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
FS-2
<PAGE> 261
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC BONDS & NOTES-21.52%
ADVERTISING/BROADCASTING-0.60%
Omnicom Group, Inc., Conv. Sub.
Deb., 4.25%, 01/03/07(a)
(Acquired 12/11/96; Cost
$1,000,000) $ 1,000,000 $ 1,037,000
- ---------------------------------------------------------------
Time Warner, Inc.,
Deb., 8.18%, 08/15/07 925,000 964,405
- ---------------------------------------------------------------
Deb., 6.85%, 01/15/26 1,500,000 1,474,785
- ---------------------------------------------------------------
3,476,190
- ---------------------------------------------------------------
AIRLINES-1.41%
Airplanes Pass Through Trust, Sub.
Bonds, 10.875%, 03/15/19 500,000 555,315
- ---------------------------------------------------------------
America West Airlines Inc., Pass
Through Ctf.,
6.93%, 01/02/08 3,000,000 2,981,220
- ---------------------------------------------------------------
Continental Airlines, Inc., Conv.
Sub. Notes, 6.75%, 04/15/06(a)
(Acquired 02/27/96; Cost
$499,825) 500,000 561,065
- ---------------------------------------------------------------
Delta Air Lines, Inc.
Medium Term Notes, 8.52%,
01/30/04 2,000,000 2,143,620
- ---------------------------------------------------------------
Series 92-E Equipment Trust
Ctf., 8.54%, 01/02/07 677,749 716,367
- ---------------------------------------------------------------
Greenwich Air Services, Inc., Sr.
Notes, 10.50%, 06/01/06 1,000,000 1,075,000
- ---------------------------------------------------------------
8,032,587
- ---------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.11%
Chrysler Financial Corp., Deb.,
8.50%, 02/01/18 150,000 155,217
- ---------------------------------------------------------------
General Motors Corp., Deb., 8.80%,
03/01/21 400,000 462,572
- ---------------------------------------------------------------
617,789
- ---------------------------------------------------------------
BANKING-3.67%
Bankers Trust New York Corp., Sub.
Notes, 7.50%, 11/15/15 3,000,000 2,971,650
- ---------------------------------------------------------------
Bankers Trust New York Corp., Gtd.
Notes, 7.75%, 12/01/26(a)
(Acquired 11/22/96; Cost
$2,932,770) 3,000,000 2,884,245
- ---------------------------------------------------------------
Deutsche Bank Financial, Gtd.
Notes, 6.70%, 12/13/06 3,500,000 3,439,590
- ---------------------------------------------------------------
First Union Bancorp, Sub. Deb.,
7.50%, 04/15/35 3,000,000 3,162,570
- ---------------------------------------------------------------
First Union Corp., Sub. Notes,
6.375%, 01/15/09 800,000 748,240
- ---------------------------------------------------------------
HSBC Americas Inc., Sub. Notes,
7.00%, 11/01/06 3,000,000 2,967,600
- ---------------------------------------------------------------
Mercantile Bank, Sub. Notes,
6.375%, 01/15/04 700,000 676,186
- ---------------------------------------------------------------
Sovereign Bancorp, Inc., Sub.
Notes, 8.00%, 03/15/03 3,325,000 3,393,495
- ---------------------------------------------------------------
Wachovia Corp., Sub. Notes,
6.375%, 02/01/09 800,000 756,792
- ---------------------------------------------------------------
21,000,368
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
BEVERAGES (SOFT DRINKS)-0.51%
Coca-Cola Enterprises, Inc.,
Putable Notes, 7.24%,
06/20/20(b) $15,000,000 $ 2,920,050
- ---------------------------------------------------------------
BUSINESS SERVICES-0.09%
Career Horizons, Inc., Conv.
Bonds, 7.00%, 11/01/02 250,000 494,412
- ---------------------------------------------------------------
CABLE TELEVISION-0.13%
Viacom, Inc., Sr. Notes,
7.75%, 06/01/05 750,000 736,500
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.13%
Hexcel Corp., Conv. Sub. Notes,
7.00%, 08/01/03 600,000 744,000
- ---------------------------------------------------------------
COMPUTER MINI/PCS-0.26%
Apple Computer, Inc., Conv. Sub.
Notes, 6.00%, 06/01/01 1,500,000 1,514,925
- ---------------------------------------------------------------
COMPUTER NETWORKING-0.31%
3Com Corp., Conv. Sub. Notes,
10.25%, 11/01/01(a)
(Acquired 11/08/94-09/25/96;
Cost $1,235,438) 800,000 1,781,304
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.18%
First Financial Management Corp.,
Conv. Deb., 5.00%, 12/15/99 600,000 1,038,342
- ---------------------------------------------------------------
CONGLOMERATES-0.10%
General Electric Capital Corp.,
Notes, 8.30%, 09/20/09 500,000 558,230
- ---------------------------------------------------------------
ELECTRIC POWER-1.09%
El Paso Electric Co., First
Mortgage Bonds, 8.90%, 02/01/06 1,500,000 1,566,795
- ---------------------------------------------------------------
Indiana Michigan Power, Secured
Lease Obligation Bonds,
9.82%, 12/07/22 1,357,789 1,638,200
- ---------------------------------------------------------------
UtiliCorp United, Inc., Sr. Notes,
6.70%, 10/15/06 3,000,000 3,005,040
- ---------------------------------------------------------------
6,210,035
- ---------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-0.30%
Checkpoint Systems, Inc., Conv.
Sub. Deb., 5.25%, 11/01/05(a)
(Acquired 10/07/96-10/31/96;
Cost $1,054,250) 700,000 1,003,625
- ---------------------------------------------------------------
SCI Systems, Inc., Conv. Sub.
Notes, 5.00%, 05/01/06(a)
(Acquired 04/17/96; Cost
$600,000) 600,000 700,722
- ---------------------------------------------------------------
1,704,347
- ---------------------------------------------------------------
ENERGY (ALTERNATE SOURCES)-0.19%
AES Corp., Sr. Sub. Notes,
10.25%, 07/15/06 1,000,000 1,075,000
- ---------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 262
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCE (CONSUMER CREDIT)-2.78%
Associates Corp. of North America,
Series B Sr. Deb., 7.95%,
02/15/10 $ 3,650,000 $ 3,937,656
- ---------------------------------------------------------------
Cityscape Financial Corp., Conv.
Sub. Deb., 6.00%, 05/01/06(a)
(Acquired 04/26/96-09/27/96;
Cost $805,250) 800,000 814,000
- ---------------------------------------------------------------
Countrywide Funding Corp., Sub.
Notes, 8.25%, 07/15/02 500,000 530,970
- ---------------------------------------------------------------
Ford Motor Credit,
Notes, 6.125%, 01/09/06 1,500,000 1,408,560
- ---------------------------------------------------------------
Notes, 6.75%, 08/15/08 800,000 776,952
- ---------------------------------------------------------------
GMAC, Notes, 9.00%, 10/15/02 750,000 825,758
- ---------------------------------------------------------------
Grand Metro Investment, Gtd.
Bonds, 7.45%, 04/15/35 3,000,000 3,198,060
- ---------------------------------------------------------------
Household Finance Corp., Notes,
7.125%, 09/01/05 3,000,000 3,033,150
- ---------------------------------------------------------------
Southern Pacific Funding Corp.,
Conv. Sub. Notes, 6.75%,
10/15/06 1,250,000 1,343,750
- ---------------------------------------------------------------
15,868,856
- ---------------------------------------------------------------
GAS DISTRIBUTION-0.18%
Ferrellgas Partners, Sr. Notes,
9.375%, 06/15/06 1,000,000 1,021,250
- ---------------------------------------------------------------
HOTELS/MOTELS-0.40%
ITT Corp., Gtd. Deb., 7.375%,
11/15/15 750,000 720,855
- ---------------------------------------------------------------
Marriott International, Inc.,
Conv. Notes, 4.25%,
03/25/11(a)(b)
(Acquired 03/19/96; Cost
$931,263) 1,750,000 983,710
- ---------------------------------------------------------------
Prime Hospitality Corp., Conv.
Sub. Notes, 7.00%, 04/15/02 400,000 594,832
- ---------------------------------------------------------------
2,299,397
- ---------------------------------------------------------------
MEDICAL (DRUGS)-0.36%
North American Vaccine, Inc.,
Conv. Sub.
Notes, 6.50%, 05/01/03(a)
(Acquired 07/31/96-10/30/96;
Cost $1,881,250) 2,000,000 2,070,000
- ---------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-0.70%
Uromed Corp., Conv. Sub. Notes,
6.00%, 10/15/03(a)
(Acquired 10/08/96-12/04/96;
Cost $2,594,000) 2,600,000 2,446,262
- ---------------------------------------------------------------
Ventritex, Inc., Conv. Sub. Notes,
5.75%, 08/15/01 1,000,000 1,551,250
- ---------------------------------------------------------------
3,997,512
- ---------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-0.37%
ARV Assisted Living, Inc., Conv.
Sub. Notes, 6.75%, 04/01/06(a)
(Acquired 03/28/96-03/29/96;
Cost $500,400) 500,000 436,560
- ---------------------------------------------------------------
HEALTHSOUTH Rehabilitation Corp.,
Conv. Sub. Deb., 5.00%, 04/01/01 300,000 604,005
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-(CONTINUED)
Physicians Resource Group, Inc.,
Conv. Sub. Deb., 6.00%,
12/01/01(a)
(Acquired 12/06/96; Cost
$1,100,000) $ 1,100,000 $ 1,078,242
- ---------------------------------------------------------------
2,118,807
- ---------------------------------------------------------------
NATURAL GAS PIPELINE-0.28%
Enron Corp., Sr. Sub. Deb.,
6.75%, 07/01/05 800,000 792,096
- ---------------------------------------------------------------
PanEnergy Corp., Deb.,
7.875%, 08/15/04 750,000 792,308
- ---------------------------------------------------------------
1,584,404
- ---------------------------------------------------------------
OFFICE PRODUCTS-0.18%
U.S. Office Products Co., Conv.
Sub. Notes, 5.50%, 02/01/01 800,000 1,032,632
- ---------------------------------------------------------------
OIL & GAS (DRILLING)-0.46%
Nabors Industries, Inc., Conv.
Sub. Notes, 5.00%, 05/15/06 1,500,000 1,910,775
- ---------------------------------------------------------------
Swift Energy Co., Conv. Sub.
Notes, 6.25%, 11/15/06 650,000 710,125
- ---------------------------------------------------------------
2,620,900
- ---------------------------------------------------------------
OIL & GAS (EQUIPMENT & SUPPLIES)-0.45%
Pride Petroleum Services, Inc.,
Conv. Sub. Deb., 6.25%, 02/15/06 1,400,000 2,569,000
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.18%
Pogo Producing Co., Conv. Sub.
Notes, 5.50%, 06/15/06 800,000 1,006,768
- ---------------------------------------------------------------
POLLUTION CONTROL-1.33%
Thermo Instrument Systems, Inc.,
Conv. Deb., 4.50%, 10/15/03(a)
(Acquired 10/10/96-12/16/96;
Cost $1,210,750) 1,200,000 1,248,948
- ---------------------------------------------------------------
U.S. Filter Corp., Conv. Sub.
Notes, 4.50%, 12/15/01 1,500,000 1,527,060
- ---------------------------------------------------------------
United Waste Systems, Inc., Conv.
Sub. Notes, 4.50%, 06/01/01(a)
(Acquired 05/31/96-08/07/96;
Cost $1,013,000) 1,000,000 1,191,300
- ---------------------------------------------------------------
WMX Technologies, Inc., Notes,
7.10%, 08/01/26 3,500,000 3,617,320
- ---------------------------------------------------------------
7,584,628
- ---------------------------------------------------------------
PUBLISHING-0.18%
News America Holdings, Inc., Sr.
Gtd. Deb., 9.25%, 02/01/13 900,000 1,012,005
- ---------------------------------------------------------------
RAILROADS-0.98%
Union Pacific Corp., Notes, 7.25%,
11/01/08 3,000,000 3,024,840
- ---------------------------------------------------------------
Union Pacific Resources Group
Inc., Deb., 7.50%, 10/15/26 2,500,000 2,548,150
- ---------------------------------------------------------------
5,572,990
- ---------------------------------------------------------------
REAL ESTATE-0.53%
Finova Capital Corp., Notes,
7.40%, 05/06/06 3,000,000 3,061,710
- ---------------------------------------------------------------
</TABLE>
FS-4
<PAGE> 263
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
RETAIL (STORES)-0.76%
Federated Department Stores, Conv.
Notes, 5.00%, 10/01/03 $ 1,000,000 $ 1,168,750
- ---------------------------------------------------------------
J.C. Penney Co., Inc., Notes,
6.50%, 06/15/02 2,015,000 2,004,683
- ---------------------------------------------------------------
Pier 1 Imports, Inc., Conv. Sub.
Notes, 5.75%, 10/01/03 1,000,000 1,152,500
- ---------------------------------------------------------------
4,325,933
- ---------------------------------------------------------------
SEMICONDUCTORS-0.50%
Cirrus Logic, Inc., Conv. Sub.
Notes, 6.00%, 12/15/03(a)
(Acquired 12/12/96; Cost
$2,000,000) 2,000,000 1,830,000
- ---------------------------------------------------------------
Sanmina Corp., Conv. Sub. Notes,
5.50%, 08/15/02(a)
(Acquired 08/10/95-04/16/96;
Cost $560,525) 500,000 1,024,745
- ---------------------------------------------------------------
2,854,745
- ---------------------------------------------------------------
SHOES & RELATED APPAREL-0.35%
Nine West Group, Inc., Conv. Sub.
Notes, 5.50%, 07/15/03(a)
(Acquired 06/20/96-10/22/96;
Cost $2,048,750) 2,000,000 1,992,440
- ---------------------------------------------------------------
TELECOMMUNICATIONS-0.52%
TCI Communications Inc., Sr.
Notes, 8.00%, 08/01/05 1,000,000 980,440
- ---------------------------------------------------------------
360 Communications Co., Sr. Notes,
7.50%, 03/01/06 2,000,000 1,985,180
- ---------------------------------------------------------------
2,965,620
- ---------------------------------------------------------------
TELEPHONE-0.70%
BellSouth Capital Funding, Deb.,
6.04%, 11/15/26 4,000,000 3,980,760
- ---------------------------------------------------------------
TRANSPORTATION-0.25%
Seacor Holdings Inc., Conv. Sub.
Notes, 5.375%, 11/15/06 1,250,000 1,456,788
- ---------------------------------------------------------------
Total Domestic Bonds & Notes 122,901,224
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
DOMESTIC COMMON STOCKS-42.22%
ADVERTISING/BROADCASTING-1.20%
Lamar Advertising Co.(c) 42,000 1,018,500
- ---------------------------------------------------------------
Leap Group, Inc. (The)(c) 90,000 618,750
- ---------------------------------------------------------------
Meredith Corp. 13,000 685,750
- ---------------------------------------------------------------
Metro Networks, Inc.(c) 43,100 1,088,275
- ---------------------------------------------------------------
Outdoor Systems, Inc.(c) 77,400 2,176,875
- ---------------------------------------------------------------
Univision Communications, Inc.(c) 34,900 1,291,300
- ---------------------------------------------------------------
6,879,450
- ---------------------------------------------------------------
AEROSPACE/DEFENSE-0.77%
Boeing Co. (The) 15,000 1,595,625
- ---------------------------------------------------------------
Gulfstream Aerospace Corp.(c) 60,300 1,462,275
- ---------------------------------------------------------------
United Technologies Corp. 20,000 1,320,000
- ---------------------------------------------------------------
4,377,900
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
AIRLINES-0.19%
Greenwich Air Services, Inc.-Class B 50,000 $ 1,112,500
- ---------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.42%
Chrysler Corp. 48,000 1,584,000
- ---------------------------------------------------------------
United Auto Group, Inc.(c) 31,000 798,250
- ---------------------------------------------------------------
2,382,250
- ---------------------------------------------------------------
BANKING-0.17%
Commercial Federal Corp. 20,000 960,000
- ---------------------------------------------------------------
BANKING (MONEY CENTER)-0.78%
Chase Manhattan Corp. 30,000 2,677,500
- ---------------------------------------------------------------
Citicorp 17,500 1,802,500
- ---------------------------------------------------------------
4,480,000
- ---------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-0.34%
PepsiCo, Inc. 66,000 1,930,500
- ---------------------------------------------------------------
BIOTECHNOLOGY-0.14%
AMGEN, Inc.(c) 15,000 815,625
- ---------------------------------------------------------------
BUSINESS SERVICES-1.69%
Abacus Direct Corp.(c) 42,400 795,000
- ---------------------------------------------------------------
Advanced Health Corp.(c) 85,000 1,062,500
- ---------------------------------------------------------------
Corestaff, Inc.(c) 43,875 1,039,289
- ---------------------------------------------------------------
Diebold, Inc. 17,000 1,068,875
- ---------------------------------------------------------------
Equifax, Inc. 27,000 826,875
- ---------------------------------------------------------------
International Telecommunication
Data Systems, Inc.(c) 30,000 727,500
- ---------------------------------------------------------------
Learning Tree International,
Inc.(c) 49,050 1,446,975
- ---------------------------------------------------------------
Metzler Group, Inc.(c) 46,100 1,463,675
- ---------------------------------------------------------------
Sitel Corp.(c) 86,800 1,226,050
- ---------------------------------------------------------------
9,656,739
- ---------------------------------------------------------------
CHEMICALS-0.25%
Pioneer Hi-Bred International,
Inc. 20,000 1,400,000
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.30%
IMC Global, Inc. 18,500 723,812
- ---------------------------------------------------------------
Praxair, Inc. 22,000 1,014,750
- ---------------------------------------------------------------
1,738,562
- ---------------------------------------------------------------
COMPUTER MAINFRAMES-0.14%
ViaSat, Inc.(c) 90,000 810,000
- ---------------------------------------------------------------
COMPUTER MINI/PCS-0.36%
COMPAQ Computer Corp.(c) 15,000 1,113,750
- ---------------------------------------------------------------
Sun Microsystems, Inc.(c) 36,000 924,750
- ---------------------------------------------------------------
2,038,500
- ---------------------------------------------------------------
COMPUTER NETWORKING-0.93%
Ascend Communications, Inc.(c) 28,000 1,739,500
- ---------------------------------------------------------------
Cabletron Systems, Inc.(c) 24,000 798,000
- ---------------------------------------------------------------
Cisco Systems, Inc.(c) 14,000 890,750
- ---------------------------------------------------------------
</TABLE>
FS-5
<PAGE> 264
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER NETWORKING-(CONTINUED)
Comverse Technology, Inc.(c) 50,000 $ 1,890,625
- ---------------------------------------------------------------
5,318,875
- ---------------------------------------------------------------
COMPUTER PERIPHERALS-0.33%
Accent Color Sciences, Inc.(c) 80,000 680,000
- ---------------------------------------------------------------
U.S. Robotics Corp.(c) 17,000 1,224,000
- ---------------------------------------------------------------
1,904,000
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-2.09%
Computer Associates International, Inc. 8,500 422,875
- ---------------------------------------------------------------
DST Systems, Inc.(c) 45,000 1,411,875
- ---------------------------------------------------------------
Electronic Data Systems Corp. 25,000 1,081,250
- ---------------------------------------------------------------
FactSet Research Systems, Inc.(c) 40,400 848,400
- ---------------------------------------------------------------
Forrester Research, Inc.(c) 20,200 520,150
- ---------------------------------------------------------------
Intelligroup, Inc.(c) 50,000 550,000
- ---------------------------------------------------------------
Mechanical Dynamics, Inc.(c) 18,200 252,525
- ---------------------------------------------------------------
Microsoft Corp.(c) 20,000 1,652,500
- ---------------------------------------------------------------
Midway Games Inc.(c) 71,900 1,455,975
- ---------------------------------------------------------------
National Data Corp. 16,900 735,150
- ---------------------------------------------------------------
Oracle Corp.(c) 18,750 782,813
- ---------------------------------------------------------------
S3 Inc.(c) 50,000 812,500
- ---------------------------------------------------------------
Viisage Technology, Inc.(c) 73,500 1,065,750
- ---------------------------------------------------------------
White Pine Software, Inc.(c) 50,000 362,500
- ---------------------------------------------------------------
11,954,263
- ---------------------------------------------------------------
CONGLOMERATES-0.39%
Allied-Signal Inc. 12,000 804,000
- ---------------------------------------------------------------
Olin Corp. 16,000 602,000
- ---------------------------------------------------------------
Textron, Inc. 9,000 848,250
- ---------------------------------------------------------------
2,254,250
- ---------------------------------------------------------------
COSMETICS & TOILETRIES-2.35%
Avon Products, Inc. 20,000 1,142,500
- ---------------------------------------------------------------
Carson, Inc.(c) 60,000 832,500
- ---------------------------------------------------------------
Colgate-Palmolive Co. 17,000 1,568,250
- ---------------------------------------------------------------
Estee Lauder Co. 25,000 1,271,875
- ---------------------------------------------------------------
French Fragrances, Inc.(c) 100,000 775,000
- ---------------------------------------------------------------
Gillette Co. 20,000 1,555,000
- ---------------------------------------------------------------
Nature's Sunshine Products, Inc. 50,000 900,000
- ---------------------------------------------------------------
Procter & Gamble Co. 25,000 2,687,500
- ---------------------------------------------------------------
Rexall Sundown, Inc.(c) 29,100 791,156
- ---------------------------------------------------------------
Warner-Lambert Co. 25,000 1,875,000
- ---------------------------------------------------------------
13,398,781
- ---------------------------------------------------------------
ELECTRIC POWER-0.46%
AES Corp.(c) 23,000 1,069,500
- ---------------------------------------------------------------
Destec Energy, Inc.(c) 100,000 1,562,500
- ---------------------------------------------------------------
2,632,000
- ---------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-0.27%
SBS Technologies, Inc.(c) 35,000 1,295,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONIC COMPONENTS/MISCELLANEOUS-(CONTINUED)
SCI Systems, Inc.(c) 5,000 $ 223,125
- ---------------------------------------------------------------
1,518,125
- ---------------------------------------------------------------
ENERGY (ALTERNATIVE SOURCES)-0.16%
Calenergy, Inc.(c) 28,000 941,500
- ---------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.53%
Hambrecht & Quist Group(c) 50,000 1,081,250
- ---------------------------------------------------------------
Merrill Lynch & Co., Inc. 15,000 1,222,500
- ---------------------------------------------------------------
Morgan Stanley Group, Inc. 13,000 742,625
- ---------------------------------------------------------------
3,046,375
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-2.18%
AAMES Financial Corp. 55,000 1,973,125
- ---------------------------------------------------------------
American Express Co. 20,000 1,130,000
- ---------------------------------------------------------------
Federal Home Loan Mortgage Corp. 17,000 1,872,125
- ---------------------------------------------------------------
Federal National Mortgage
Association 40,000 1,490,000
- ---------------------------------------------------------------
Finova Group, Inc. 25,000 1,606,250
- ---------------------------------------------------------------
Green Tree Financial Corp. 31,000 1,197,375
- ---------------------------------------------------------------
MBNA Corp. 25,000 1,037,500
- ---------------------------------------------------------------
Medallion Financial Corp. 50,400 768,600
- ---------------------------------------------------------------
Student Loan Marketing Association 15,000 1,396,875
- ---------------------------------------------------------------
12,471,850
- ---------------------------------------------------------------
FINANCE (SAVINGS & LOANS)-0.30%
Washington Mutual, Inc. 39,000 1,689,188
- ---------------------------------------------------------------
FOOD/PROCESSING-0.61%
ConAgra, Inc. 22,500 1,119,375
- ---------------------------------------------------------------
Dean Foods Co. 39,000 1,257,750
- ---------------------------------------------------------------
Ralston-Ralston Purina Group 15,000 1,100,625
- ---------------------------------------------------------------
3,477,750
- ---------------------------------------------------------------
FURNITURE-0.25%
Ethan Allen Interiors, Inc. 37,000 1,424,500
- ---------------------------------------------------------------
GAS DISTRIBUTION-0.50%
Consolidated Natural Gas Co. 25,000 1,381,250
- ---------------------------------------------------------------
KN Energy, Inc. 18,000 706,500
- ---------------------------------------------------------------
MarkWest Hydrocarbon, Inc.(c) 50,000 775,000
- ---------------------------------------------------------------
2,862,750
- ---------------------------------------------------------------
HOTELS/MOTELS-0.52%
HFS, Inc.(c) 24,000 1,434,000
- ---------------------------------------------------------------
Hilton Hotels Corp. 44,000 1,149,500
- ---------------------------------------------------------------
U.S. Franchise Systems, Inc.(c) 40,000 405,000
- ---------------------------------------------------------------
2,988,500
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-2.11%
Aetna Inc. 18,000 1,440,000
- ---------------------------------------------------------------
Capital Re Corp. 15,500 722,687
- ---------------------------------------------------------------
Capmac Holdings Inc. 51,500 1,705,938
- ---------------------------------------------------------------
Chubb Corp. 20,300 1,091,125
- ---------------------------------------------------------------
</TABLE>
FS-6
<PAGE> 265
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE PROPERTY)-(CONTINUED)
CIGNA Corp. 15,500 $ 2,117,687
- ---------------------------------------------------------------
Everest Re Holdings, Inc. 40,000 1,150,000
- ---------------------------------------------------------------
Travelers Group, Inc. 41,333 1,875,485
- ---------------------------------------------------------------
Travelers/Aetna Property Casualty
Corp. 55,000 1,945,625
- ---------------------------------------------------------------
12,048,547
- ---------------------------------------------------------------
LEISURE & RECREATION-0.70%
Eastman Kodak Co. 13,000 1,043,250
- ---------------------------------------------------------------
Galoob Toys, Inc.(c) 60,000 840,000
- ---------------------------------------------------------------
Steinway Musical Instruments(c) 60,000 1,042,500
- ---------------------------------------------------------------
Ticketmaster Group, Inc.(c) 90,000 1,091,250
- ---------------------------------------------------------------
4,017,000
- ---------------------------------------------------------------
MACHINERY (HEAVY)-1.03%
Briggs & Stratton Corp. 32,500 1,430,000
- ---------------------------------------------------------------
Case Corp. 26,000 1,417,000
- ---------------------------------------------------------------
Caterpillar Inc. 25,000 1,881,250
- ---------------------------------------------------------------
Deere & Co. 29,000 1,178,125
- ---------------------------------------------------------------
5,906,375
- ---------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.22%
Thermo Electron Corp.(c) 30,000 1,237,500
- ---------------------------------------------------------------
MEDICAL (DRUGS)-2.89%
Abbott Laboratories 18,500 938,875
- ---------------------------------------------------------------
American Home Products Corp. 26,000 1,524,250
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 14,000 1,522,500
- ---------------------------------------------------------------
Cardinal Health, Inc. 24,000 1,398,000
- ---------------------------------------------------------------
Dura Pharmaceuticals, Inc.(c) 50,000 2,387,500
- ---------------------------------------------------------------
Johnson & Johnson 35,000 1,741,250
- ---------------------------------------------------------------
Lilly (Eli) & Co. 32,000 2,336,000
- ---------------------------------------------------------------
Merck & Co., Inc. 19,000 1,505,750
- ---------------------------------------------------------------
Pfizer, Inc. 24,000 1,989,000
- ---------------------------------------------------------------
Schering-Plough Corp. 18,000 1,165,500
- ---------------------------------------------------------------
16,508,625
- ---------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-1.21%
Baxter International Inc. 30,000 1,230,000
- ---------------------------------------------------------------
Becton, Dickinson & Co. 20,000 867,500
- ---------------------------------------------------------------
Medtronic, Inc. 27,000 1,836,000
- ---------------------------------------------------------------
Omnicare Inc. 38,000 1,220,750
- ---------------------------------------------------------------
Quintiles Transnational Corp.(c) 20,000 1,325,000
- ---------------------------------------------------------------
Xomed Surgical Products, Inc.(c) 20,900 418,000
- ---------------------------------------------------------------
6,897,250
- ---------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-1.34%
American Medical Response, Inc.(c) 70,000 2,275,000
- ---------------------------------------------------------------
Columbia/HCA Healthcare Corp. 25,500 1,039,125
- ---------------------------------------------------------------
PhyCor, Inc.(c) 25,000 709,375
- ---------------------------------------------------------------
RoTech Medical Corp.(c) 60,000 1,260,000
- ---------------------------------------------------------------
Sunrise Assisted Living, Inc.(c) 49,000 1,365,875
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-(CONTINUED)
Tenet Healthcare Corp.(c) 45,000 $ 984,375
- ---------------------------------------------------------------
7,633,750
- ---------------------------------------------------------------
METALS-0.12%
Titanium Metals Corp.(c) 20,000 657,500
- ---------------------------------------------------------------
NATURAL GAS PIPELINE-1.39%
Columbia Gas System, Inc. 9,000 572,625
- ---------------------------------------------------------------
El Paso Natural Gas Co. 28,500 1,439,250
- ---------------------------------------------------------------
Enron Corp. 28,000 1,207,500
- ---------------------------------------------------------------
PanEnergy Corp. 23,000 1,035,000
- ---------------------------------------------------------------
Sonat, Inc. 32,000 1,648,000
- ---------------------------------------------------------------
Williams Companies, Inc. (The) 54,000 2,025,000
- ---------------------------------------------------------------
7,927,375
- ---------------------------------------------------------------
OFFICE PRODUCTS-0.16%
Avery-Dennison Corp. 20,000 707,500
- ---------------------------------------------------------------
Ingram Micro, Inc.-Class A(c) 9,800 225,400
- ---------------------------------------------------------------
932,900
- ---------------------------------------------------------------
OIL & GAS (DRILLING)-0.35%
Costilla Energy, Inc.(c) 102,000 1,389,750
- ---------------------------------------------------------------
TransOcean Offshore 10,000 626,250
- ---------------------------------------------------------------
2,016,000
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.41%
Houston Exploration Co. (The)(c) 33,200 581,000
- ---------------------------------------------------------------
Titan Exploration, Inc.(c) 145,400 1,744,800
- ---------------------------------------------------------------
2,325,800
- ---------------------------------------------------------------
OIL & GAS (SERVICES)-0.99%
Chesapeake Energy Corp.(c) 12,000 667,500
- ---------------------------------------------------------------
Exxon Corp. 8,000 784,000
- ---------------------------------------------------------------
Louisiana Land & Exploration Co. 27,000 1,447,875
- ---------------------------------------------------------------
Mobil Corp. 13,500 1,650,375
- ---------------------------------------------------------------
TPC Corp.(c) 125,000 1,125,000
- ---------------------------------------------------------------
5,674,750
- ---------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-0.21%
Coastal Corp. 25,000 1,221,875
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.38%
American Pad & Paper Co.(c) 45,000 1,018,125
- ---------------------------------------------------------------
Kimberly-Clark Corp. 12,000 1,143,000
- ---------------------------------------------------------------
2,161,125
- ---------------------------------------------------------------
REAL ESTATE-0.27%
Cali Realty Corp. 50,000 1,543,750
- ---------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS-1.13%
Bay Apartment Communities, Inc. 40,000 1,440,000
- ---------------------------------------------------------------
Crescent Real Estate Equities, Inc. 20,000 1,055,000
- ---------------------------------------------------------------
FelCor Suite Hotels, Inc. 18,000 636,750
- ---------------------------------------------------------------
Omega Healthcare Investors, Inc. 29,000 964,250
- ---------------------------------------------------------------
</TABLE>
FS-7
<PAGE> 266
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS-(CONTINUED)
Patriot American Hospitality, Inc. 29,000 $ 1,250,625
- ---------------------------------------------------------------
Starwood Lodging Trust 20,000 1,102,500
- ---------------------------------------------------------------
6,449,125
- ---------------------------------------------------------------
RETAIL (FOOD & DRUG)-1.15%
American Stores Co. 33,500 1,369,312
- ---------------------------------------------------------------
Dominick's Supermarkets, Inc.(c) 84,000 1,827,000
- ---------------------------------------------------------------
Safeway, Inc.(c) 55,000 2,351,250
- ---------------------------------------------------------------
Twinlab Corp.(c) 82,800 1,003,950
- ---------------------------------------------------------------
6,551,512
- ---------------------------------------------------------------
RETAIL (STORES)-1.90%
Blyth Industries, Inc.(c) 30,000 1,368,750
- ---------------------------------------------------------------
Consolidated Stores Corp.(c) 31,250 1,003,906
- ---------------------------------------------------------------
Gap, Inc. (The) 47,000 1,415,875
- ---------------------------------------------------------------
Hibbett Sporting Goods, Inc.(c) 41,200 597,400
- ---------------------------------------------------------------
Linens 'N Things, Inc.(c) 70,000 1,373,750
- ---------------------------------------------------------------
Neiman Marcus Group, Inc. (The)(c) 32,500 828,750
- ---------------------------------------------------------------
Pier 1 Imports, Inc. 40,000 705,000
- ---------------------------------------------------------------
Saks Holdings, Inc.(c) 60,500 1,633,500
- ---------------------------------------------------------------
Sears, Roebuck & Co. 27,000 1,245,375
- ---------------------------------------------------------------
Staples, Inc.(c) 10,500 189,656
- ---------------------------------------------------------------
Stein Mart, Inc.(c) 25,000 506,250
- ---------------------------------------------------------------
10,868,212
- ---------------------------------------------------------------
SECURITY & SAFETY SERVICES-0.19%
Cornell Corrections, Inc.(c) 70,000 621,250
- ---------------------------------------------------------------
O'Gara Co. (The)(c) 50,000 487,500
- ---------------------------------------------------------------
1,108,750
- ---------------------------------------------------------------
SEMICONDUCTORS-0.66%
Analog Devices, Inc.(c) 25,000 846,875
- ---------------------------------------------------------------
Intel Corp. 22,000 2,880,625
- ---------------------------------------------------------------
3,727,500
- ---------------------------------------------------------------
SHOES & RELATED APPAREL-0.35%
Nike, Inc.-Class B 33,000 1,971,750
- ---------------------------------------------------------------
TELECOMMUNICATIONS-2.12%
ADC Telecommunications, Inc.(c) 53,500 1,665,187
- ---------------------------------------------------------------
CellNet Data Systems Inc.(c) 36,100 527,962
- ---------------------------------------------------------------
Frontier Corp. 30,000 678,750
- ---------------------------------------------------------------
LCC International, Inc.-Class A(c) 45,000 832,500
- ---------------------------------------------------------------
Lucent Technologies, Inc. 41,102 1,900,968
- ---------------------------------------------------------------
McLeod, Inc.(c) 45,000 1,147,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS-(CONTINUED)
Superior Telecom Inc.(c) 76,000 $ 1,548,500
- ---------------------------------------------------------------
Teleport Communications Group
Inc.- Class A(c) 30,000 915,000
- ---------------------------------------------------------------
360 Communications Co.(c) 35,000 809,375
- ---------------------------------------------------------------
West TeleServices Corp.(c) 60,000 1,365,000
- ---------------------------------------------------------------
WorldCom, Inc.(c) 26,267 684,584
- ---------------------------------------------------------------
12,075,326
- ---------------------------------------------------------------
TELEPHONE-0.87%
Ameritech Corp. 21,500 1,303,437
- ---------------------------------------------------------------
Cincinnati Bell, Inc. 25,300 1,559,113
- ---------------------------------------------------------------
GTE Corp. 23,000 1,046,500
- ---------------------------------------------------------------
SBC Communications, Inc. 20,000 1,035,000
- ---------------------------------------------------------------
4,944,050
- ---------------------------------------------------------------
TEXTILES-0.32%
Guess, Inc.(c) 55,000 790,625
- ---------------------------------------------------------------
Liz Claiborne, Inc. 27,000 1,042,875
- ---------------------------------------------------------------
1,833,500
- ---------------------------------------------------------------
TOBACCO-0.49%
Philip Morris Companies, Inc. 25,000 2,815,625
- ---------------------------------------------------------------
TRANSPORTATION-0.64%
AirNet Systems, Inc.(c) 80,100 1,181,475
- ---------------------------------------------------------------
Coach USA, Inc.(c) 85,200 2,470,800
- ---------------------------------------------------------------
3,652,275
- ---------------------------------------------------------------
Total Domestic Common Stocks 241,172,480
- ---------------------------------------------------------------
DOMESTIC PREFERRED STOCKS-5.72%
ADVERTISING/BROADCASTING-0.12%
Time Warner Inc.-Series M $102.50
Conv. PIK Pfd. 629 673,112
- ---------------------------------------------------------------
AEROSPACE/DEFENSE-0.22%
Loral Space & Communications-$3.00
Conv. Pfd.(a)
(Acquired 11/01/96; Cost
$1,117,500) 22,350 1,271,156
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.58%
Microsoft Corp.-$2.196 Conv. Pfd. 25,000 2,003,125
- ---------------------------------------------------------------
Vanstar Financing Trust-$3.375
Conv. Pfd.(a)
(Acquired 09/27/96; Cost
$1,240,000) 24,800 1,320,377
- ---------------------------------------------------------------
3,323,502
- ---------------------------------------------------------------
ELECTRIC POWER-0.13%
Citizens Utilities Co.-$2.50 Conv. Pfd. 15,000 716,250
- ---------------------------------------------------------------
</TABLE>
FS-8
<PAGE> 267
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCE (CONSUMER CREDIT)-0.99%
First USA, Inc.-$1.9925 Conv.
PRIDES 10,500 $ 619,500
- ---------------------------------------------------------------
Money Store, Inc. (The)-$1.72
Conv. Pfd. 55,000 1,505,625
- ---------------------------------------------------------------
Penncorp Financial Group,
Inc.-$3.50 Conv. Pfd.(a)
(Acquired 08/02/96-11/15/96;
Cost $2,072,500) 40,000 2,380,000
- ---------------------------------------------------------------
SunAmerica, Inc.-Series E $3.10
Conv. Dep. Pfd. 12,000 1,167,000
- ---------------------------------------------------------------
5,672,125
- ---------------------------------------------------------------
FUNERAL SERVICES-0.16%
SCI Financial LLC-Series A, $3.125
Conv. Pfd. 10,000 941,250
- ---------------------------------------------------------------
GAS UTILITY-0.22%
MCN Corp.-$2.013 Conv. PRIDES 46,000 1,270,750
- ---------------------------------------------------------------
HOTELS/MOTELS-0.29%
Host Marriott Financial
Trust-$3.375 Conv. Pfd.(a)
(Acquired 11/25/96; Cost
$1,500,000) 30,000 1,634,910
- ---------------------------------------------------------------
INSURANCE (BROKER)-0.21%
American Bankers Insurance
Group-$3.125 Conv. Pfd. 20,000 1,195,000
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.32%
Conseco Inc.-$4.278 Conv. Pfd. 16,000 1,820,000
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-0.59%
Allstate Inc.-$2.299 Conv. PRIDES 16,000 756,000
- ---------------------------------------------------------------
Frontier Financing Trust-$3.125
Conv. Pfd.(a)
(Acquired 10/09/96; Cost
$2,500,000) 50,000 2,588,600
- ---------------------------------------------------------------
3,344,600
- ---------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-0.23%
US Surgical Corp.-$2.20 Conv. Pfd. 35,000 1,338,750
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.40%
Nuevo Financing I-$2.875 Series A
Conv. Pfd. 42,500 2,279,063
- ---------------------------------------------------------------
OIL & GAS (REFINING/MARKETING)-0.18%
Tosco Financing Trust-$2.875 Conv.
Pfd.(a)
(Acquired 12/10/96-12/11/96;
Cost $1,003,625) 20,000 1,042,500
- ---------------------------------------------------------------
PUBLISHING-0.20%
Golden Books Financial
Trust-$4.375 Conv. Pfd.(a)
(Acquired 08/14/96; Cost
$1,000,000) 20,000 1,137,260
- ---------------------------------------------------------------
RETAIL (STORES)-0.31%
Ann Taylor Finance Trust-$4.25
Conv. Pfd.(a)
(Acquired 04/18/96-04/29/96;
Cost $999,000) 20,000 1,069,240
- ---------------------------------------------------------------
Kmart Financing, Inc.-$3.875 Conv.
Pfd. 14,000 682,500
- ---------------------------------------------------------------
1,751,740
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TELECOMMUNICATIONS-0.30%
MFS Communications Co.,
Inc.,-$2.68 Conv. Dep. Pfd. 19,000 $ 1,733,750
- ---------------------------------------------------------------
TELEPHONE-0.15%
Salomon Inc.-$3.48 Conv. Pfd. 14,600 879,650
- ---------------------------------------------------------------
TRANSPORTATION-0.12%
Continental Airlines Finance
Trust-$4.25 Conv. Pfd.(a)
(Acquired 11/21/95-11/22/95;
Cost $500,350) 10,000 666,250
- ---------------------------------------------------------------
Total Domestic Preferred
Stocks 32,691,618
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. DOLLAR DENOMINATED FOREIGN
BONDS & NOTES-4.38%
CANADA-2.38%
Bell Canada (Telecommunications),
Yankee Deb., 9.50%, 10/15/10 $ 1,750,000 2,111,095
- ---------------------------------------------------------------
Great Atlantic & Pacific Tea Co.,
Inc. (Retail-Food & Drug),
Yankee Notes, 7.78%, 11/01/00(a)
(Acquired 10/18/95; Cost
$500,000) 500,000 509,622
- ---------------------------------------------------------------
Husky Oil Ltd. (Oil &
Gas-Integrated), Yankee Sr.
Notes, 7.125%, 11/15/06 3,000,000 2,976,720
- ---------------------------------------------------------------
Nova Chemicals Ltd. (Oil &
Gas-Specialty), Deb., 7.00%,
08/15/26(a)
(Acquired 08/13/96; Cost
$2,000,000) 2,000,000 2,016,400
- ---------------------------------------------------------------
Province of Manitoba (Foreign
Governments), Yankee Bonds,
7.75%, 07/17/16 1,500,000 1,568,415
- ---------------------------------------------------------------
Royal Bank of Canada (Banking),
Yankee Sub. Notes,
6.75%, 10/24/11 3,000,000 2,935,500
- ---------------------------------------------------------------
Talisman Energy, Inc. (Oil &
Gas-Exploration & Production),
Yankee Deb.,
7.125%, 06/01/07 1,500,000 1,477,380
- ---------------------------------------------------------------
13,595,132
- ---------------------------------------------------------------
GERMANY-0.92%
Dresdner Bank A.G. (Banking), Sub.
Bonds,
6.00%, 11/03/08 4,000,000 3,717,480
- ---------------------------------------------------------------
Tarkett Pegulan AG (Textiles),
Yankee Sr. Sub. Notes, 9.00%,
03/01/02 1,500,000 1,548,750
- ---------------------------------------------------------------
5,266,230
- ---------------------------------------------------------------
MALAYSIA-0.18%
Sungei Way Holdings Berhad
(Building Materials), Conv.
Bonds,
1.25%, 12/11/01 1,000,000 1,020,000
- ---------------------------------------------------------------
NETHERLANDS-0.35%
Baan Co., N.V. (Computer
Software/Services), Conv. Sub.
Notes,
4.50%, 12/15/01(a)
(Acquired 12/12/96; Cost
$2,000,000) 2,000,000 2,008,920
- ---------------------------------------------------------------
</TABLE>
FS-9
<PAGE> 268
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SWITZERLAND-0.24%
Sandoz Capital BVI Ltd.
(Chemicals), Yankee Sr. Conv.
Deb.,
2.00%, 10/06/02(a)
(Acquired 03/07/96-06/05/96;
Cost $1,306,500) $ 1,250,000 $ 1,343,750
- ---------------------------------------------------------------
UNITED KINGDOM-0.31%
Danka Business Systems PLC (Office
Automation), Yankee Conv. Sub.
Deb., 6.75%, 04/01/02 300,000 406,320
- ---------------------------------------------------------------
Royal Bank of Scotland Group PLC
(Banking), Yankee Sub. Notes,
6.375%, 02/01/11 1,500,000 1,381,635
- ---------------------------------------------------------------
1,787,955
- ---------------------------------------------------------------
Total U.S. Dollar
Denominated Foreign Bonds
& Notes 25,021,987
- ---------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
FOREIGN BONDS & NOTES(d)-3.22%
AUSTRALIA-1.21%
Australian Government (Foreign
Governments), Bonds,
10.00%, 10/15/07 AUD 2,500,000 2,361,110
- ---------------------------------------------------------------
Treasury Corp. of Victoria
(Foreign Governments) Gtd. Deb.,
12.00%, 09/22/01 4,800,000 4,564,559
- ---------------------------------------------------------------
6,925,669
- ---------------------------------------------------------------
CANADA-2.01%
Bank of Montreal (Banking), Sub.
Deb.
7.92%, 07/31/12 CAD 1,850,000 1,471,975
- ---------------------------------------------------------------
Canadian Oil Debco Inc. (Oil &
Gas-Services), Deb.,
11.00%, 10/31/00 1,500,000 1,283,868
- ---------------------------------------------------------------
NAV Canada (Transportation),
Bonds, 7.40%, 06/01/27 3,500,000 2,535,091
- ---------------------------------------------------------------
Ontario (Province of) (Foreign
Governments), Sr. Unsubordinated
Notes,
8.00%, 03/11/03 2,300,000 1,849,675
- ---------------------------------------------------------------
Teleglobe Inc.
(Telecommunications), Deb.,
8.35%, 06/20/03 1,000,000 806,032
- ---------------------------------------------------------------
Trans Canada Pipeline (Oil &
Gas-Services), Notes, 10.625%,
10/20/09 1,500,000 1,405,134
- ---------------------------------------------------------------
Westcoast Energy, Inc. (Electric
Power), Deb., 6.45%, 12/18/06(a)
(Acquired 12/03/96; Cost
$2,217,508) 3,000,000 2,137,004
- ---------------------------------------------------------------
11,488,779
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Foreign Bonds
& Notes 18,414,448
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-5.10%
AUSTRALIA-0.16%
News Corp. Ltd.-$5.00 Conv.
Pfd.(a)
(Advertising/Broadcasting)
(Acquired 11/04/96; Cost
$1,000,000) 10,000 943,750
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
BERMUDA-0.19%
Terra Nova Holdings Ltd.-Class A
(Insurance-Multi-Line Property) 50,200 $ 1,079,300
- ---------------------------------------------------------------
BRAZIL-0.14%
Telecomunicacoes Brasileiras S.A.
Telebras-ADR
(Telecommunications) 10,500 803,250
- ---------------------------------------------------------------
FRANCE-0.49%
AXA-ADR (Insurance-Life &
Health)(c) 40,000 1,260,000
- ---------------------------------------------------------------
Scor S.A.-ADR
(Insurance-Multi-Line
Property)(c) 45,000 1,546,875
- ---------------------------------------------------------------
2,806,875
- ---------------------------------------------------------------
GERMANY-0.11%
Veba A.G. (Electric Power) 10,750 621,751
- ---------------------------------------------------------------
ISRAEL-0.95%
ECI Telecommunications Ltd.
Designs (Computer Networking) 24,000 510,000
- ---------------------------------------------------------------
Tadiran Telecommunications Ltd.
(Telecommunications) 48,000 1,074,000
- ---------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Medical-Drugs) 30,000 1,507,500
- ---------------------------------------------------------------
TTI Team Telecom International
Ltd. (Telecommunications)(c) 109,000 681,250
- ---------------------------------------------------------------
Zag Industries Ltd. (Consumer Non-
Durables)(c) 100,000 1,650,000
- ---------------------------------------------------------------
5,422,750
- ---------------------------------------------------------------
ITALY-0.20%
Fila Holding S.p.A.-ADR
(Retail-Stores) 20,000 1,162,500
- ---------------------------------------------------------------
NETHERLANDS-1.03%
Gucci Group N.V. (Textiles) 34,200 2,184,525
- ---------------------------------------------------------------
Koninklijke Ahold N.V.-ADR
(Retail-Food & Drug) 20,200 1,247,350
- ---------------------------------------------------------------
New Holland N.V.
(Machinery-Heavy)(c) 75,000 1,565,625
- ---------------------------------------------------------------
Unilever N.V.-New York shares
(Food/Processing) 5,000 876,250
- ---------------------------------------------------------------
5,873,750
- ---------------------------------------------------------------
NORWAY-0.14%
Petroleum Geo-Services ASA-ADR
(Oil & Gas-Services)(c) 20,000 780,000
- ---------------------------------------------------------------
PORTUGAL-0.11%
Telecel-Comunicacaoes Pessoais,
S.A. (Telecommunications)(c) 10,300 641,175
- ---------------------------------------------------------------
SPAIN-0.20%
Autopistas, Concesionaria
Espanola, S.A. (Engineering &
Construction) 82,000 1,130,599
- ---------------------------------------------------------------
SWEDEN-0.08%
Telefonaktiebolaget LM
Ericsson-ADR
(Telecommunications) 15,000 452,813
- ---------------------------------------------------------------
</TABLE>
FS-10
<PAGE> 269
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-1.30%
Bass PLC (Beverages-Alcoholic) 64,350 $ 905,111
- ---------------------------------------------------------------
British Sky Broadcasting Group
PLC-ADR
(Advertising/Broadcasting) 6,500 341,250
- ---------------------------------------------------------------
Dr. Solomon's Group PLC-ADR
(Computer Software/Services)(c) 31,900 546,288
- ---------------------------------------------------------------
GCR Holdings, Ltd.
(Insurance-Multi-Line Property) 35,000 778,750
- ---------------------------------------------------------------
National Power PLC-ADR (Electric
Power) 8,000 271,000
- ---------------------------------------------------------------
Nynex CableComms Group PLC-ADR
(Telecommunications)(c) 17,300 313,563
- ---------------------------------------------------------------
PowerGen PLC-ADR (Electric Power) 11,000 434,500
- ---------------------------------------------------------------
Railtrack Group PLC (Railroads) 300,000 1,991,605
- ---------------------------------------------------------------
SELECT Software Tools-ADR
(Computer Software/Services)(c) 38,000 693,500
- ---------------------------------------------------------------
SmithKline Beecham PLC-ADR
(Medical-Drugs) 17,000 1,156,000
- ---------------------------------------------------------------
7,431,567
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests 29,150,080
- ---------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. TREASURY SECURITIES-12.47%
U.S. TREASURY NOTES & BONDS-12.47%
7.125%, 02/29/00 $ 2,500,000 2,575,250
- ---------------------------------------------------------------
U.S. TREASURY NOTES & BONDS-(CONTINUED)
6.25%, 08/31/00 $ 3,000,000 $ 3,013,470
- ---------------------------------------------------------------
6.125%, 09/30/00 5,000,000 5,001,550
- ---------------------------------------------------------------
6.375%, 03/31/01 5,000,000 5,037,950
- ---------------------------------------------------------------
6.50%, 05/31/01 17,000,000 17,201,960
- ---------------------------------------------------------------
6.625%, 06/30/01 10,000,000 10,167,100
- ---------------------------------------------------------------
7.25%, 08/15/04 2,500,000 2,629,225
- ---------------------------------------------------------------
7.50%, 02/15/05 3,000,000 3,207,000
- ---------------------------------------------------------------
6.50%, 10/15/06 5,000,000 5,029,650
- ---------------------------------------------------------------
6.75%, 08/15/26 8,000,000 8,064,240
- ---------------------------------------------------------------
6.50%, 11/15/26 9,500,000 9,326,530
- ---------------------------------------------------------------
Total U.S. Treasury Securities 71,253,925
- ---------------------------------------------------------------
U.S. GOVERNMENT AGENCY-0.71%
Tennessee Valley Authority, Bonds,
5.98%, 04/01/36 4,000,000 4,054,200
- ---------------------------------------------------------------
REPURCHASE AGREEMENT-2.59%(e)
UBS Securities Inc., 7.05%,
01/02/97(f) 14,800,000 14,800,000
- ---------------------------------------------------------------
TOTAL INVESTMENTS-97.93% 559,459,962
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.07% 11,811,032
- ---------------------------------------------------------------
NET ASSETS-100.00% $ 571,270,994
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Restricted security. May be sold to qualified institutional buyers under
Rule 144A of 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, 1996 was $45,153,907, which represented 7.90% of the Fund's net
assets.
(b) Zero coupon bonds issued at a discount. The interest rate shown represents
the rate of original issue discount.
(c) Non-income producing security.
(d) Foreign denominated security. 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, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$550,215,417. Collateralized by $732,485,305 U.S. Government agency
obligations, 0% to 9.50% due 01/01/98 to 12/15/26.
Abbreviations:
ADR American Depository Receipt
AUD Australian Dollar
CAD Canadian Dollar
Conv. Convertible
Ctf. Certificates
Deb. Debentures
Dep. Depository
Gtd. Guaranteed
Pfd. Preferred
PIK Payment in kind
PRIDES Preferred Redeemable Increased Dividend Equity Securities
Sr. Senior
Sub. Subordinated
See Notes to Financial Statements.
FS-11
<PAGE> 270
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$498,250,491) $559,459,962
- ---------------------------------------------------------
Cash 2,999,866
- ---------------------------------------------------------
Foreign currencies, at value (cost
$1,315,940) 1,346,533
- ---------------------------------------------------------
Receivables for:
Investments sold 3,607,046
- ---------------------------------------------------------
Fund shares sold 3,452,526
- ---------------------------------------------------------
Interest and dividends 4,093,040
- ---------------------------------------------------------
Investment for deferred compensation plan 12,568
- ---------------------------------------------------------
Other assets 30,358
- ---------------------------------------------------------
Total assets 575,001,899
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 2,424,827
- ---------------------------------------------------------
Fund shares reacquired 268,531
- ---------------------------------------------------------
Deferred compensation plan 12,568
- ---------------------------------------------------------
Accrued advisory fees 267,735
- ---------------------------------------------------------
Accrued administrative service fees 7,360
- ---------------------------------------------------------
Accrued distribution fees 407,435
- ---------------------------------------------------------
Accrued transfer agent fees 135,599
- ---------------------------------------------------------
Accrued trustees' fees 2,326
- ---------------------------------------------------------
Accrued operating expenses 204,524
- ---------------------------------------------------------
Total liabilities 3,730,905
- ---------------------------------------------------------
Net assets applicable to shares outstanding $571,270,994
- ---------------------------------------------------------
NET ASSETS:
Class A $334,188,942
- ---------------------------------------------------------
Class B $237,082,052
- ---------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 15,302,713
- ---------------------------------------------------------
Class B 10,858,135
- ---------------------------------------------------------
Class A:
Net asset value and redemption price per
share $ 21.84
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $21.84 divided
by 95.25%) $ 22.93
- ---------------------------------------------------------
Class B:
Net asset value and offering price per
share $ 21.83
- ---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $11,408,100
- --------------------------------------------------------
Dividends (net of $80,119 foreign
withholding tax) 3,218,786
- --------------------------------------------------------
Total investment income 14,626,886
- --------------------------------------------------------
EXPENSES:
Advisory fees 2,151,655
- --------------------------------------------------------
Custodian fees 87,018
- --------------------------------------------------------
Distribution fees-Class A 513,190
- --------------------------------------------------------
Distribution fees-Class B 1,496,606
- --------------------------------------------------------
Administrative service fees 72,493
- --------------------------------------------------------
Trustees' fees 7,695
- --------------------------------------------------------
Transfer agent fees-Class A 346,494
- --------------------------------------------------------
Transfer agent fees-Class B 345,863
- --------------------------------------------------------
Other 290,311
- --------------------------------------------------------
Total expenses 5,311,325
- --------------------------------------------------------
Less: Expenses paid indirectly (6,056)
- --------------------------------------------------------
Net expenses 5,305,269
- --------------------------------------------------------
Net investment income 9,321,617
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCY
TRANSACTIONS AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 10,964,707
- --------------------------------------------------------
Foreign currency transactions (48,145)
- --------------------------------------------------------
Futures contracts 1,800,020
- --------------------------------------------------------
12,716,582
- --------------------------------------------------------
Unrealized appreciation (depreciation) of:
Investment securities 41,945,636
- --------------------------------------------------------
Foreign currencies 35,607
- --------------------------------------------------------
Futures contracts (15,850)
- --------------------------------------------------------
41,965,393
- --------------------------------------------------------
Net gain from investment securities,
foreign currencies and futures contracts 54,681,975
- --------------------------------------------------------
Net increase in net assets resulting from
operations $64,003,592
========================================================
</TABLE>
See Notes to Financial Statements.
FS-12
<PAGE> 271
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 9,321,617 $ 2,293,374
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currency transactions and futures contracts 12,716,582 3,819,964
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 41,965,393 20,162,424
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 64,003,592 26,275,762
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (6,033,635) (1,509,535)
- -----------------------------------------------------------------------------------------
Class B (3,100,998) (772,889)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (6,912,890) --
- -----------------------------------------------------------------------------------------
Class B (4,888,186) --
- -----------------------------------------------------------------------------------------
Net equalization credits 7,707,610 1,435,649
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 212,483,093 39,846,397
- -----------------------------------------------------------------------------------------
Class B 143,138,052 41,781,556
- -----------------------------------------------------------------------------------------
Net increase in net assets 406,396,638 107,056,940
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 164,874,356 57,817,416
- -----------------------------------------------------------------------------------------
End of period $571,270,994 $164,874,356
- -----------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $496,452,940 $140,831,795
- -----------------------------------------------------------------------------------------
Undistributed net investment income 10,459,581 2,564,987
- -----------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currency transactions and futures
contracts 3,118,901 2,203,395
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and futures contracts 61,239,572 19,274,179
- -----------------------------------------------------------------------------------------
$571,270,994 $164,874,356
=========================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 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.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales
FS-13
<PAGE> 272
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 or absent a last sales price, at the mean
between the closing bid and asked prices. If a mean is not available, as is
the case in some foreign markets, the closing bid will be used absent a last
sales price. Debt obligations (including convertible bonds) 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
either are not readily available or are questionable 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. 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. 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 -- It is the policy of the Fund not to amortize market 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.
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.
G. 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.
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 currency 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 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.
I. 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 Fund's portfolio being hedged.
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.
FS-14
<PAGE> 273
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 year ended December 31, 1996, AIM
was reimbursed $72,493 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 1996, AFS
was paid $385,524 for such services.
The Fund received reductions in transfer agency fees payable to AFS of $5,514
from dividends received on balances in cash management bank accounts. In
addition, pricing service expenses in the amount of $542 were paid through
directed brokerage commissions paid by the Fund. The above arrangements resulted
in a reduction in the Fund's total expenses of $6,056 during the year ended
December 31, 1996.
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 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. AIM Distributors may, from time to time, assign,
transfer or pledge to one or more assignees, its rights to all or a designated
portion of (a) compensation received by AIM Distributors from the Fund pursuant
to the Class B Plan (but not AIM Distributors' duties and obligations pursuant
to the Class B Plan) and (b) contingent deferred sales charges payable to AIM
Distributors related to the Class B shares. During the year ended December 31,
1996, the Class A shares and the Class B shares paid AIM Distributors $513,190
and $1,496,606, respectively, as compensation under the Plans.
AIM Distributors received commissions of $611,603 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. 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, 1996,
AIM Distributors received $50,028 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 year ended December 31, 1996, the Fund paid legal fees of $3,320
for services rendered by Kramer, Levin, Naftalis & 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 AIM. 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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 19, 1996, the Fund was
limited to borrowing $1,100,000. During the year ended December 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.08% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-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, 1996 was
$573,899,491 and $232,187,528, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $67,286,915
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (6,085,031)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $61,201,884
=========================================================
Cost of investments for tax purposes is $498,258,078.
</TABLE>
FS-15
<PAGE> 274
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ---------------------------
SHARES VALUE SHARES VALUE
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 11,936,333 $241,163,392 2,972,256 $ 52,107,491
- ---------------------------------------------------------------------------------------------------------------------------
Class B 7,608,028 153,665,571 2,739,743 47,601,025
- ---------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 571,269 11,884,617 76,297 1,334,447
- ---------------------------------------------------------------------------------------------------------------------------
Class B 347,628 7,257,995 38,541 678,897
- ---------------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (2,004,527) (40,564,916) (819,551) (13,595,541)
- ---------------------------------------------------------------------------------------------------------------------------
Class B (876,383) (17,785,514) (384,332) (6,498,366)
- ---------------------------------------------------------------------------------------------------------------------------
17,582,348 $355,621,145 4,622,954 $ 81,627,953
===========================================================================================================================
</TABLE>
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the three-year period ended December 31, 1996, the four
months ended December 31, 1993 and each of the years in the six-year period
ended August 31, 1993 and for a Class B share outstanding during each of the
years in the three-year period ended December 31, 1996 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,
---------------------------------------------- -----------------------------------------
1996 1995 1994 1993 1993 1992 1991 1990
CLASS A: -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 19.22 $ 14.62 $ 16.10 $ 15.97 $ 12.77 $ 12.04 $ 9.73 $ 10.67
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.66 0.49 0.44 0.10 0.32 0.29 0.28 0.32
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) 2.99 4.57 (1.31) 0.18 3.18 0.74 2.33 (0.91)
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations 3.65 5.06 (0.87) 0.28 3.50 1.03 2.61 (0.59)
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.55) (0.46) (0.39) (0.15) (0.30) (0.30) (0.30) (0.35)
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions from net realized
capital gains (0.48) -- (0.22) -- -- -- -- --
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions (1.03) (0.46) (0.61) (0.15) (0.30) (0.30) (0.30) (0.35)
- ----------------------------------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 21.84 $ 19.22 $ 14.62 $ 16.10 $ 15.97 $ 12.77 $ 12.04 $ 9.73
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Total return(a) 19.25% 34.97% (5.44)% 1.76% 27.75% 8.66% 27.41% (5.67)%
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $334,189 $ 92,241 $ 37,572 $ 23,520 $ 19,497 $ 11,796 $ 11,750 $ 10,965
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net
assets 1.15%(b)(c) 1.43%(d) 1.25%(e) 2.17%(f) 2.07% 2.12% 2.39% 2.15%
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to
average net assets 2.97%(b) 2.81%(d) 3.07%(e) 1.81%(f) 2.23% 2.32% 2.74% 3.18%
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 71.90% 76.63% 76.18% 233.10% 154.47% 165.53% 208.11% 307.08%
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Average broker commission rate(g) $ 0.0558 N/A N/A N/A N/A N/A N/A N/A
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Borrowings for the period:
Amount of debt outstanding at end
of period -- -- -- -- -- -- -- --
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Average amount of debt outstanding
during the period(h) -- -- -- -- -- -- -- $138,181
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Average number of shares
outstanding during the period
(000s omitted)(h) 9,778 3,173 2,061 1,305 1,046 939 1,051 1,238
=================================== ======== ======== ======== ======== ======== ======== ======== ========
Average amount of debt per share
during the period -- -- -- -- -- -- -- $ 0.110
=================================== ======== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
AUGUST 31,
-------------------
1989 1988
CLASS A: -------- --------
<S> <C> <C>
Net asset value, beginning of
period $ 9.08 $ 11.89
- ----------------------------------- -------- --------
Income from investment operations:
Net investment income 0.39 0.42
- ----------------------------------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) 1.63 (2.65)
- ----------------------------------- -------- --------
Total from investment operations 2.02 (2.23)
- ----------------------------------- -------- --------
Less distributions:
Dividends from net investment
income (0.43) (0.50)
- ----------------------------------- -------- --------
Distributions from net realized
capital gains -- (0.08)
- ----------------------------------- -------- --------
Total distributions (0.43) (0.58)
- ----------------------------------- -------- --------
Net asset value, end of period $ 10.67 $ 9.08
=================================== ======== ========
Total return(a) 22.96% (18.57)%
=================================== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $ 14,405 $ 16,789
=================================== ======== ========
Ratio of expenses to average net
assets 1.94% 2.31%
=================================== ======== ========
Ratio of net investment income to
average net assets 3.99% 4.50%
=================================== ======== ========
Portfolio turnover rate 149.42% 117.73%
=================================== ======== ========
Average broker commission rate(g) N/A N/A
=================================== ======== ========
Borrowings for the period:
Amount of debt outstanding at end
of period $260,000 --
=================================== ======== ========
Average amount of debt outstanding
during the period(h) $ 83,195 --
=================================== ======== ========
Average number of shares
outstanding during the period
(000s omitted)(h) 1,589 2,131
=================================== ======== ========
Average amount of debt per share
during the period $ 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 $205,275,849.
(c) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(d) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 1.46% and 2.78%,
respectively.
(e) 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.
(f) Annualized.
(g) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
(h) Averages computed on a daily basis.
FS-16
<PAGE> 275
NOTE 7-FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993
CLASS B: -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 19.22 $ 14.62 $ 16.11 $ 16.69
- ------------------------------------------------------------ -------- -------- -------- --------
Income from investment operations:
Net investment income 0.48 0.31 0.31 0.04
- ------------------------------------------------------------ -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 2.99 4.61 (1.31) (0.58)
- ------------------------------------------------------------ -------- -------- -------- --------
Total from investment operations 3.47 4.92 (1.00) (0.54)
- ------------------------------------------------------------ -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.38) (0.32) (0.27) (0.04)
- ------------------------------------------------------------ -------- -------- -------- --------
Distributions from net realized capital gains (0.48) -- (0.22) --
- ------------------------------------------------------------ -------- -------- -------- --------
Total distributions (0.86) (0.32) (0.49) (0.04)
- ------------------------------------------------------------ -------- -------- -------- --------
Net asset value, end of period $ 21.83 $ 19.22 $ 14.62 $ 16.11
============================================================ ======== ======== ======== ========
Total return(a) 18.28% 33.93% (6.23)% (3.23)%
============================================================ ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $237,082 $ 72,634 $ 20,245 $ 2,754
============================================================ ======== ======== ======== ========
Ratio of expenses to average net assets 1.97%(b)(c) 2.21%(d) 1.98%(e) 2.83%(f)
============================================================ ======== ======== ======== ========
Ratio of net investment income to average net assets 2.15%(b) 2.03%(d) 2.34%(e) 1.15%(f)
============================================================ ======== ======== ======== ========
Portfolio turnover rate 71.90% 76.63% 76.18% 233.10%
============================================================ ======== ======== ======== ========
Average broker commission rate(g) $ 0.0558 N/A N/A N/A
============================================================ ======== ======== ======== ========
</TABLE>
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods less than one year.
(b) Ratios are based on average net assets of $149,660,567.
(c) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(d) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 2.23% and 2.01%,
respectively.
(e) After waiver of advisory fees. Ratios of expenses and net investment income
to average net assets prior to waiver of advisory fees are 2.45% and 1.87%,
respectively.
(f) Annualized.
(g) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
NOTE 8 - SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
FS-17
<PAGE> 276
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Global Utilities Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Global Utilities Fund (a portfolio of
AIM Funds Group), including the schedule of investments, as
of December 31, 1996, and the related statement of
operations for the year then ended, the statement of
changes in 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 four-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, 1996, 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 Global
Utilities Fund as of December 31, 1996, 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 four-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
FS-18
<PAGE> 277
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-51.90%
ADVERTISING/BROADCASTING-0.33%
Univision Communications, Inc.(a) 21,800 $ 806,600
- --------------------------------------------------------------
COMPUTER MAINFRAMES-0.21%
ViaSat, Inc.(a) 57,000 513,000
- --------------------------------------------------------------
COMPUTER NETWORKING-0.88%
Ascend Communications, Inc.(a) 34,600 2,149,525
- --------------------------------------------------------------
COMPUTER PERIPHERALS-0.25%
U.S. Robotics Corp.(a) 8,500 612,000
- --------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES-0.40%
Puma Technology, Inc.(a) 34,700 598,575
- --------------------------------------------------------------
White Pine Software, Inc.(a) 50,000 362,500
- --------------------------------------------------------------
961,075
- --------------------------------------------------------------
ELECTRIC POWER-18.36%
AES Corp.(a) 17,500 813,750
- --------------------------------------------------------------
Allegheny Power System, Inc. 141,500 4,298,063
- --------------------------------------------------------------
Carolina Power & Light Co. 70,000 2,555,000
- --------------------------------------------------------------
Destec Energy, Inc.(a) 50,000 781,250
- --------------------------------------------------------------
DQE, Inc. 110,000 3,190,000
- --------------------------------------------------------------
Edison International 67,000 1,331,625
- --------------------------------------------------------------
FPL Group, Inc. 94,700 4,356,200
- --------------------------------------------------------------
GPU, Inc. 107,500 3,614,687
- --------------------------------------------------------------
Houston Industries, Inc. 94,400 2,135,800
- --------------------------------------------------------------
Illinova Corp. 95,500 2,626,250
- --------------------------------------------------------------
NIPSCO Industries, Inc. 100,000 3,962,500
- --------------------------------------------------------------
Pinnacle West Capital Corp. 200,000 6,350,000
- --------------------------------------------------------------
Sierra Pacific Resources 45,500 1,308,125
- --------------------------------------------------------------
Southern Co. 185,000 4,185,625
- --------------------------------------------------------------
Texas Utilities Co. 78,300 3,190,725
- --------------------------------------------------------------
44,699,600
- --------------------------------------------------------------
ENERGY (ALTERNATE SOURCES)-1.62%
Calenergy, Inc.(a) 48,888 1,643,859
- --------------------------------------------------------------
Teco Energy, Inc. 95,000 2,291,875
- --------------------------------------------------------------
3,935,734
- --------------------------------------------------------------
GAS DISTRIBUTION-1.55%
KN Energy, Inc. 31,600 1,240,300
- --------------------------------------------------------------
Public Service Co. of Colorado 65,200 2,534,650
- --------------------------------------------------------------
3,774,950
- --------------------------------------------------------------
NATURAL GAS PIPELINE-10.82%
Columbia Gas System, Inc. 30,700 1,953,287
- --------------------------------------------------------------
El Paso Natural Gas Co. 139,500 7,044,750
- --------------------------------------------------------------
Enron Corp. 94,500 4,075,312
- --------------------------------------------------------------
PanEnergy Corp. 76,200 3,429,000
- --------------------------------------------------------------
Sonat, Inc. 82,300 4,238,450
- --------------------------------------------------------------
Williams Companies, Inc. (The) 149,700 5,613,750
- --------------------------------------------------------------
26,354,549
- --------------------------------------------------------------
OIL & GAS (SERVICES)-0.22%
TPC Corp.(a) 60,000 540,000
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE-0.57%
Cali Realty Corp. 45,000 $ 1,389,375
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS-2.30%
Crescent Real Estate Equities, Inc. 15,500 817,625
- --------------------------------------------------------------
Meditrust Corp. 24,400 976,000
- --------------------------------------------------------------
OMEGA Healthcare Investors, Inc. 32,000 1,064,000
- --------------------------------------------------------------
Patriot American Hospitality, Inc. 30,400 1,311,000
- --------------------------------------------------------------
Public Storage, Inc. 27,000 837,000
- --------------------------------------------------------------
Starwood Lodging Trust 11,000 606,375
- --------------------------------------------------------------
5,612,000
- --------------------------------------------------------------
TELECOMMUNICATIONS-4.70%
ADC Telecommunications, Inc.(a) 56,600 1,761,675
- --------------------------------------------------------------
AT&T Corp. 27,000 1,174,500
- --------------------------------------------------------------
CellNet Data Systems Inc.(a) 42,000 614,250
- --------------------------------------------------------------
Frontier Corp. 80,000 1,810,000
- --------------------------------------------------------------
Lucent Technologies, Inc. 29,000 1,341,250
- --------------------------------------------------------------
McLeod, Inc.-Class A(a) 40,000 1,020,000
- --------------------------------------------------------------
MFS Communications Company, Inc.(a) 1,343 73,193
- --------------------------------------------------------------
Superior Telecom Inc.(a) 45,000 916,875
- --------------------------------------------------------------
Teleport Communications Group
Inc.-Class A(a) 25,000 762,500
- --------------------------------------------------------------
360 Communications Co.(a) 26,000 601,250
- --------------------------------------------------------------
WorldCom, Inc.(a) 52,534 1,369,167
- --------------------------------------------------------------
11,444,660
- --------------------------------------------------------------
TELEPHONE-9.69%
Ameritech Corp. 75,200 4,559,000
- --------------------------------------------------------------
BellSouth Corp. 102,600 4,142,475
- --------------------------------------------------------------
Century Telephone Enterprises 66,800 2,062,450
- --------------------------------------------------------------
Cincinnati Bell, Inc. 117,000 7,210,125
- --------------------------------------------------------------
GTE Corp. 40,000 1,820,000
- --------------------------------------------------------------
SBC Communications, Inc. 73,500 3,803,625
- --------------------------------------------------------------
23,597,675
- --------------------------------------------------------------
Total Domestic Common Stocks 126,390,743
- --------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS-2.82%
ADVERTISING/BROADCASTING-0.34%
Time Warner Inc.-Series M,
10.25% Conv. PIK Pfd 806 862,913
- --------------------------------------------------------------
ELECTRIC SERVICES-0.48%
Citizens Utilities Co.-$2.50 Conv.
Pfd. 24,400 1,165,100
- --------------------------------------------------------------
GAS UTILITY-0.66%
MCN Corp.-$2.01 Conv. Pfd. PRIDES 57,000 1,574,625
- --------------------------------------------------------------
OIL & GAS (SERVICES)-0.29%
Enron Corp.-$1.36 Conv. Pfd. 30,000 720,000
- --------------------------------------------------------------
TELECOMMUNICATIONS-0.88%
MFS Communications Company,
Inc.-$2.68 Conv. Pfd. 23,500 2,144,375
- --------------------------------------------------------------
TELEPHONE-0.17%
Salomon Inc.-$3.48 Conv. Pfd. 6,700 403,675
- --------------------------------------------------------------
Total Domestic Convertible
Preferred Stocks 6,870,688
- --------------------------------------------------------------
</TABLE>
FS-19
<PAGE> 278
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-26.98%
ARGENTINA-0.79%
Central Costanera S.A.-Class B
(Electric Power) 475,200 $ 1,454,403
- --------------------------------------------------------------
Telefonica de Argentina S.A.-ADR
(Telephone) 18,300 473,513
- --------------------------------------------------------------
1,927,916
- --------------------------------------------------------------
AUSTRALIA-0.19%
News Corp. Ltd.-$5.00 Conv. Pfd.(b)
(Advertising/Broadcasting)
(Acquired 11/04/96; Cost $500,000) 5,000 471,875
- --------------------------------------------------------------
AUSTRIA-0.39%
Oesterreichische
Elektrizitaetswirtschafts A.G.-
Class A (Electric Power) 12,500 935,610
- --------------------------------------------------------------
BRAZIL-1.03%
Eletricidade de Sao Paulo S.A.(a)
(Electric Power) 3,990 589,419
- --------------------------------------------------------------
Telecomunicacoes Brasileiras S.A.
Telebras-ADR (Telecommunications) 25,000 1,912,500
- --------------------------------------------------------------
2,501,919
- --------------------------------------------------------------
CANADA-1.43%
Manitoba Telephone System(a)
(Telecommunications) 95,000 901,921
- --------------------------------------------------------------
TELUS Corp. (Telecommunications) 95,000 1,380,632
- --------------------------------------------------------------
Westcoast Energy, Inc. (Natural Gas
Pipeline) 71,900 1,204,325
- --------------------------------------------------------------
3,486,878
- --------------------------------------------------------------
CHILE-1.54%
Cia. de Telecomunicaciones de Chile
S.A.-ADR (Telecommunications) 19,000 1,921,375
- --------------------------------------------------------------
Empresa Nacional de Electricidad
S.A.-ADR (Electric Power) 29,800 461,900
- --------------------------------------------------------------
Enersis S.A.-ADR (Electric Power) 49,600 1,376,400
- --------------------------------------------------------------
3,759,675
- --------------------------------------------------------------
GERMANY-1.66%
Deutsche Telekom-ADR(a) (Telephone) 66,500 1,354,938
- --------------------------------------------------------------
VEBA A.G. (Electric Power) 46,500 2,689,433
- --------------------------------------------------------------
4,044,371
- --------------------------------------------------------------
HONG KONG-0.24%
Asia Satellite Telecommunications
Holdings Ltd.- ADR(a)
(Telecommunications) 24,800 579,700
- --------------------------------------------------------------
INDONESIA-0.31%
PT Indosat-ADR (Telecommunications) 27,700 758,288
- --------------------------------------------------------------
ISRAEL-0.78%
ECI Telecommunications Ltd. Designs
(Computer Networking) 33,200 705,500
- --------------------------------------------------------------
Tadiran Telecommunications Ltd.
(Telecommunications) 40,000 895,000
- --------------------------------------------------------------
TTI Team Telecom International
Ltd.(a) (Telecommunications) 48,500 303,125
- --------------------------------------------------------------
1,903,625
- --------------------------------------------------------------
ITALY-1.37%
Telecom Italia Mobile S.p.A.
(Telecommunications) 578,300 1,465,764
- --------------------------------------------------------------
Telecom Italia S.p.A.
(Telecommunications) 717,000 1,862,215
- --------------------------------------------------------------
3,327,979
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
JAPAN-0.27%
Nippon Telegraph & Telephone
(Telecommunications) 85 $ 644,418
- --------------------------------------------------------------
NETHERLANDS-0.84%
Royal PTT Nederland N.V.-ADR
(Telephone) 54,170 2,051,689
- --------------------------------------------------------------
NEW ZEALAND-1.42%
Telecom Corp. of New Zealand
Ltd.-ADR (Telecommunications) 42,800 3,466,800
- --------------------------------------------------------------
PERU-0.49%
Luz del Sur S.A.(a) (Electric Power) 32,000 578,000
- --------------------------------------------------------------
Telefonica del Peru S.A.-ADR(b)
(Telecommunications) 33,000 622,875
- --------------------------------------------------------------
1,200,875
- --------------------------------------------------------------
PORTUGAL-0.88%
Portugal Telecom S.A.-ADR
(Telecommunications) 65,700 1,856,025
- --------------------------------------------------------------
Telecel-Comunicacaoes Pessoais,
S.A.(a) (Telecommunications) 4,600 286,350
- --------------------------------------------------------------
2,142,375
- --------------------------------------------------------------
SOUTH KOREA-0.36%
Korea Electric Power Corp.-ADR
(Electric Power) 42,600 873,300
- --------------------------------------------------------------
SPAIN-3.13%
Autopistas Concesionaria Espanola
S.A. (Engineering & Construction) 77,000 1,061,660
- --------------------------------------------------------------
Empresa Nacional de Electricidad
S.A.-ADR (Electric Power) 20,000 1,400,000
- --------------------------------------------------------------
Iberdrola S.A. (Electric Power) 233,000 3,302,292
- --------------------------------------------------------------
Telefonica de Espana-ADR
(Telecommunications) 26,800 1,855,900
- --------------------------------------------------------------
7,619,852
- --------------------------------------------------------------
SWEDEN-0.49%
Telefonaktiebolaget LM Ericsson-ADR
(Telecommunications) 39,500 1,192,406
- --------------------------------------------------------------
UNITED KINGDOM-7.97%
British Sky Broadcasting Group
PLC-ADR (Advertising/Broadcasting) 10,000 525,000
- --------------------------------------------------------------
Hyder PLC (Water Supply) 53,955 687,263
- --------------------------------------------------------------
London Electricity PLC (Electric
Power) 137,057 1,597,863
- --------------------------------------------------------------
National Grid Group PLC (Electric
Power) 102,537 343,430
- --------------------------------------------------------------
National Power PLC (Electric Power) 175,000 1,466,078
- --------------------------------------------------------------
National Power PLC-ADR (Electric
Power) 40,000 1,355,000
- --------------------------------------------------------------
Nynex CableComms Group-ADR(a)
(Telecommunications) 37,500 679,688
- --------------------------------------------------------------
PowerGen PLC (Electrical Power) 209,500 2,060,185
- --------------------------------------------------------------
PowerGen PLC-ADR (Electric Power) 40,900 1,615,550
- --------------------------------------------------------------
Scottish Power PLC (Electrical
Power) 201,550 1,218,899
- --------------------------------------------------------------
Southern Electric PLC(a) (Electric
Power) 67,200 916,416
- --------------------------------------------------------------
United Utilities PLC (Water Supply) 197,100 2,096,952
- --------------------------------------------------------------
Wessex Water PLC (Water Supply) 169,750 1,081,840
- --------------------------------------------------------------
Yorkshire Electricity Group PLC
(Electric Power) 144,941 1,998,929
- --------------------------------------------------------------
Yorkshire Water PLC (Water Supply) 145,800 1,760,990
- --------------------------------------------------------------
19,404,083
- --------------------------------------------------------------
</TABLE>
FS-20
<PAGE> 279
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
VENEZUELA-1.40%
Cia. Anonima Nacional Telefonos de
Venezuela(a) (Telephone) 121,400 $ 3,414,375
- --------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests 65,708,009
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
DOMESTIC CONVERTIBLE BONDS-1.00%
CABLE TELEVISION-0.57%
International Cabletel Inc.,
Conv. Sub. Notes, 7.00%, 06/15/08 $1,500,000 1,376,250
- --------------------------------------------------------------
SEMICONDUCTORS-0.43%
Analog Devices,
Conv. Sub. Notes, 3.50%, 12/01/00 750,000 1,047,660
- --------------------------------------------------------------
Total Domestic Convertible Bonds 2,423,910
- --------------------------------------------------------------
DOMESTIC NON-CONVERTIBLE BONDS-8.51%
ADVERTISING/BROADCASTING-1.28%
Comcast Corp.,
Sr. Sub. Deb., 9.50%, 01/15/08 900,000 936,000
- --------------------------------------------------------------
Time Warner, Inc.,
Deb., 6.85%, 01/15/26 1,000,000 983,190
- --------------------------------------------------------------
Time Warner, Inc.,
Notes, 8.18%, 08/15/07 1,150,000 1,198,990
- --------------------------------------------------------------
3,118,180
- --------------------------------------------------------------
ELECTRIC POWER-2.10%
El Paso Electric Co.,
First Mortgage Bonds, 8.90%,
02/01/06 1,425,000 1,488,455
- --------------------------------------------------------------
Indiana Michigan Power,
Deb., 9.82%, 12/07/22 3,021,728 3,645,775
- --------------------------------------------------------------
5,134,230
- --------------------------------------------------------------
ENERGY (ALTERNATE SOURCES)-1.02%
AES Corp.,
Sr. Sub. Notes, 10.25%, 07/15/06 925,000 994,375
- --------------------------------------------------------------
California Energy Co.,
Disc. Notes, 10.25%, 01/15/04(c) 1,400,000 1,484,000
- --------------------------------------------------------------
2,478,375
- --------------------------------------------------------------
GAS DISTRIBUTION-0.42%
Ferrellgas Partners,
Sr. Notes, 9.375%, 06/15/06 1,000,000 1,021,250
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
NATURAL GAS PIPELINE-2.48%
Enron Corp.,
Sr. Sub. Deb., 6.75%, 07/01/05 $3,750,000 $ 3,712,950
- --------------------------------------------------------------
PanEnergy Corp.,
Notes, 7.875%, 08/15/04 2,205,000 2,329,384
- --------------------------------------------------------------
6,042,334
- --------------------------------------------------------------
TELECOMMUNICATIONS-1.21%
AT&T Corp.,
Sr. Notes, 7.75%, 03/01/07 1,850,000 1,961,315
- --------------------------------------------------------------
TCI Communications Inc.,
Sr. Notes, 8.00%, 08/01/05 1,000,000 980,440
- --------------------------------------------------------------
2,941,755
- --------------------------------------------------------------
Total Domestic Non-Convertible
Bonds 20,736,124
- --------------------------------------------------------------
FOREIGN NON-CONVERTIBLE BONDS-4.63%
CANADA-4.63%(d)
Bell Canada (Telecommunications),
Deb., 10.875%, 10/11/04 1,700,000 1,550,398
- --------------------------------------------------------------
Bell Canada (Telecommunications),
Deb., Series EW, 8.80%, 08/17/05 950,000 791,956
- --------------------------------------------------------------
Canadian Oil Debco Inc.
(Oil & Gas-Services), Deb.,
11.00%, 10/31/00 1,750,000 1,497,846
- --------------------------------------------------------------
Ontario Hydro (Electric Power),
Global Bonds,
9.00%, 06/24/02 2,500,000 2,097,422
- --------------------------------------------------------------
Teleglobe Canada Inc.
(Telecommunications),
Deb., 8.35%, 06/20/03 2,400,000 1,934,477
- --------------------------------------------------------------
Trans-Canada Pipelines
(Oil & Gas-Services),
Series MTN, 8.55%, 02/01/06 2,150,000 1,759,662
- --------------------------------------------------------------
Trans-Canada Pipelines
(Oil & Gas-Services),
Series Q Deb., 10.625%, 10/20/09 1,750,000 1,639,323
- --------------------------------------------------------------
Total Foreign Non-Convertible
Bonds 11,271,084
- --------------------------------------------------------------
REPURCHASE AGREEMENT-1.67%(e)
UBS Securities Inc., 7.05%,
01/02/97(f) 4,071,574 4,071,574
- --------------------------------------------------------------
TOTAL INVESTMENT SECURITIES-97.51% 237,472,132
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-2.49% 6,059,347
- --------------------------------------------------------------
NET ASSETS-100.00% $243,531,479
==============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with 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 market value of
this security at December 31, 1996 was $471,875 which represented 0.21% of
the Fund's net assets.
(c) Discounted bond at purchase. Interest rate shown represents coupon rate at
which the bond will accrue at a specified future date.
(d) Foreign denominated security. Par value and coupon are denominated in
Canadian dollars.
(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, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$550,215,417. Collateralized by $732,485,305 U.S. Government agency
obligations, 0% to 9.50% due 01/01/98 to 12/15/26.
Abbreviations:
<TABLE>
<S> <C>
ADR - American Depository Receipt PIK - Payment in Kind
Conv. - Convertible PRIDES - Preferred Redeemable Increased
Deb. - Debentures Dividend Equity Securities
MTN - Medium Term Notes Sr. - Senior
Pfd. - Preferred Sub. - Subordinated
</TABLE>
See Notes to Financial Statements.
FS-21
<PAGE> 280
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$186,366,979) $237,472,132
- ---------------------------------------------------------
Foreign currencies, at market value (cost
$296,186) 300,364
- ---------------------------------------------------------
Receivables for:
Investments sold 5,994,069
- ---------------------------------------------------------
Fund shares sold 335,450
- ---------------------------------------------------------
Dividends and interest 1,284,171
- ---------------------------------------------------------
Investment for deferred compensation plan 15,551
- ---------------------------------------------------------
Other assets 15,665
- ---------------------------------------------------------
Total assets 245,417,402
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 922,062
- ---------------------------------------------------------
Fund shares reacquired 170,722
- ---------------------------------------------------------
Dividends 288,972
- ---------------------------------------------------------
Deferred compensation 15,551
- ---------------------------------------------------------
Accrued advisory fees 118,710
- ---------------------------------------------------------
Accrued administrative service fees 7,045
- ---------------------------------------------------------
Accrued distribution fees 196,866
- ---------------------------------------------------------
Accrued trustees' fees 1,702
- ---------------------------------------------------------
Accrued transfer agent fees 64,046
- ---------------------------------------------------------
Accrued operating expenses 100,247
- ---------------------------------------------------------
Total liabilities 1,885,923
- ---------------------------------------------------------
Net assets applicable to shares outstanding $243,531,479
=========================================================
NET ASSETS:
Class A $164,001,056
=========================================================
Class B $ 79,530,423
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 10,244,650
=========================================================
Class B 4,967,904
=========================================================
Class A:
Net asset value and redemption price
per share $ 16.01
=========================================================
Offering price per share:
(Net asset value of $16.01 divided
by 94.50%) $ 16.94
=========================================================
Class B:
Net asset value and offering price
per share $ 16.01
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $490,882 foreign
withholding tax) $ 8,553,274
- ---------------------------------------------------------
Interest 2,922,874
- ---------------------------------------------------------
Total investment income 11,476,148
- ---------------------------------------------------------
EXPENSES:
Advisory fees 1,397,762
- ---------------------------------------------------------
Administrative service fees 80,256
- ---------------------------------------------------------
Custodian fees 91,811
- ---------------------------------------------------------
Trustees' fees 7,354
- ---------------------------------------------------------
Distribution fees -- Class A 409,087
- ---------------------------------------------------------
Distribution fees -- Class B 759,491
- ---------------------------------------------------------
Transfer agent fees -- Class A 334,220
- ---------------------------------------------------------
Transfer agent fees -- Class B 185,241
- ---------------------------------------------------------
Other 147,813
- ---------------------------------------------------------
Total expenses 3,413,035
- ---------------------------------------------------------
Less: Expenses paid indirectly (3,909)
- ---------------------------------------------------------
Net expenses 3,409,126
- ---------------------------------------------------------
Net investment income 8,067,022
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain from:
Investment securities 9,910,387
- ---------------------------------------------------------
Foreign currency transactions 31,633
- ---------------------------------------------------------
9,942,020
- ---------------------------------------------------------
Unrealized appreciation of:
Investment securities 12,235,592
- ---------------------------------------------------------
Foreign currencies 12,071
- ---------------------------------------------------------
12,247,663
- ---------------------------------------------------------
Net gain from investment securities and
foreign currencies 22,189,683
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $30,256,705
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-22
<PAGE> 281
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 8,067,022 $ 8,470,013
- ------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities and
foreign currencies 9,942,020 937,755
- ------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and
foreign currencies 12,247,663 42,939,910
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 30,256,705 52,347,678
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (6,101,120) (6,295,577)
- ------------------------------------------------------------------------------------------
Class B (2,294,587) (1,690,557)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A (21,359,001) (12,765,899)
- ------------------------------------------------------------------------------------------
Class B 1,711,797 16,638,939
- ------------------------------------------------------------------------------------------
Net increase in net assets 2,213,794 48,234,584
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 241,317,685 193,083,101
- ------------------------------------------------------------------------------------------
End of period $243,531,479 $241,317,685
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $201,870,971 $221,523,475
- ------------------------------------------------------------------------------------------
Undistributed net investment income 112,764 404,516
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities and foreign currencies (9,567,151) (19,477,538)
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 51,114,895 38,867,232
- ------------------------------------------------------------------------------------------
$243,531,479 $241,317,685
==========================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Global 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 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.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations -- Securities 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,
the security is valued at the mean between the closing bid and asked prices
on that day. If a mean is not available, as is the case in some foreign
markets, the closing bid will be used absent a last sales price. 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 or absent a
last sales price, at the closing bid and asked
FS-23
<PAGE> 282
prices. Debt securities (including convertible bonds) 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
either are not readily available or are questionable 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. 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 the
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. 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, 1996, undistributed net investment income
was increased by $36,933, paid-in capital reduced by $5,300 and undistributed
net realized gains increased by $31,633 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. 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.
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 currency 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 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.
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 $9,488,489 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized, in
the year 2003. 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 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.
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 year ended December 31, 1996, AIM
was reimbursed $80,256 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 1996, AFS
was paid $325,229 for such services.
The Fund received reductions in transfer agency fees payable to AFS of $3,649
from dividends received on balances in cash management bank accounts. In
addition, pricing service expenses in the amount of $260 were paid through
directed brokerage commissions paid by the Fund. The above arrangements resulted
in a reduction in the Fund's total expenses of $3,909 during the year ended
December 31, 1996.
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,
FS-24
<PAGE> 283
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 provides for 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. AIM Distributors may,
from time to time, assign, transfer or pledge to one or more assignees, its
rights to all or a designated portion of (a) compensation received by AIM
Distributors from the Fund pursuant to the Class B Plan (but not AIM
Distributors' duties and obligations pursuant to the Class B Plan) and (b) any
contingent deferred sales charges payable to AIM Distributors related to the
Class B shares. During the year ended December 31, 1996, the Class A shares and
the Class B shares paid AIM Distributors $409,087 and $759,491, respectively, as
compensation under the Plans.
AIM Distributors received commissions of $95,058 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. 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, 1996,
AIM Distributors received $145,184 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 year ended December 31, 1996, the Fund paid legal fees of $3,406
for services rendered by Kramer, Levin, Naftalis & 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 AIM. 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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 19, 1996, the Fund was
limited to borrowing $3,600,000. During the year ended December 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.08% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-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, 1996 was
$112,908,079 and $136,028,500, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $52,730,707
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,747,178)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $50,983,529
=========================================================
</TABLE>
Cost of investments for tax purposes is $186,488,603.
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
SHARES VALUE SHARES VALUE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 2,473,508 $36,689,173 3,040,993 $39,908,471
- ------------------------------------------------------------------------
Class B 1,424,455 21,097,067 2,223,714 29,286,592
- ------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 353,355 5,316,653 417,851 5,505,279
- ------------------------------------------------------------------------
Class B 127,578 1,926,340 106,557 1,413,598
- ------------------------------------------------------------------------
Reacquired:
Class A (4,274,871) (63,364,827) (4,470,353) (58,179,649)
- ------------------------------------------------------------------------
Class B (1,425,633) (21,311,610) (1,083,006) (14,061,251)
- ------------------------------------------------------------------------
(1,321,608) $(19,647,204) 235,756 $ 3,873,040
========================================================================
</TABLE>
FS-25
<PAGE> 284
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the eight-year period ended December 31, 1996 and the
period January 18, 1988 (date operations commenced) through December 31, 1988
and for a Class B share outstanding during each of the years in the three-year
period ended December 31, 1996 and the period September 1, 1993 (date sales
commenced) through December 31, 1993.
<TABLE>
<CAPTION>
CLASS A SHARES
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992(a) 1991 1990 1989
-------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 14.59 $ 11.85 $ 14.09 $ 13.31 $ 13.75 $ 12.45 $ 13.73 $ 10.99
- ----------------------- -------- -------- -------- -------- -------- ------- ------- -------
Income from investment
operations:
Net investment income 0.55 0.55 0.59 0.60 0.67 0.70 0.66 0.77
- ----------------------- -------- -------- -------- -------- -------- ------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 1.43 2.71 (2.20) 1.02 0.36 2.12 (1.10) 3.06
- ----------------------- -------- -------- -------- -------- -------- ------- ------- -------
Total from
investment
operations 1.98 3.26 (1.61) 1.62 1.03 2.82 (0.44) 3.83
- ----------------------- -------- -------- -------- -------- -------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.56) (0.52) (0.60) (0.61) (0.68) (0.66) (0.70) (0.69)
- ----------------------- -------- -------- -------- -------- -------- ------- ------- -------
Distributions from net
realized capital
gains -- -- -- (0.23) (0.79) (0.86) (0.14) (0.40)
- ----------------------- -------- -------- -------- -------- -------- ------- ------- -------
Returns of capital -- -- (0.03) -- -- -- -- --
- ----------------------- -------- -------- -------- -------- -------- ------- ------- -------
Total distributions (0.56) (0.52) (0.63) (0.84) (1.47) (1.52) (0.84) (1.09)
- ----------------------- -------- -------- -------- -------- -------- ------- ------- -------
Net asset value, end of
period $ 16.01 $ 14.59 $ 11.85 $ 14.09 $ 13.31 $ 13.75 $ 12.45 $ 13.73
======================= ======== ======== ======== ======== ======== ======= ======= =======
Total return(b) 13.88% 28.07% (11.57)% 12.32% 7.92% 23.65% (2.98)% 36.11%
======================= ======== ======== ======== ======== ======== ======= ======= =======
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $164,001 $170,624 $150,515 $200,016 $111,771 $91,939 $69,541 $58,307
======================= ======== ======== ======== ======== ======== ======= ======= =======
Ratio of expenses to
average net assets 1.17%(c)(d) 1.21% 1.18% 1.16% 1.17% 1.23% 1.21%(e) 1.05%(e)
======================= ======== ======== ======== ======== ======== ======= ======= =======
Ratio of net investment
income to average net
assets 3.62%(c) 4.20% 4.67% 4.21% 4.96% 5.36% 5.21%(f) 6.13%(f)
======================= ======== ======== ======== ======== ======== ======= ======= =======
Portfolio turnover rate 48% 88% 101% 76% 148% 169% 123% 115%
======================= ======== ======== ======== ======== ======== ======= ======= =======
Average broker
commission rate(h) $0.0460 N/A N/A N/A N/A N/A N/A N/A
======================= ======== ======== ======== ======== ======== ======= ======= =======
<CAPTION>
CLASS A CLASS B
SHARES SHARES
------- ----------------------------------------------------
1988 1996 1995 1994 1993
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.00 $ 14.60 $ 11.84 $ 14.08 $ 15.30
- ----------------------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.82 0.42 0.44 0.47 0.17
- ----------------------- ------- ------- ------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 0.83 1.44 2.73 (2.19) (0.98)
- ----------------------- ------- ------- ------- ------- -------
Total from
investment
operations 1.65 1.86 3.17 (1.72) (0.81)
- ----------------------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.66) (0.45) (0.41) (0.49) (0.17)
- ----------------------- ------- ------- ------- ------- -------
Distributions from net
realized capital
gains -- -- -- -- (0.24)
- ----------------------- ------- ------- ------- ------- -------
Returns of capital -- -- -- (0.03) --
- ----------------------- ------- ------- ------- ------- -------
Total distributions (0.66) (0.45) (0.41) (0.52) (0.41)
- ----------------------- ------- ------- ------- ------- -------
Net asset value, end of
period $ 10.99 $ 16.01 $ 14.60 $ 11.84 $ 14.08
======================= ======= ======= ======= ======= =======
Total return(b) 17.03% 12.98% 27.16% (12.35)% (5.32)%
======================= ======= ======= ======= ======= =======
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $20,104 $79,530 $70,693 $42,568 $23,892
======================= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets 1.22%(e)(g) 1.96%(c)(d) 1.97% 2.07% 1.99%(g)
======================= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets 7.63%(f)(g) 2.83%(c) 3.44% 3.78% 3.38%(g)
======================= ======= ======= ======= ======= =======
Portfolio turnover rate 87% 48% 88% 101% 76%
======================= ======= ======= ======= ======= =======
Average broker
commission rate(h) N/A $0.0460 N/A N/A N/A
======================= ======= ======= ======= ======= =======
</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 $163,634,721.
Ratios for Class B are based on average daily net assets of $75,949,144.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) 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.
(f) 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.
(g) Annualized.
(h) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
NOTE 8-SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
FS-26
<PAGE> 285
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, 1996, and the related statement of operations
for the year then ended, the statement of changes in 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 four-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, 1996, 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 Growth
Fund as of December 31, 1996, 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 four-year
period then ended, in conformity with generally accepted
accounting principles.
Houston, Texas KPMG Peat Marwick LLP
February 7, 1997
FS-27
<PAGE> 286
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-77.00%
ADVERTISING/BROADCASTING-0.72%
American Radio Systems Corp.(a) 8,000 $ 218,000
- --------------------------------------------------------------
Catalina Marketing Corp.(a) 2,000 110,250
- --------------------------------------------------------------
Chancellor Corp.-Class A(a) 10,000 237,500
- --------------------------------------------------------------
Clear Channel Communications, Inc.(a) 30,400 1,098,200
- --------------------------------------------------------------
Interpublic Group of Cos., Inc. 25,000 1,187,500
- --------------------------------------------------------------
Jacor Communications, Inc.(a) 20,000 547,500
- --------------------------------------------------------------
Paxson Communications Corp.(a) 10,000 78,750
- --------------------------------------------------------------
True North Communications, Inc. 7,500 164,063
- --------------------------------------------------------------
3,641,763
- --------------------------------------------------------------
AEROSPACE/DEFENSE-0.40%
Gulfstream Aerospace Corp.(a) 40,000 970,000
- --------------------------------------------------------------
United Technologies Corp. 16,000 1,056,000
- --------------------------------------------------------------
2,026,000
- --------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS & TIRES-0.14%
Mark IV Industries, Inc. 31,500 712,687
- --------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-0.19%
Chrysler Corp. 30,000 990,000
- --------------------------------------------------------------
BANKING-0.16%
Bank of Boston Corp. 12,500 803,125
- --------------------------------------------------------------
BANKING (MONEY CENTER)-0.21%
Citicorp 10,500 1,081,500
- --------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-0.18%
PepsiCo, Inc. 32,000 936,000
- --------------------------------------------------------------
BIOTECHNOLOGY-0.56%
AMGEN, Inc.(a) 30,300 1,647,561
- --------------------------------------------------------------
Guidant Corp. 21,000 1,197,000
- --------------------------------------------------------------
2,844,561
- --------------------------------------------------------------
BUSINESS SERVICES-1.47%
AccuStaff, Inc.(a) 54,792 1,157,481
- --------------------------------------------------------------
APAC Teleservices, Inc.(a) 8,000 307,000
- --------------------------------------------------------------
Cognizant Corp. 80,000 2,640,000
- --------------------------------------------------------------
Corrections Corp. of America(a) 2,200 67,375
- --------------------------------------------------------------
CUC International, Inc.(a) 45,750 1,086,562
- --------------------------------------------------------------
Diebold, Inc. 12,200 767,075
- --------------------------------------------------------------
Equifax, Inc. 26,000 796,250
- --------------------------------------------------------------
Olsten Corp. 24,750 374,344
- --------------------------------------------------------------
Paychex, Inc. 5,000 257,187
- --------------------------------------------------------------
7,453,274
- --------------------------------------------------------------
CHEMICALS-0.10%
Monsanto Co. 13,300 517,038
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.30%
Airgas, Inc.(a) 34,400 756,800
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CHEMICALS (SPECIALTY)-(CONTINUED)
IMC Global, Inc. 20,000 $ 782,500
- --------------------------------------------------------------
1,539,300
- --------------------------------------------------------------
COMPUTER MAINFRAMES-0.53%
International Business Machines
Corp. 18,000 2,718,000
- --------------------------------------------------------------
COMPUTER MINI/PCS-3.07%
Apple Computer, Inc.(a) 40,000 835,000
- --------------------------------------------------------------
COMPAQ Computer Corp.(a) 53,000 3,935,250
- --------------------------------------------------------------
Dell Computer Corp.(a) 60,000 3,187,500
- --------------------------------------------------------------
Gateway 2000, Inc.(a) 44,000 2,356,750
- --------------------------------------------------------------
Hewlett-Packard Co. 10,100 507,525
- --------------------------------------------------------------
Rational Software Corp.(a) 31,900 1,262,043
- --------------------------------------------------------------
Sun Microsystems, Inc.(a) 138,000 3,544,875
- --------------------------------------------------------------
15,628,943
- --------------------------------------------------------------
COMPUTER NETWORKING-4.05%
Ascend Communications, Inc.(a) 54,400 3,379,600
- --------------------------------------------------------------
Cabletron Systems, Inc.(a) 80,000 2,660,000
- --------------------------------------------------------------
Cascade Communications Corp.(a) 61,800 3,406,725
- --------------------------------------------------------------
Cisco Systems, Inc.(a) 70,000 4,453,750
- --------------------------------------------------------------
FORE Systems, Inc.(a) 30,100 989,538
- --------------------------------------------------------------
Shiva Corp.(a) 4,200 146,475
- --------------------------------------------------------------
Sync Research, Inc.(a) 4,500 61,875
- --------------------------------------------------------------
3Com Corp.(a) 75,000 5,503,125
- --------------------------------------------------------------
20,601,088
- --------------------------------------------------------------
COMPUTER PERIPHERALS-1.70%
Adaptec, Inc.(a) 32,000 1,280,000
- --------------------------------------------------------------
American Power Conversion Corp.(a) 12,500 340,625
- --------------------------------------------------------------
EMC Corp.(a) 58,600 1,941,125
- --------------------------------------------------------------
Microchip Technology, Inc.(a) 25,600 1,302,400
- --------------------------------------------------------------
Storage Technology Corp.(a) 39,600 1,885,950
- --------------------------------------------------------------
U.S. Robotics Corp.(a) 26,200 1,886,400
- --------------------------------------------------------------
8,636,500
- --------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-8.23%
Affiliated Computer Services, Inc.(a) 10,200 303,450
- --------------------------------------------------------------
BISYS Group, Inc. (The)(a) 10,000 370,625
- --------------------------------------------------------------
BMC Software, Inc.(a) 90,000 3,723,750
- --------------------------------------------------------------
Cadence Design Systems, Inc.(a) 50,000 1,987,500
- --------------------------------------------------------------
Ceridian Corp.(a) 35,000 1,417,500
- --------------------------------------------------------------
Computer Associates International, Inc. 68,150 3,390,462
- --------------------------------------------------------------
CompuWare Corp.(a) 52,000 2,606,500
- --------------------------------------------------------------
CSG Systems International, Inc.(a) 11,200 172,200
- --------------------------------------------------------------
DST Systems, Inc.(a) 19,500 611,813
- --------------------------------------------------------------
Electronic Arts, Inc.(a) 17,900 535,881
- --------------------------------------------------------------
Electronic Data Systems Corp. 20,000 865,000
- --------------------------------------------------------------
First Data Corp. 16,500 602,250
- --------------------------------------------------------------
Fiserv, Inc.(a) 32,000 1,176,000
- --------------------------------------------------------------
</TABLE>
FS-28
<PAGE> 287
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES-(CONTINUED)
HBO & Co. 19,900 $ 1,181,563
- --------------------------------------------------------------
HPR, Inc.(a) 10,000 137,500
- --------------------------------------------------------------
Intuit, Inc.(a) 17,700 557,550
- --------------------------------------------------------------
McAfee Associates, Inc.(a) 31,200 1,372,800
- --------------------------------------------------------------
Medic Computer Systems, Inc.(a) 8,200 330,562
- --------------------------------------------------------------
Microsoft Corp.(a) 78,800 6,510,850
- --------------------------------------------------------------
National Data Corp. 20,000 870,000
- --------------------------------------------------------------
Network General Corp.(a) 43,400 1,312,850
- --------------------------------------------------------------
Oracle Corp.(a) 57,250 2,390,188
- --------------------------------------------------------------
Parametric Technology Co.(a) 66,000 3,390,750
- --------------------------------------------------------------
Physician Computer Network, Inc.(a) 30,000 255,000
- --------------------------------------------------------------
Pure Atria Corp.(a) 2,300 56,925
- --------------------------------------------------------------
Sterling Commerce, Inc.(a) 38,814 1,368,193
- --------------------------------------------------------------
Sterling Software, Inc.(a) 11,500 363,688
- --------------------------------------------------------------
SunGard Data Systems Inc.(a) 10,400 410,800
- --------------------------------------------------------------
Synopsys, Inc.(a) 27,700 1,281,125
- --------------------------------------------------------------
Systemsoft Corp.(a) 4,200 62,475
- --------------------------------------------------------------
Transition Systems, Inc.(a) 400 5,650
- --------------------------------------------------------------
Wallace Computer Services, Inc. 55,000 1,897,500
- --------------------------------------------------------------
Wind River Systems(a) 7,000 331,625
- --------------------------------------------------------------
41,850,525
- --------------------------------------------------------------
CONGLOMERATES-1.56%
Allied-Signal Inc. 14,600 978,200
- --------------------------------------------------------------
Corning, Inc. 19,000 878,750
- --------------------------------------------------------------
Du Pont (E.I.) de Nemours & Co. 11,000 1,038,125
- --------------------------------------------------------------
Loews Corp. 22,100 2,082,925
- --------------------------------------------------------------
Tyco International Ltd. 35,000 1,850,625
- --------------------------------------------------------------
U.S. Industries, Inc.(a) 31,500 1,082,812
- --------------------------------------------------------------
7,911,437
- --------------------------------------------------------------
CONSUMER NON-DURABLES-0.04%
Central Garden and Pet Co.(a) 10,000 210,625
- --------------------------------------------------------------
CONTAINERS-0.13%
Sealed Air Corp.(a) 16,000 666,000
- --------------------------------------------------------------
COSMETICS & TOILETRIES-0.50%
Rexall Sundown, Inc.(a) 11,000 299,062
- --------------------------------------------------------------
Warner-Lambert Co. 30,000 2,250,000
- --------------------------------------------------------------
2,549,062
- --------------------------------------------------------------
ELECTRONIC COMPONENTS/MISCELLANEOUS-0.72%
Berg Electronics Corp.(a) 9,800 287,875
- --------------------------------------------------------------
BMC Industries, Inc. 9,700 305,550
- --------------------------------------------------------------
Checkpoint Systems, Inc.(a) 38,000 940,500
- --------------------------------------------------------------
Raychem Corp. 7,700 616,963
- --------------------------------------------------------------
SCI Systems, Inc.(a) 7,000 312,375
- --------------------------------------------------------------
Symbol Technologies, Inc.(a) 10,600 469,050
- --------------------------------------------------------------
Thermo Instrument Systems, Inc.(a) 22,000 728,750
- --------------------------------------------------------------
3,661,063
- --------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.60%
Bear Stearns Cos., Inc. 14,500 404,188
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCE (ASSET MANAGEMENT)-(CONTINUED)
Franklin Resources, Inc. 12,700 $ 868,362
- --------------------------------------------------------------
Imperial Credit Industries, Inc.(a) 30,000 630,000
- --------------------------------------------------------------
Schwab (Charles) Corp. 24,700 790,400
- --------------------------------------------------------------
T. Rowe Price Associates 7,900 343,650
- --------------------------------------------------------------
3,036,600
- --------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-4.17%
Aames Financial Corp. 20,000 717,500
- --------------------------------------------------------------
Beneficial Corp. 8,000 507,000
- --------------------------------------------------------------
Capital One Financial Corp. 30,800 1,108,800
- --------------------------------------------------------------
Concord EFS, Inc.(a) 12,800 361,600
- --------------------------------------------------------------
Credit Acceptance Corp.(a) 24,000 564,000
- --------------------------------------------------------------
Federal Home Loan Mortgage Corp. 10,000 1,101,250
- --------------------------------------------------------------
Federal National Mortgage Association 35,000 1,303,750
- --------------------------------------------------------------
Finova Group, Inc. 9,500 610,375
- --------------------------------------------------------------
First USA, Inc. 16,000 554,000
- --------------------------------------------------------------
Green Tree Financial Corp. 70,900 2,738,512
- --------------------------------------------------------------
Household International, Inc. 20,000 1,845,000
- --------------------------------------------------------------
MBNA Corp. 30,000 1,245,000
- --------------------------------------------------------------
Money Store, Inc. (The) 25,700 709,963
- --------------------------------------------------------------
Olympic Financial Ltd.(a) 49,900 717,312
- --------------------------------------------------------------
PMI Group, Inc. (The) 20,100 1,113,038
- --------------------------------------------------------------
PMT Services, Inc.(a) 20,500 358,750
- --------------------------------------------------------------
Student Loan Marketing Association 46,000 4,283,750
- --------------------------------------------------------------
SunAmerica, Inc. 31,200 1,384,500
- --------------------------------------------------------------
21,224,100
- --------------------------------------------------------------
FINANCE (SAVINGS & LOAN)-0.40%
Ahmanson (H.F.) & Co. 35,000 1,137,500
- --------------------------------------------------------------
Washington Mutual, Inc. 21,200 918,225
- --------------------------------------------------------------
2,055,725
- --------------------------------------------------------------
FOOD/PROCESSING-0.62%
ConAgra, Inc. 18,800 935,300
- --------------------------------------------------------------
Dean Foods Co. 35,000 1,128,750
- --------------------------------------------------------------
Lancaster Colony Corp. 11,400 524,400
- --------------------------------------------------------------
Richfood Holdings, Inc. 24,000 582,000
- --------------------------------------------------------------
3,170,450
- --------------------------------------------------------------
FUNERAL SERVICES-0.40%
Service Corp. International 62,900 1,761,200
- --------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 7,650 260,100
- --------------------------------------------------------------
2,021,300
- --------------------------------------------------------------
FURNITURE-0.13%
Leggett & Platt, Inc. 19,000 657,875
- --------------------------------------------------------------
GAMING-0.81%
Circus Circus Enterprises(a) 25,000 859,375
- --------------------------------------------------------------
GTECH Holdings Corp.(a) 15,800 505,600
- --------------------------------------------------------------
International Game Technology 150,000 2,737,500
- --------------------------------------------------------------
4,102,475
- --------------------------------------------------------------
</TABLE>
FS-29
<PAGE> 288
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOME BUILDING-0.03%
Oakwood Homes Corp. 6,000 $ 137,250
- --------------------------------------------------------------
HOTELS/MOTELS-1.16%
Choice Hotels International, Inc.(a) 31,900 562,238
- --------------------------------------------------------------
Doubletree Corp.(a) 3,100 139,500
- --------------------------------------------------------------
HFS, Inc.(a) 39,000 2,330,250
- --------------------------------------------------------------
Hilton Hotels Corp. 24,000 627,000
- --------------------------------------------------------------
Host Marriott Corp.(a) 62,500 1,000,000
- --------------------------------------------------------------
Marriot International, Inc. 8,600 475,150
- --------------------------------------------------------------
Promus Hotel Corp.(a) 13,000 385,125
- --------------------------------------------------------------
Sun International Hotels Ltd.(a) 10,300 375,950
- --------------------------------------------------------------
5,895,213
- --------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.76%
Compdent Corp.(a) 10,600 373,650
- --------------------------------------------------------------
Conseco Inc. 47,500 3,028,125
- --------------------------------------------------------------
Provident Companies, Inc. 1,700 82,237
- --------------------------------------------------------------
United Companies Financial Corp. 15,000 399,375
- --------------------------------------------------------------
3,883,387
- --------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-2.37%
Allstate Corp. 27,900 1,614,713
- --------------------------------------------------------------
American International Group, Inc. 11,500 1,244,875
- --------------------------------------------------------------
CapMAC Holdings, Inc. 18,100 599,562
- --------------------------------------------------------------
CIGNA Corp. 9,700 1,325,263
- --------------------------------------------------------------
Everest Re Holdings, Inc. 36,300 1,043,625
- --------------------------------------------------------------
ITT Hartford Group, Inc. 16,000 1,080,000
- --------------------------------------------------------------
MGIC Investment Corp. 34,600 2,629,600
- --------------------------------------------------------------
Old Republic International Corp. 13,000 347,750
- --------------------------------------------------------------
Progressive Corp. 1,300 87,587
- --------------------------------------------------------------
Travelers Group, Inc. 45,666 2,072,095
- --------------------------------------------------------------
12,045,070
- --------------------------------------------------------------
LEISURE & RECREATION-0.80%
Callaway Golf Co. 22,100 635,375
- --------------------------------------------------------------
Carnival Corp.-Class A 29,200 963,600
- --------------------------------------------------------------
Coleman Co., Inc.(a) 17,000 233,750
- --------------------------------------------------------------
Harley-Davidson, Inc. 41,400 1,945,800
- --------------------------------------------------------------
Mattel, Inc. 5,187 143,939
- --------------------------------------------------------------
Speedway Motorsports, Inc.(a) 7,200 151,200
- --------------------------------------------------------------
4,073,664
- --------------------------------------------------------------
MACHINERY (HEAVY)-0.21%
Caterpillar Inc. 14,000 1,053,500
- --------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.63%
Pentair, Inc. 10,000 322,500
- --------------------------------------------------------------
Thermo Electron Corp.(a) 69,750 2,877,188
- --------------------------------------------------------------
3,199,688
- --------------------------------------------------------------
MEDICAL (DRUGS)-3.82%
Abbott Laboratories 19,000 964,250
- --------------------------------------------------------------
American Home Products Corp. 18,000 1,055,250
- --------------------------------------------------------------
AmeriSource Health Corp.(a) 12,000 579,000
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (DRUGS)-(CONTINUED)
Bristol-Myers Squibb Co. 18,000 $ 1,957,500
- --------------------------------------------------------------
Cardinal Health, Inc. 52,950 3,084,337
- --------------------------------------------------------------
Curative Technologies, Inc.(a) 500 13,844
- --------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 15,000 716,250
- --------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 15,200 545,300
- --------------------------------------------------------------
ICN Pharmaceuticals, Inc. 21,500 421,937
- --------------------------------------------------------------
Johnson & Johnson 35,300 1,756,175
- --------------------------------------------------------------
Jones Medical Industries, Inc. 15,900 582,338
- --------------------------------------------------------------
Lilly (Eli) & Co. 11,100 810,300
- --------------------------------------------------------------
Merck & Co., Inc. 19,000 1,505,750
- --------------------------------------------------------------
Parexel International Corp.(a) 4,400 227,150
- --------------------------------------------------------------
Pharmacia & Upjohn, Inc. 23,000 911,375
- --------------------------------------------------------------
Rhone-Poulenc Rorer, Inc. 28,500 2,226,562
- --------------------------------------------------------------
Schering-Plough Corp. 14,300 925,925
- --------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 26,000 1,168,375
- --------------------------------------------------------------
19,451,618
- --------------------------------------------------------------
MEDICA (INSTRUMENTS/PRODUCTS)-3.98%
Advanced Technology Laboratories,
Inc.(a) 10,000 310,000
- --------------------------------------------------------------
Baxter International Inc. 24,900 1,020,900
- --------------------------------------------------------------
Becton, Dickinson & Co. 31,000 1,344,625
- --------------------------------------------------------------
Boston Scientific Corp.(a) 34,540 2,072,400
- --------------------------------------------------------------
Dentsply International, Inc. 10,800 513,000
- --------------------------------------------------------------
Gulf South Medical Supply, Inc.(a) 25,300 648,313
- --------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 17,900 644,400
- --------------------------------------------------------------
Invacare Corp. 18,700 514,250
- --------------------------------------------------------------
Medtronic, Inc. 22,000 1,496,000
- --------------------------------------------------------------
Nellcor Puritan Bennett, Inc.(a) 9,200 201,250
- --------------------------------------------------------------
Omnicare, Inc. 54,100 1,737,962
- --------------------------------------------------------------
Physician Sales & Service, Inc.(a) 14,000 201,250
- --------------------------------------------------------------
Quintiles Transnational Corp.(a) 21,400 1,417,750
- --------------------------------------------------------------
St. Jude Medical, Inc.(a) 71,000 3,026,375
- --------------------------------------------------------------
Steris Corp.(a) 20,000 870,000
- --------------------------------------------------------------
Stryker Corp. 40,000 1,195,000
- --------------------------------------------------------------
Sybron International Corp.(a) 55,900 1,844,700
- --------------------------------------------------------------
U.S. Surgical Corp. 30,300 1,193,063
- --------------------------------------------------------------
20,251,238
- --------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-4.75%
American Medical Response, Inc.(a) 10,200 331,500
- --------------------------------------------------------------
American Oncology Resources, Inc.(a) 4,900 50,225
- --------------------------------------------------------------
ClinTrials Research Inc.(a) 14,850 337,837
- --------------------------------------------------------------
Columbia/HCA Healthcare Corp. 58,880 2,399,360
- --------------------------------------------------------------
FPA Medical Management, Inc.(a) 15,000 335,625
- --------------------------------------------------------------
Genesis Health Ventures, Inc.(a) 21,750 676,969
- --------------------------------------------------------------
Health Care & Retirement Corp.(a) 46,350 1,326,768
- --------------------------------------------------------------
Health Management Associates,
Inc.-Class A(a) 65,925 1,483,313
- --------------------------------------------------------------
HEALTHSOUTH Corp.(a) 93,200 3,599,850
- --------------------------------------------------------------
Lincare Holdings, Inc.(a) 20,000 820,000
- --------------------------------------------------------------
MedPartners, Inc.(a) 97,780 2,053,380
- --------------------------------------------------------------
Multicare Companies, Inc.(a) 17,200 348,300
- --------------------------------------------------------------
</TABLE>
FS-30
<PAGE> 289
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-(CONTINUED)
OccuSystems, Inc.(a) 8,600 $ 232,200
- --------------------------------------------------------------
OrNda HealthCorp (a) 40,200 1,175,850
- --------------------------------------------------------------
Orthodontic Centers of America,
Inc.(a) 15,800 252,800
- --------------------------------------------------------------
Oxford Health Plans, Inc.(a) 25,600 1,499,200
- --------------------------------------------------------------
PhyCor, Inc.(a) 14,700 417,112
- --------------------------------------------------------------
Quorum Health Group, Inc.(a) 45,000 1,338,750
- --------------------------------------------------------------
Tenet Healthcare Corp.(a) 91,600 2,003,750
- --------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 11,000 398,750
- --------------------------------------------------------------
United Healthcare Corp. 13,200 594,000
- --------------------------------------------------------------
Universal Health Services,
Inc.-Class B (a) 31,000 887,375
- --------------------------------------------------------------
Vencor, Inc.(a) 50,000 1,581,250
- --------------------------------------------------------------
24,144,164
- --------------------------------------------------------------
NATURAL GAS PIPELINE-0.18%
Columbia Gas System, Inc. 14,700 935,288
- --------------------------------------------------------------
OFFICE AUTOMATION-0.21%
Xerox Corp. 20,000 1,052,500
- --------------------------------------------------------------
OFFICE PRODUCTS-0.62%
Avery Dennison Corp. 24,200 856,075
- --------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 38,400 883,200
- --------------------------------------------------------------
Reynolds & Reynolds Co.-Class A 54,600 1,419,600
- --------------------------------------------------------------
3,158,875
- --------------------------------------------------------------
OIL & GAS (DRILLING)-0.26%
Reading & Bates Corp.(a) 50,000 1,325,000
- --------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-0.26%
Burlington Resources, Inc. 15,400 775,775
- --------------------------------------------------------------
Transocean Offshore Inc. 8,500 532,312
- --------------------------------------------------------------
1,308,087
- --------------------------------------------------------------
OIL & GAS (SERVICES)-0.61%
Energy Ventures, Inc.(a) 5,400 274,725
- --------------------------------------------------------------
Global Marine, Inc.(a) 35,000 721,875
- --------------------------------------------------------------
Halliburton Co. 21,000 1,265,250
- --------------------------------------------------------------
Louisiana Land & Exploration Co. 14,500 777,563
- --------------------------------------------------------------
NorAm Energy Corp. 4,300 66,112
- --------------------------------------------------------------
3,105,525
- --------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-2.31%
Baker Hughes, Inc. 45,000 1,552,500
- --------------------------------------------------------------
BJ Services Co.(a) 10,000 510,000
- --------------------------------------------------------------
Cooper Cameron Corp.(a) 12,000 918,000
- --------------------------------------------------------------
Diamond Offshore Drilling, Inc.(a) 21,100 1,202,700
- --------------------------------------------------------------
Dresser Industries, Inc. 17,000 527,000
- --------------------------------------------------------------
ENSCO International, Inc.(a) 15,000 727,500
- --------------------------------------------------------------
Marine Drilling Co., Inc.(a) 50,000 984,375
- --------------------------------------------------------------
Nabors Industries, Inc.(a) 10,000 192,500
- --------------------------------------------------------------
Rowan Companies, Inc.(a) 80,000 1,810,000
- --------------------------------------------------------------
Schlumberger Ltd. 6,000 599,250
- --------------------------------------------------------------
Smith International, Inc.(a) 16,500 740,438
- --------------------------------------------------------------
Tidewater, Inc. 24,000 1,086,000
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL EQUIPMENT & SUPPLIES-(CONTINUED)
Varco International, Inc.(a) 38,100 $ 881,062
- --------------------------------------------------------------
11,731,325
- --------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.19%
Kimberly-Clark Corp. 10,000 952,500
- --------------------------------------------------------------
POLLUTION CONTROL-0.35%
U.S. Filter Corp.(a) 14,300 454,025
- --------------------------------------------------------------
USA Waste Services, Inc.(a) 19,000 605,625
- --------------------------------------------------------------
United Waste Systems, Inc.(a) 21,000 721,875
- --------------------------------------------------------------
1,781,525
- --------------------------------------------------------------
PUBLISHING-0.27%
Gartner Group, Inc.(a) 5,400 210,262
- --------------------------------------------------------------
New York Times Co.-Class A 24,000 912,000
- --------------------------------------------------------------
Times Mirror Co.-Class A 5,300 263,675
- --------------------------------------------------------------
1,385,937
- --------------------------------------------------------------
RESTAURANTS-1.04%
Applebee's International, Inc. 58,900 1,619,750
- --------------------------------------------------------------
Brinker International, Inc.(a) 40,000 640,000
- --------------------------------------------------------------
Cracker Barrel Old Country Store,
Inc. 33,100 839,913
- --------------------------------------------------------------
Lone Star Steakhouse & Saloon, Inc.(a) 30,000 802,500
- --------------------------------------------------------------
Outback Steakhouse, Inc.(a) 20,000 535,000
- --------------------------------------------------------------
Planet Hollywood International,
Inc.-Class A (a) 15,500 306,125
- --------------------------------------------------------------
Rainforest Cafe, Inc.(a) 7,500 176,250
- --------------------------------------------------------------
Starbucks Corp.(a) 12,100 346,362
- --------------------------------------------------------------
5,265,900
- --------------------------------------------------------------
RETAIL (FOOD & DRUGS)-1.67%
American Stores Co. 44,600 1,823,025
- --------------------------------------------------------------
Eckerd Corp. (The)(a) 7,383 236,256
- --------------------------------------------------------------
Kroger Co.(a) 12,400 576,600
- --------------------------------------------------------------
Revco D.S., Inc.(a) 22,700 839,900
- --------------------------------------------------------------
Rite Aid Corp. 18,200 723,450
- --------------------------------------------------------------
Safeway, Inc.(a) 100,000 4,275,000
- --------------------------------------------------------------
8,474,231
- --------------------------------------------------------------
RETAIL (STORES)-7.54%
Bed Bath & Beyond, Inc.(a) 28,200 683,850
- --------------------------------------------------------------
Boise Cascade Office Products
Corp.(a) 6,000 126,000
- --------------------------------------------------------------
CDW Computer Centers, Inc.(a) 13,150 779,959
- --------------------------------------------------------------
CompUSA, Inc.(a) 30,500 629,063
- --------------------------------------------------------------
Consolidated Stores Corp.(a) 87,375 2,806,921
- --------------------------------------------------------------
Corporate Express, Inc.(a) 21,400 629,963
- --------------------------------------------------------------
Dayton Hudson Corp. 75,700 2,971,225
- --------------------------------------------------------------
Dollar General Corp. 19,575 626,400
- --------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 12,500 478,125
- --------------------------------------------------------------
Finish Line, Inc. (The)-Class A(a) 20,000 422,500
- --------------------------------------------------------------
Gap, Inc. (The) 43,000 1,295,375
- --------------------------------------------------------------
Global DirectMail Corp.(a) 12,800 558,400
- --------------------------------------------------------------
Gymboree Corp.(a) 27,600 631,350
- --------------------------------------------------------------
Home Depot, Inc. 21,000 1,052,625
- --------------------------------------------------------------
Jones Apparel Group, Inc.(a) 15,000 560,625
- --------------------------------------------------------------
</TABLE>
FS-31
<PAGE> 290
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
RETAIL (STORES)-(CONTINUED)
<S> <C> <C>
Kohl's Corp.(a) 15,800 $ 620,150
- --------------------------------------------------------------
Lowe's Companies, Inc. 70,000 2,485,000
- --------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 30,400 744,800
- --------------------------------------------------------------
Meyer (Fred), Inc.(a) 14,300 507,650
- --------------------------------------------------------------
Micro Warehouse, Inc.(a) 23,900 280,825
- --------------------------------------------------------------
Neiman Marcus Group, Inc. (The)(a) 6,500 165,750
- --------------------------------------------------------------
Oakley, Inc.(a) 38,800 421,950
- --------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 130,100 4,000,575
- --------------------------------------------------------------
Petco Animal Supplies, Inc.(a) 18,000 373,500
- --------------------------------------------------------------
PETsMART, Inc.(a) 40,900 894,688
- --------------------------------------------------------------
Ross Stores, Inc. 8,400 420,000
- --------------------------------------------------------------
Saks Holdings, Inc.(a) 5,500 148,500
- --------------------------------------------------------------
Sports Authority, Inc. (The)(a) 38,400 835,200
- --------------------------------------------------------------
Staples, Inc.(a) 161,450 2,916,191
- --------------------------------------------------------------
Sunglass Hut International, Inc.(a) 16,400 118,900
- --------------------------------------------------------------
Sysco Corp. 35,000 1,141,875
- --------------------------------------------------------------
Tech Data Corp.(a) 33,400 914,325
- --------------------------------------------------------------
Tiffany & Co. 14,500 531,062
- --------------------------------------------------------------
TJX Companies, Inc. 16,900 800,638
- --------------------------------------------------------------
Toys "R" Us, Inc.(a) 130,000 3,900,000
- --------------------------------------------------------------
Viking Office Products, Inc.(a) 57,900 1,545,206
- --------------------------------------------------------------
Williams-Sonoma, Inc.(a) 9,000 327,375
- --------------------------------------------------------------
38,346,541
- --------------------------------------------------------------
SCIENTIFIC INSTRUMENTS-0.02%
Input/Output, Inc.(a) 6,600 122,100
- --------------------------------------------------------------
SEMICONDUCTORS-3.11%
Advanced Micro Devices, Inc.(a) 26,400 679,800
- --------------------------------------------------------------
Altera Corp.(a) 34,700 2,522,256
- --------------------------------------------------------------
Applied Materials, Inc.(a) 65,000 2,335,938
- --------------------------------------------------------------
Intel Corp. 44,600 5,839,812
- --------------------------------------------------------------
KLA Instruments Corp.(a) 21,000 745,500
- --------------------------------------------------------------
Micron Technology, Inc. 30,000 873,750
- --------------------------------------------------------------
National Semiconductor Corp.(a) 37,500 914,063
- --------------------------------------------------------------
Novellus Systems, Inc.(a) 2,400 130,050
- --------------------------------------------------------------
Solectron Corp.(a) 6,100 325,588
- --------------------------------------------------------------
Tencor Instruments(a) 5,800 152,975
- --------------------------------------------------------------
Texas Instruments, Inc. 17,000 1,083,750
- --------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 5,000 227,500
- --------------------------------------------------------------
15,830,982
- --------------------------------------------------------------
SHOES & RELATED APPAREL-0.79%
Nike, Inc.-Class B 38,000 2,270,500
- --------------------------------------------------------------
Nine West Group, Inc.(a) 30,800 1,428,350
- --------------------------------------------------------------
Wolverine World Wide, Inc. 11,250 326,250
- --------------------------------------------------------------
4,025,100
- --------------------------------------------------------------
TELECOMMUNICATIONS-4.02%
ACC Corp. 9,000 272,250
- --------------------------------------------------------------
ADC Telecommunications, Inc. 105,600 3,286,800
- --------------------------------------------------------------
Andrew Corp.(a) 49,400 2,621,287
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TELECOMMUNICATIONS-(CONTINUED)
Aspect Telecommunications Corp.(a) 10,000 $ 635,000
- ---------------------------------------------------------------
Billing Information Concepts(a) 12,000 345,000
- ---------------------------------------------------------------
Frontier Corp. 17,900 404,988
- ---------------------------------------------------------------
Lucent Technologies, Inc. 29,300 1,355,125
- ---------------------------------------------------------------
MFS Communications Co., Inc.(a) 33,000 1,798,500
- ---------------------------------------------------------------
PairGain Technologies, Inc.(a) 100,000 3,043,750
- ---------------------------------------------------------------
Premisys Communications, Inc.(a) 21,200 715,500
- ---------------------------------------------------------------
QUALCOMM, Inc.(a) 11,000 438,625
- ---------------------------------------------------------------
Tellabs, Inc.(a) 65,200 2,453,150
- ---------------------------------------------------------------
360 Communications Co.(a) 45,700 1,056,812
- ---------------------------------------------------------------
U.S. Long Distance Corp.(a) 8,400 67,200
- ---------------------------------------------------------------
WorldCom, Inc.(a) 75,800 1,975,538
- ---------------------------------------------------------------
20,469,525
- ---------------------------------------------------------------
TELEPHONE-0.31%
Cincinnati Bell, Inc. 26,000 1,602,250
- ---------------------------------------------------------------
TEXTILES-1.13%
Designer Holdings Ltd.(a) 5,000 80,625
- ---------------------------------------------------------------
Fruit of The Loom, Inc.-Class A(a) 30,000 1,136,250
- ---------------------------------------------------------------
Liz Claiborne, Inc. 45,000 1,738,125
- ---------------------------------------------------------------
Nautica Enterprises, Inc.(a) 20,000 505,000
- ---------------------------------------------------------------
Russell Corp. 19,300 574,175
- ---------------------------------------------------------------
Tommy Hilfiger Corp.(a) 22,800 1,094,400
- ---------------------------------------------------------------
Unifi, Inc. 19,700 632,863
- ---------------------------------------------------------------
5,761,438
- ---------------------------------------------------------------
TOBACCO-1.40%
Philip Morris Companies, Inc. 27,000 3,040,875
- ---------------------------------------------------------------
RJR Nabisco Holdings Corp. 58,000 1,972,000
- ---------------------------------------------------------------
UST, Inc. 65,000 2,104,375
- ---------------------------------------------------------------
7,117,250
- ---------------------------------------------------------------
TRANSPORTATION (MISCELLANEOUS)-0.05%
Rural/Metro Corp.(a) 7,500 270,000
- ---------------------------------------------------------------
TRUCKING-0.06%
US Freightways Corp. 11,100 304,556
- ---------------------------------------------------------------
Total Domestic Common Stocks 391,708,243
- ---------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-4.78%
CANADA-0.67%
Agrium, Inc. (Chemicals) 20,000 275,000
- ---------------------------------------------------------------
Newbridge Networks Corp. (Computer
Networking)(a) 44,200 1,248,650
- ---------------------------------------------------------------
Northern Telecom Ltd.
(Telecommunications) 17,000 1,051,875
- ---------------------------------------------------------------
Potash Corp. of Saskatchewan Inc.
(Chemicals) 10,000 850,000
- ---------------------------------------------------------------
3,425,525
- ---------------------------------------------------------------
FINLAND-0.68%
Nokia Oy A.B.-Class A
(Telecommunications) 3,050 177,033
- ---------------------------------------------------------------
Nokia Oy A.B.-Class A-ADR
(Telecommunications) 56,950 3,281,744
- ---------------------------------------------------------------
3,458,777
- ---------------------------------------------------------------
</TABLE>
FS-32
<PAGE> 291
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE-0.05%
SGS-Thomson Microelectronics
N.V.-New York Shares
(Semiconductors)(a) 3,400 $ 238,000
- --------------------------------------------------------------
IRELAND-0.40%
CBT Group PLC-ADR (Computer
Software & Services)(a) 1,600 86,800
- --------------------------------------------------------------
Elan Corp. PLC-ADR
(Medical-Drugs)(a) 59,400 1,975,050
- --------------------------------------------------------------
2,061,850
- --------------------------------------------------------------
ISRAEL-0.38%
ECI Telecommunications Ltd. Designs
(Computer Networking) 32,900 699,125
- --------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd.-ADR (Medical-Drugs) 24,500 1,231,125
- --------------------------------------------------------------
1,930,250
- --------------------------------------------------------------
JAPAN-0.25%
Honda Motor Co., Ltd. (Automobile-
Manufacturers) 45,000 1,286,158
- --------------------------------------------------------------
NETHERLANDS-0.61%
Baan Co., N.V.(Computer Software &
Services)(a) 16,400 569,900
- --------------------------------------------------------------
Gucci Group N.V.-ADR (Textiles) 22,000 1,405,250
- --------------------------------------------------------------
Royal Dutch Petroleum Co. (Oil &
Gas-Services) 6,500 1,109,875
- --------------------------------------------------------------
3,085,025
- --------------------------------------------------------------
SWEDEN-0.94%
Astra A.B.-Class A Shares
(Medical-Drugs) 12,000 592,971
- --------------------------------------------------------------
Telefonaktiebolaget LM Ericsson-ADR
(Telecommunications) 139,040 4,197,270
- --------------------------------------------------------------
4,790,241
- --------------------------------------------------------------
UNITED KINGDOM-0.80%
Danka Business Systems PLC-ADR
(Office Automation) 60,800 2,150,800
- --------------------------------------------------------------
SmithKline Beecham PLC-ADR
(Medical-Drugs) 28,000 1,904,000
- --------------------------------------------------------------
4,054,800
- --------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests 24,330,626
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC CONVERTIBLE CORPORATE
BONDS-0.40%
FINANCE (CONSUMER CREDIT)-0.04%
Cityscape Financial Corp.,
Conv. Sub. Deb., 6.00%, 05/01/06
(Acquired 08/06/96-08/29/96; Cost
$273,697)(b) $ 205,000 $ 208,587
- --------------------------------------------------------------
RESTAURANTS-0.36%
Boston Chicken, Inc.,
Conv. Liquid Yield Option
Notes, 8.00%, 06/01/15(c) 5,690,000 1,809,648
- --------------------------------------------------------------
Total Domestic Convertible
Corporate Bonds 2,018,235
- --------------------------------------------------------------
U.S. TREASURY SECURITIES-14.98%
U.S. TREASURY BILLS(d)-14.98%
5.57%, 01/02/97(e) 29,515,000 29,510,942
- --------------------------------------------------------------
5.58%, 01/02/97(e) 33,000,000 32,995,490
- --------------------------------------------------------------
4.72%, 02/06/97 3,100,000 3,085,926
- --------------------------------------------------------------
4.84%, 02/06/97 1,765,000 1,756,987
- --------------------------------------------------------------
4.98%, 03/27/97(e) 8,820,000 8,719,981
- --------------------------------------------------------------
4.96%, 03/27/97(e) 110,000 108,753
- --------------------------------------------------------------
Total U.S. Treasury Securities 76,178,079
- --------------------------------------------------------------
REPURCHASE AGREEMENT(f)-2.97%
SBC Capital Markets, Inc.,
6.25%, 01/02/97(g) 15,114,433 15,114,433
- --------------------------------------------------------------
TOTAL INVESTMENTS-100.13% 509,349,616
- --------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS-(0.13%) (660,077)
- --------------------------------------------------------------
NET ASSETS-100.00% $508,689,539
==============================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) 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 market
value of this security at December 31, 1996 was $208,587 which represented
0.04% of the Fund's net assets.
(c) Zero coupon bond. The interest rate represents the rate of original issue
discount.
(d) 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.
(e) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 7.
(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. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(g) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$400,138,889. Collateralized by $44,915,000 U.S. Treasury obligations, 0%
due 02/15/09 to 11/15/13 and $473,268,844 U.S. Government obligations, 5.035
to 7.679% due 03/03/97 to 03/01/33.
Investment Abbreviations:
ADR - American Depository Receipt
Conv. - Convertible
Deb. - Debentures
Sub. - Subordinated
See Notes to Financial Statements.
FS-33
<PAGE> 292
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$421,625,299) $509,349,616
- ---------------------------------------------------------
Foreign currencies, at market value (cost $46) 48
- ---------------------------------------------------------
Receivables for:
Investments sold 1,062,946
- ---------------------------------------------------------
Fund shares sold 2,589,385
- ---------------------------------------------------------
Dividends and interest 242,279
- ---------------------------------------------------------
Investment for deferred compensation plan 59,847
- ---------------------------------------------------------
Other assets 19,160
- ---------------------------------------------------------
Total assets 513,323,281
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,294,708
- ---------------------------------------------------------
Fund shares reacquired 852,765
- ---------------------------------------------------------
Variation margin 1,511,100
- ---------------------------------------------------------
Deferred compensation plan 59,847
- ---------------------------------------------------------
Accrued advisory fees 292,551
- ---------------------------------------------------------
Accrued administrative service fees 6,524
- ---------------------------------------------------------
Accrued distribution fees 438,846
- ---------------------------------------------------------
Accrued trustees' fees 2,000
- ---------------------------------------------------------
Accrued transfer agent fees 85,083
- ---------------------------------------------------------
Accrued operating expenses 90,318
- ---------------------------------------------------------
Total liabilities 4,633,742
- ---------------------------------------------------------
Net assets applicable to shares outstanding $508,689,539
=========================================================
NET ASSETS:
Class A $227,882,039
=========================================================
Class B $280,807,500
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 15,416,223
=========================================================
Class B 19,603,569
=========================================================
Class A:
Net asset value and redemption price per
share $ 14.78
=========================================================
Offering price per share:
(Net asset value of $14.78 divided
by 94.50%) $ 15.64
=========================================================
Class B:
Net asset value and offering price per
share $ 14.32
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $22,195 foreign
withholding tax) $ 2,226,881
- ---------------------------------------------------------
Interest 4,640,218
- ---------------------------------------------------------
Total investment income 6,867,099
- ---------------------------------------------------------
EXPENSES:
Advisory fees 2,874,943
- ---------------------------------------------------------
Custodian fees 106,199
- ---------------------------------------------------------
Transfer agent fees-Class A 286,486
- ---------------------------------------------------------
Transfer agent fees-Class B 538,049
- ---------------------------------------------------------
Administrative service fees 72,903
- ---------------------------------------------------------
Trustees' fees 7,946
- ---------------------------------------------------------
Distribution fees-Class A 511,145
- ---------------------------------------------------------
Distribution fees-Class B 2,133,271
- ---------------------------------------------------------
Other 218,314
- ---------------------------------------------------------
Total expenses 6,749,256
- ---------------------------------------------------------
Less: Expenses paid indirectly (6,910)
- ---------------------------------------------------------
Net expenses 6,742,346
- ---------------------------------------------------------
Net investment income 124,753
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES
AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 16,117,722
- ---------------------------------------------------------
Foreign currency transactions (6,446)
- ---------------------------------------------------------
Futures contracts 9,704,155
- ---------------------------------------------------------
25,815,431
- ---------------------------------------------------------
Unrealized appreciation of:
Investment securities 40,419,895
- ---------------------------------------------------------
Futures contracts 585,412
- ---------------------------------------------------------
Foreign currencies 56
- ---------------------------------------------------------
41,005,363
- ---------------------------------------------------------
Net gain from investment securities,
foreign currencies and futures
contracts 66,820,794
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $66,945,547
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-34
<PAGE> 293
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ 124,753 $ (245,146)
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 25,815,431 23,173,371
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currencies and futures contracts 41,005,363 36,741,565
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 66,945,547 59,669,790
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (9,939,277) (9,550,061)
- --------------------------------------------------------------------------------------------
Class B (12,535,665) (7,736,264)
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A 35,293,722 13,074,357
- --------------------------------------------------------------------------------------------
Class B 122,675,148 89,072,917
- --------------------------------------------------------------------------------------------
Net increase in net assets 202,439,475 144,530,739
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 306,250,064 161,719,325
- --------------------------------------------------------------------------------------------
End of period $508,689,539 $306,250,064
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $412,932,159 $254,963,289
- --------------------------------------------------------------------------------------------
Undistributed net investment income (loss) 66,315 (58,438)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies and futures contracts 6,948,040 3,607,551
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 88,743,025 47,737,662
- --------------------------------------------------------------------------------------------
$508,689,539 $306,250,064
============================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 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.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations -- A security listed or traded on an exchange (except
convertible bonds) 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. If a mean is not available, as is the
case in some foreign markets, the closing bid will be used absent a last
sales price. Each security reported on the NASDAQ National Market System is
valued at the last sales price on the valuation date or absent a last sales
price, at the mean of the closing bid and asked prices. Debt obligations
(including convertible bonds)
FS-35
<PAGE> 294
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 and maturity date. Securities for which market
prices are not provided by any of the above methods are valued at the mean
between last bid and asked prices based upon quotes furnished by independent
sources. Securities for which market quotations either are not readily
available or are questionable 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. 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. 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. 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.
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 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 Fund's portfolio being hedged.
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.
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 year ended December 31, 1996, AIM
was reimbursed $72,903 for such services.
The Fund, pursuant to a transfer agency and shareholder service agreement, has
agreed to pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer
agency and shareholder services to the Fund. During the year ended December 31,
1996, AFS was paid $502,473 for such services.
The Fund received reductions in transfer agency fees payable to AFS of $6,391
from dividends received on balances in cash management bank accounts. In
addition, pricing service expenses in the amount of $519 were paid through
directed brokerage commissions paid by the Fund. The above arrangements resulted
in a reduction in the Fund's total expenses of $6,910 during the year ended
December 31, 1996.
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 provides for 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. AIM Distributors may, from time to time, assign,
transfer or pledge to
FS-36
<PAGE> 295
one or more assignees, its rights to all or a portion of (a) compensation
received by AIM Distributors from the Fund pursuant to the Class B Plan (but not
AIM Distributors' duties and obligations pursuant to Class B Plan) and (b) any
contingent deferred sales charges payable to AIM Distributors related to Class B
shares. During the year ended December 31, 1996, the Class A shares and the
Class B shares paid AIM Distributors $511,145 and $2,133,271, respectively, as
compensation under the Plans.
AIM Distributors received commissions of $219,373 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. 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, 1996,
AIM Distributors received $105,215 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 year ended December 31, 1996, the Fund paid legal fees of $3,719
for services rendered by Kramer, Levin, Naftalis & 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 AIM. 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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 19, 1996, the Fund was
limited to borrowing $3,400,000. During the year ended December 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.08% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-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, 1996 was
$433,485,417 and $319,852,010, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $95,659,038
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (8,547,044)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $87,111,994
=========================================================
Cost of investments for tax purposes is
$422,245,355.
</TABLE>
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during years ended December 31, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 10,862,824 $ 152,766,558 11,797,896 $ 152,090,445
- --------------------------------------------------------------------------------
Class B 12,013,218 167,088,540 7,675,619 97,224,008
- --------------------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 657,046 9,474,936 714,727 9,127,169
- --------------------------------------------------------------------------------
Class B 845,350 11,809,495 577,277 7,221,770
- --------------------------------------------------------------------------------
Reacquired:
Class A (8,993,672) (126,947,772) (11,562,734) (148,143,257)
- --------------------------------------------------------------------------------
Class B (4,060,745) (56,222,887) (1,213,971) (15,372,861)
- --------------------------------------------------------------------------------
11,324,021 $ 157,968,870 7,988,814 $ 102,147,274
================================================================================
</TABLE>
NOTE 7-OPEN FUTURES CONTRACTS
On December 31, 1996, $3,105,000 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, 1996 were as follows:
<TABLE>
<CAPTION>
NO. OF UNREALIZED
CONTRACT CONTRACTS MONTH COMMITMENT APPRECIATION
<S> <C> <C> <C> <C>
207
S&P 500 Index contracts Mar 97 Buy $1,018,602
==================================================================
</TABLE>
FS-37
<PAGE> 296
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the ten-year period ended December 31, 1996 and for a Class
B share outstanding during each of the years in the three-year period ended
December 31, 1996 and the period September 1, 1993 (date sales commenced)
through December 31, 1993.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992(a) 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $ 13.05 $ 10.32 $ 11.32 $ 12.28 $ 14.73 $ 12.35 $ 13.92
- --------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.07 0.02 -- -- 0.06 0.11 0.21
- --------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 2.34 3.50 (0.57) 0.41 (0.04) 4.33 (0.91)
- --------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations 2.41 3.52 (0.57) 0.41 0.02 4.44 (0.70)
- --------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income -- -- -- -- (0.06) (0.13) (0.20)
- --------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Distributions from capital gains (0.68) (0.79) (0.43) (1.37) (2.41) (1.93) (0.67)
- --------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.68) (0.79) (0.43) (1.37) (2.47) (2.06) (0.87)
- --------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 14.78 $ 13.05 $ 10.32 $ 11.32 $ 12.28 $ 14.73 $ 12.35
============================================= ======== ======== ======== ======== ======== ======== ========
Total return(b) 18.61% 34.31% (4.99)% 3.64% 0.19% 37.05% (5.04)%
============================================= ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $227,882 $168,217 $123,271 $146,723 $168,395 $185,461 $153,245
============================================= ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 1.18%(c)(d) 1.28% 1.22% 1.17% 1.17% 1.21% 1.16%
============================================= ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to average net
assets 0.46%(c) 0.20% 0.02% 0.02% 0.42% 0.73% 1.41%
============================================= ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 97% 87% 201% 192% 133% 73% 61%
============================================= ======== ======== ======== ======== ======== ======== ========
Average broker commission rate(e) $ 0.0621 N/A N/A N/A N/A N/A N/A
============================================= ======== ======== ======== ======== ======== ======== ========
<CAPTION>
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $ 11.93 $ 11.04 $ 12.91
- --------------------------------------------- -------- -------- --------
Income from investment operations:
Net investment income 0.25 0.23 0.24
- --------------------------------------------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 3.16 0.89 0.30
- --------------------------------------------- -------- -------- --------
Total from investment operations 3.41 1.12 0.54
- --------------------------------------------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.27) (0.23) (0.31)
- --------------------------------------------- -------- -------- --------
Distributions from capital gains (1.15) -- (2.10)
- --------------------------------------------- -------- -------- --------
Total distributions (1.42) (0.23) (2.41)
- --------------------------------------------- -------- -------- --------
Net asset value, end of period $ 13.92 $ 11.93 $ 11.04
============================================= ======== ======== ========
Total return(b) 28.87% 10.13% 3.62%
============================================= ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $187,805 $180,793 $203,329
============================================= ======== ======== ========
Ratio of expenses to average net assets 1.00% 0.98% 0.84%
============================================= ======== ======== ========
Ratio of net investment income to average net
assets 1.62% 1.73% 1.51%
============================================= ======== ======== ========
Portfolio turnover rate 53% 38% 78%
============================================= ======== ======== ========
Average broker commission rate(e) N/A N/A N/A
============================================= ======== ======== ========
</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 $204,456,793.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
CLASS B:
Net asset value, beginning of period $ 12.77 $ 10.21 $ 11.31 $ 12.83
- ------------------------------------------------------------ -------- -------- ------- -------
Income from investment operations:
Net investment income (loss) (0.05) (0.08)(a) (0.06) (0.01)
- ------------------------------------------------------------ -------- -------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) 2.28 3.43(a) (0.61) (0.14)
- ------------------------------------------------------------ -------- -------- ------- -------
Total from investment operations 2.23 3.35 (0.67) (0.15)
- ------------------------------------------------------------ -------- -------- ------- -------
Less distributions:
Distributions from capital gains (0.68) (0.79) (0.43) (1.37)
- ------------------------------------------------------------ -------- -------- ------- -------
Total distributions (0.68) (0.79) (0.43) (1.37)
- ------------------------------------------------------------ -------- -------- ------- -------
Net asset value, end of period $ 14.32 $ 12.77 $ 10.21 $ 11.31
============================================================ ======== ======== ======= =======
Total return(b) 17.60% 33.00% (5.88)% (0.92)%
============================================================ ======== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $280,807 $138,034 $38,448 $11,053
============================================================ ======== ======== ======= =======
Ratio of expenses to average net assets 2.03%(c)(d) 2.13% 2.18% 1.91%(e)
============================================================ ======== ======== ======= =======
Ratio of net investment income (loss) to average net assets (0.39)%(c) (0.65)% (0.94)% (0.72)%(e)
============================================================ ======== ======== ======= =======
Portfolio turnover rate 97% 87% 201% 192%
============================================================ ======== ======== ======= =======
Average broker commission rate(f) $ 0.0621 N/A N/A N/A
============================================================ ======== ======== ======= =======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns do not reflect deduction of contingent deferred sales charges
and are not annualized for periods less than one year.
(c) Ratios are based on average net assets of $213,327,146.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(e) Annualized.
(f) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
NOTE 9-SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
FS-38
<PAGE> 297
INDEPENDENT AUDITORS' REPORT
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, 1996, the related statement of operations for
the year then ended, the statement of 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 four-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, 1996, 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, 1996, 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 four-year
period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
FS-39
<PAGE> 298
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS & NOTES-90.81%
ADVERTISING/BROADCASTING-3.63%
Echostar Satellite Broadcasting,
Sr. Disc. Notes, 13.125%,
03/15/04(a) $23,180,000 $ 17,616,800
- ---------------------------------------------------------------
Katz Media Corp.,
Sr. Sub. Notes, 10.50%,
01/15/07(b)
(Acquired 12/13/96; Cost
$7,850,000) 7,850,000 8,056,062
- ---------------------------------------------------------------
Omnicom Group, Inc.,
Conv. Sub. Deb., 4.25%,
01/03/07(b)
(Acquired 12/11/96; Cost
$1,500,000) 1,500,000 1,555,500
- ---------------------------------------------------------------
SFX Broadcasting, Inc.,
Series B Sr. Sub. Notes, 10.75%,
05/15/06 15,430,000 16,317,225
- ---------------------------------------------------------------
Sinclair Broadcast Group, Inc.,
Sr. Sub. Notes, 10.00%, 09/30/05 13,850,000 14,196,250
- ---------------------------------------------------------------
United International Holdings, Inc.,
Sr. Secured Disc. Notes,
14.00%, 11/15/99(c) 2,400,000 1,731,000
- ---------------------------------------------------------------
14.00%, 11/15/99(c)(d) 9,250,000 6,821,875
- ---------------------------------------------------------------
United International Holdings, Inc.,
Series B Sr. Secured Disc. Notes,
14.00%, 11/15/99 15,160,000 10,934,150
- ---------------------------------------------------------------
Viacom, Inc.,
Sub. Deb., 8.00%, 07/07/06 8,000,000 7,740,000
- ---------------------------------------------------------------
84,968,862
- ---------------------------------------------------------------
AIRLINES-1.15%
Airplanes Pass Through Trust,
Sub. Bonds, 10.875%, 03/15/19 12,550,000 13,938,407
- ---------------------------------------------------------------
Continental Airlines, Inc.,
Conv. Sr. Sub. Notes, 6.75%,
04/15/06(b)
(Acquired 02/27/96; Cost
$1,999,275) 2,000,000 2,244,260
- ---------------------------------------------------------------
Greenwich Air Services, Inc.,
Sr. Notes, 10.50%, 06/01/06 9,910,000 10,653,250
- ---------------------------------------------------------------
26,835,917
- ---------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS &
TIRES-1.33%
Blue Bird Body Co.,
Sr. Sub. Notes, 10.75%,
11/15/06(b)
(Acquired 11/13/96-11/20/96;
Cost $12,739,986) 12,520,000 13,114,700
- ---------------------------------------------------------------
CSK Auto Inc.,
Sr. Sub. Notes, 11.00%,
11/01/06(b)
(Acquired 10/23/96; Cost
$13,060,000) 13,060,000 13,566,075
- ---------------------------------------------------------------
Exide Corp.,
Conv. Sr. Sub. Notes, 2.90%,
12/15/05(b)
(Acquired 12/19/96; Cost
$4,518,750) 7,500,000 4,518,750
- ---------------------------------------------------------------
31,199,525
- ---------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-1.04%
Coca-Cola Enterprises, Inc.,
Putable Notes, 7.24%,
06/20/20(c) 125,000,000 24,333,750
- ---------------------------------------------------------------
BUSINESS SERVICES-0.59%
Neodata Services, Inc.,
Series B Sr. Deferred Coupon
Notes, 12.00%, 05/01/03 13,000,000 13,715,000
- ---------------------------------------------------------------
CABLE TELEVISION-7.39%
Cablevision Systems Corp.,
Sr. Sub. Deb., 10.75%, 04/01/04 7,000,000 7,262,500
- ---------------------------------------------------------------
Century Communications Corp.,
Sr. Sub. Notes., 11.875%,
10/15/03 10,900,000 11,676,625
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CABLE TELEVISION-(CONTINUED)
Comcast UK Cable Partners Ltd.,
(United Kingdom), Sr. Yankee
Disc. Deb., 11.20%, 11/15/07(a) $20,100,000 $ 14,271,000
- ---------------------------------------------------------------
Diamond Cable Communications PLC,
(United Kingdom), Sr. Yankee
Disc. Notes,
11.75%, 12/15/05(a) 22,000,000 15,675,000
- ---------------------------------------------------------------
Fundy Cable Ltd., (Canada),
Sr. Yankee Secured Second
Priority Notes, 11.00%, 11/15/05 11,400,000 12,112,500
- ---------------------------------------------------------------
Heartland Wireless Communications
Inc.,
Sr. Notes, 14.00%, 10/15/04(b)
(Acquired 12/17/96; Cost
$14,880,000) 14,880,000 15,475,200
- ---------------------------------------------------------------
International CableTel, Inc.,
Sr. Notes, 11.50%, 02/01/06(a) 21,200,000 14,469,000
- ---------------------------------------------------------------
Kabelmedia Holdings GmbH, (Germany),
Sr. Disc. Yankee Notes,
13.625%, 08/01/06(a) 26,000,000 14,430,000
- ---------------------------------------------------------------
Marcus Cable Co., L.P.,
Sr. Deb., 11.875%, 10/01/05 12,475,000 13,441,813
- ---------------------------------------------------------------
Sr. Disc. Notes, 14.25%,
12/15/05(a) 12,500,000 9,031,250
- ---------------------------------------------------------------
Rifkin Acquisition Partners L.L.P.,
Sr. Sub. Notes, 11.125%,
01/15/06 12,495,000 12,994,800
- ---------------------------------------------------------------
TeleWest Communications PLC,
(United Kingdom), Sr. Yankee
Disc. Deb., 11.00%, 10/01/07(a) 23,970,000 16,689,112
- ---------------------------------------------------------------
Wireless One, Inc.,
Sr. Notes, 13.00%, 10/15/03 15,740,000 15,425,200
- ---------------------------------------------------------------
172,954,000
- ---------------------------------------------------------------
CHEMICALS-5.28%
Berry Plastics Corp.,
Sr. Sub. Notes, 12.25%, 04/15/04 9,000,000 9,911,250
- ---------------------------------------------------------------
BPC Holding Corp.,
Series B Sr. Notes, 12.50%,
06/15/06 7,750,000 8,185,938
- ---------------------------------------------------------------
Crain Industries, Inc.,
Sr. Sub. Notes, 13.50%, 08/15/05 14,500,000 16,421,250
- ---------------------------------------------------------------
LaRoche Industries, Inc.,
Sr. Sub. Notes, 13.00%, 08/15/04 16,145,000 17,436,600
- ---------------------------------------------------------------
Pioneer Americas Acquisition Corp.,
Sr. Notes, 13.375%, 04/01/05 9,000,000 10,282,500
- ---------------------------------------------------------------
Polymer Group, Inc.,
Sr. Notes, 12.25%, 07/15/02 13,634,000 14,861,060
- ---------------------------------------------------------------
PrintPack Inc.,
Sr. Sub. Notes, 10.625%,
08/15/06(b)
(Acquired 08/15/96-09/23/96;
Cost $10,508,500) 10,450,000 10,868,000
- ---------------------------------------------------------------
Sterling Chemicals Holdings,
Sr. Secured Disc. Notes,
13.50%, 08/15/08(a) 10,500,000 6,090,000
- ---------------------------------------------------------------
Sterling Chemicals, Inc.,
Sr. Sub. Notes, 11.75%, 08/15/06 10,000,000 10,600,000
- ---------------------------------------------------------------
Tri Polyta Finance B.V.,
(Indonesia),
Yankee Secured Gtd. Notes,
11.375%, 12/01/03 18,330,000 19,154,850
- ---------------------------------------------------------------
123,811,448
- ---------------------------------------------------------------
</TABLE>
FS-40
<PAGE> 299
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
COMPUTER NETWORKING-0.12%
3Com Corp.,
Conv. Sub. Notes, 10.25%,
11/01/01(b)
(Acquired 11/08/94-01/04/95;
Cost $1,314,250) $ 1,300,000 $ 2,894,619
- ---------------------------------------------------------------
COMPUTER PERIPHERALS-0.89%
Exide Electronics Group, Inc.,
Sr. Sub. Notes, 11.50%, 03/15/06 13,000,000 13,926,250
- ---------------------------------------------------------------
Sanmina Corp.,
Conv. Sub. Notes, 5.50%,
08/15/02(b)
(Acquired 08/10/95; Cost
$1,000,000) 1,000,000 2,049,490
- ---------------------------------------------------------------
Storage Technology Corp.,
Conv. Deb., 8.00%, 05/31/15 3,500,000 4,783,485
- ---------------------------------------------------------------
20,759,225
- ---------------------------------------------------------------
CONSUMER NON-DURABLES-0.71%
Hines Horticulture, Inc.,
Sr. Sub. Notes, 11.75%, 10/15/05 15,670,000 16,688,550
- ---------------------------------------------------------------
CONTAINERS-2.59%
Ivex Holdings Corp.,
Series B Sr. Disc. Deb.,
13.25%, 03/15/05(a) 20,000,000 15,825,000
- ---------------------------------------------------------------
Ivex Packaging Corp.,
Sr. Sub. Notes, 12.50%, 12/15/02 6,500,000 7,085,000
- ---------------------------------------------------------------
MVE Inc.,
Sr. Secured Notes, 12.50%,
02/15/02 17,250,000 18,392,812
- ---------------------------------------------------------------
National Fiberstok Corp.,
Series B Sr. Notes, 11.625%,
06/15/02 18,530,000 19,363,850
- ---------------------------------------------------------------
60,666,662
- ---------------------------------------------------------------
ELECTRIC POWER-0.43%
Panda Funding Corp.,
Pooled Project Bonds,
11.625%, 08/20/12(b)
(Acquired 07/26/96; Cost
$9,800,000) 9,800,000 10,167,500
- ---------------------------------------------------------------
ENERGY (ALTERNATE SOURCES)-0.47%
CE Casecnan Water & Energy Co.,
Inc., (Philippines), Series A
Sr. Yankee Secured Notes,
11.45%, 11/15/05 10,000,000 11,025,000
- ---------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.08%
Berkshire Hathaway, Inc.,
Conv. Sr. Notes, 3.00%, 12/02/01 2,000,000 1,863,140
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-0.48%
Aames Financial Corp.,
Conv. Sub. Deb., 5.50%,
03/15/06(b)
(Acquired 02/16/96; Cost
$505,000) 500,000 663,655
- ---------------------------------------------------------------
Outsourcing Solutions Inc.,
Sr. Sub. Notes, 11.00%,
11/01/06(b)
(Acquired 10/31/96; Cost
$10,050,000) 10,050,000 10,552,500
- ---------------------------------------------------------------
11,216,155
- ---------------------------------------------------------------
FINANCE (LEASING COMPANIES)-0.74%
Sea Containers, Ltd., (Bermuda),
Series A Sr. Yankee Sub. Deb.,
12.50%, 12/01/04 5,350,000 5,938,500
- ---------------------------------------------------------------
Series B Sr. Yankee Sub. Deb.,
(Bermuda),
12.50%, 12/01/04 10,220,000 11,293,100
- ---------------------------------------------------------------
17,231,600
- ---------------------------------------------------------------
FOOD/PROCESSING-2.10%
American Rice, Inc.,
Secured Mortgage Notes, 13.00%,
07/31/02 11,513,000 11,167,610
- ---------------------------------------------------------------
Chiquita Brands International, Inc.,
Sr. Notes, 10.25%, 11/01/06 11,520,000 12,326,400
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOOD/PROCESSING-(CONTINUED)
International Home Foods Inc.,
Sr. Sub. Notes, 10.375%,
11/01/06(b)
(Acquired 10/29/96; Cost
$10,450,000) $10,450,000 $ 10,920,250
- ---------------------------------------------------------------
Pilgrim's Pride Corp.,
Sr. Sub. Notes, 10.875%,
08/01/03 14,805,000 14,823,506
- ---------------------------------------------------------------
49,237,766
- ---------------------------------------------------------------
FURNITURE-0.76%
Simmons Co.,
Sr. Sub. Notes, 10.75%, 04/15/06 16,800,000 17,766,000
- ---------------------------------------------------------------
GAMING-4.76%
Aztar Corp.,
Sr. Sub. Notes, 13.75%, 10/01/04 19,710,000 21,188,250
- ---------------------------------------------------------------
Coast Hotels & Casinos Inc.,
Series B Secured First Mortgage
Gtd. Notes, 13.00%, 12/15/02 16,510,000 18,284,825
- ---------------------------------------------------------------
Harvey Casinos Resorts,
Sr. Sub. Notes, 10.625%,
06/01/06 10,400,000 11,154,000
- ---------------------------------------------------------------
Showboat Marina Casino Partnership
& Showboat Marina Financial
Corp., First Mortgage Notes,
13.50%, 03/15/03 20,100,000 22,210,500
- ---------------------------------------------------------------
Trump Atlantic City Associates,
Secured First Mortgage Gtd. Notes,
11.25%, 05/01/06 26,340,000 26,208,300
- ---------------------------------------------------------------
Trump Castle Funding, Inc.,
Mortgage Notes, 11.75%, 11/15/03 14,000,000 12,460,000
- ---------------------------------------------------------------
111,505,875
- ---------------------------------------------------------------
HOME BUILDING-0.72%
Continental Homes Holding Corp.,
Sr. Notes, 10.00%, 04/15/06 16,340,000 16,911,900
- ---------------------------------------------------------------
HOTELS/MOTELS-0.18%
HFS, Inc.,
Conv. Sr. Notes, 4.50%, 10/01/99 750,000 2,407,402
- ---------------------------------------------------------------
Prime Hospitality Corp.,
Conv. Sub. Notes, 7.00%,
04/15/02 1,200,000 1,784,496
- ---------------------------------------------------------------
4,191,898
- ---------------------------------------------------------------
LEISURE & RECREATION-3.07%
American Skiing Corp.,
Sr. Sub. Notes, 12.00%,
07/15/06(b)
(Acquired 06/25/96; Cost
$14,574,750) 15,000,000 15,862,500
- ---------------------------------------------------------------
Cobblestone Golf Group Inc.,
Series B Sr. Notes, 11.50%,
06/01/03 5,000,000 5,231,250
- ---------------------------------------------------------------
Cobblestone Holdings Inc.,
Series B Sr. Notes, 13.50%,
06/01/04(c) 23,250,000 9,706,875
- ---------------------------------------------------------------
Icon Fitness Corp.,
Sr. Disc. Notes, 14.00%,
11/15/06(a)(b)
(Acquired 11/15/96; Cost
$7,130,340) 14,000,000 7,542,500
- ---------------------------------------------------------------
Icon Health & Fitness,
Sr. Sub. Notes, 13.00%, 07/15/02 7,250,000 8,237,813
- ---------------------------------------------------------------
IHF Holdings Inc.,
Sr. Sub. Disc. Notes, 15.00%,
11/15/04(a) 10,000,000 7,925,000
- ---------------------------------------------------------------
Stuart Entertainment, Inc.,
Sr. Sub. Notes, 12.50%,
11/15/04(b)
(Acquired 11/07/96; Cost
$17,000,000) 17,000,000 17,340,000
- ---------------------------------------------------------------
71,845,938
- ---------------------------------------------------------------
MACHINERY (HEAVY)-1.41%
Fairfield Manufacturing Co., Inc.,
Sr. Sub. Notes, 11.375%,
07/01/01 13,725,000 14,411,250
- ---------------------------------------------------------------
</TABLE>
FS-41
<PAGE> 300
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MACHINERY (HEAVY)-(CONTINUED)
PrimeCo Inc.,
Sr. Sub. Notes, 12.75%, 03/01/05 $16,202,000 $ 18,551,290
- ---------------------------------------------------------------
32,962,540
- ---------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-3.91%
AM General Corp.,
Sr. Notes, 12.875%, 05/01/02 12,665,000 12,110,905
- ---------------------------------------------------------------
Calmar Inc.,
Sr. Sub. Notes, 11.50%, 08/15/05 10,500,000 10,893,750
- ---------------------------------------------------------------
Coinmach Corp.,
Series B Sr. Notes, 11.75%,
11/15/05 16,500,000 17,861,250
- ---------------------------------------------------------------
Interlake Corp.,
Sr. Notes, 12.00%, 11/15/01 8,300,000 8,932,875
- ---------------------------------------------------------------
Sr. Sub. Deb., 12.125%, 03/01/02 10,870,000 11,399,913
- ---------------------------------------------------------------
Spinnaker Industries Inc.,
Sr. Secured Notes, 10.75%,
10/15/06(b)
(Acquired 10/18/96-11/13/96;
Cost $11,151,188) 11,100,000 11,571,750
- ---------------------------------------------------------------
Thermo Electron Corp.,
Conv. Deb., 5.00%, 04/15/01(b)
(Acquired 04/07/94; Cost
$1,508,000) 1,500,000 2,770,830
- ---------------------------------------------------------------
Tokheim Corp.,
Sr. Sub. Notes, 11.50%, 08/01/06 14,975,000 15,985,813
- ---------------------------------------------------------------
91,527,086
- ---------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-1.68%
Dade International Inc.,
Series B Sr. Sub. Notes,
11.125%, 05/01/06 12,360,000 13,441,500
- ---------------------------------------------------------------
Graphic Controls Corp.,
Series A Sr. Sub. Notes, 12.00%,
09/15/05 10,790,000 12,003,875
- ---------------------------------------------------------------
IMED Corp.,
Sr. Sub. Notes, 9.75%,
12/01/06(b)
(Acquired 11/19/96; Cost
$13,680,000) 13,680,000 13,970,700
- ---------------------------------------------------------------
39,416,075
- ---------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-1.68%
American Medical Response, Inc.,
Conv. Sub. Notes, 5.25%,
02/01/01(b) (Acquired
01/03/96-02/08/96; Cost
$2,054,375) 2,000,000 2,162,500
- ---------------------------------------------------------------
Dynacare Inc., (Canada),
Sr. Yankee Notes, 10.75%,
01/15/06 11,550,000 11,723,250
- ---------------------------------------------------------------
HEALTHSOUTH Rehabilitation Corp.,
Conv. Sub. Deb., 5.00%, 04/01/01 1,700,000 3,422,695
- ---------------------------------------------------------------
Multicare Companies Inc.,
Conv. Sub. Deb., 7.00%,
03/15/03(b) (Acquired 03/09/95;
Cost $500,000) 500,000 612,500
- ---------------------------------------------------------------
PhyCor, Inc.,
Conv. Sub. Deb., 4.50%, 02/15/03 3,000,000 2,980,860
- ---------------------------------------------------------------
Tenet Healthcare Corp.,
Conv. Sub. Notes, 6.00%,
12/01/05 1,000,000 1,050,630
- ---------------------------------------------------------------
Sr. Sub. Notes, 10.125%,
03/01/05 15,600,000 17,316,000
- ---------------------------------------------------------------
39,268,435
- ---------------------------------------------------------------
METALS-0.94%
GS Industries, Inc.,
Sr. Notes, 12.00%, 09/01/04 9,475,000 9,889,531
- ---------------------------------------------------------------
Sr. Notes, 12.25%, 10/01/05 11,525,000 12,130,063
- ---------------------------------------------------------------
22,019,594
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION)-4.83%
Abraxas Petroleum Corp.,
Sr. Notes, 11.50%, 11/01/04(b)
(Acquired 11/05/96-12/03/96;
Cost $22,868,950) $22,630,000 $ 24,270,675
- ---------------------------------------------------------------
CODA Energy, Inc.,
Series B Sr. Gtd. Sub. Notes,
10.50%, 04/01/06 12,150,000 12,909,375
- ---------------------------------------------------------------
Forest Oil Corp.,
Sr. Sub. Notes, 11.25%, 09/01/03 15,702,000 17,036,670
- ---------------------------------------------------------------
Gerrity Oil & Gas Corp.,
Sr. Sub. Notes, 11.75%, 07/15/04 14,750,000 16,114,375
- ---------------------------------------------------------------
Mariner Energy Corp.,
Sr. Sub. Notes, 10.50%,
08/01/06(b) (Acquired
08/12/96-09/04/96; Cost
$14,000,750) 13,950,000 14,856,750
- ---------------------------------------------------------------
Maxus Energy Corp.,
Deb., 11.50%, 11/15/15 12,200,000 12,871,000
- ---------------------------------------------------------------
Plains Resources, Inc.,
Series B Sr. Gtd. Sub. Notes,
10.25%, 03/15/06 11,630,000 12,473,175
- ---------------------------------------------------------------
Pogo Producing Co.,
Conv. Sub. Notes, 5.50%,
06/15/06 2,000,000 2,516,920
- ---------------------------------------------------------------
113,048,940
- ---------------------------------------------------------------
OIL & GAS (INTEGRATED)-0.48%
Wainoco Oil Corp.,
Sr. Notes, 12.00%, 08/01/02 10,995,000 11,324,850
- ---------------------------------------------------------------
OIL & GAS (REFINING/MARKETING)-1.03%
Petroleum Heat & Power Co., Inc.,
Sub. Deb., 12.25%, 02/01/05 21,575,000 24,029,156
- ---------------------------------------------------------------
OIL & GAS (SERVICES)-1.26%
Falcon Drilling Co., Inc.,
Series B Sr. Notes, 9.75%,
01/15/01 10,100,000 10,630,250
- ---------------------------------------------------------------
Series B Sr. Sub. Notes, 12.50%,
03/15/05 8,500,000 9,530,625
- ---------------------------------------------------------------
Kelley Oil & Gas Corp.,
Sr. Sub. Notes, 10.375%,
10/15/06(b)
(Acquired 10/25/96; Cost
$8,985,000) 9,000,000 9,405,000
- ---------------------------------------------------------------
29,565,875
- ---------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-0.08%
Pride Petroleum Services, Inc.,
Conv. Sub. Deb., 6.25%, 02/15/06 1,000,000 1,835,000
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-4.53%
American Pad & Paper Co.,
Series B Sr. Sub. Notes, 13.00%,
11/15/05 14,906,000 17,514,550
- ---------------------------------------------------------------
RAPP International Finance,
(Indonesia),
Gtd. Yankee Secured Notes,
11.50%, 12/15/00 13,920,000 14,790,000
- ---------------------------------------------------------------
Repap New Brunswick, (Canada),
Sr. Yankee Second Priority
Secured Notes, 10.625%, 04/15/05 14,420,000 15,141,000
- ---------------------------------------------------------------
Riverwood International Corp.,
Sr. Gtd. Sub. Notes, 10.875%,
04/01/08 12,890,000 11,987,700
- ---------------------------------------------------------------
Tjiwi Kimia International Global
Co., B.V., (Indonesia), Sr. Gtd.
Notes, 13.25%, 08/01/01 14,040,000 15,917,850
- ---------------------------------------------------------------
Uniforet Inc., (Canada),
Sr. Yankee Gtd. Notes, 11.125%, 10/15/06(b)
(Acquired 10/07/96-12/19/96;
Cost $17,573,231) 17,885,000 16,722,475
- ---------------------------------------------------------------
</TABLE>
FS-42
<PAGE> 301
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
PAPER & FOREST PRODUCTS-(CONTINUED)
United Stationer Supply,
Sr. Sub. Notes, 12.75%, 05/01/05 $12,500,000 $ 13,937,500
- ---------------------------------------------------------------
106,011,075
- ---------------------------------------------------------------
POLLUTION CONTROL-0.79%
Norcal Waste Systems Inc.,
Series B Sr. Gtd. Notes, 13.00%,
11/15/05 12,910,000 14,394,650
- ---------------------------------------------------------------
U.S. Filter Corp.,
Conv. Sub. Notes, 4.50%,
12/15/01 2,250,000 2,290,590
- ---------------------------------------------------------------
Conv. Sub. Notes, 6.00%,
09/15/05 1,000,000 1,776,690
- ---------------------------------------------------------------
18,461,930
- ---------------------------------------------------------------
PUBLISHING-1.54%
Affiliated Newspaper Investments,
Sr. Disc. Notes, 13.25%,
07/01/06(a) 15,826,000 13,056,450
- ---------------------------------------------------------------
Garden State Newspapers, Inc.,
Sr. Sub. Secured Notes, 12.00%,
07/01/04 11,500,000 12,592,500
- ---------------------------------------------------------------
MDC Communications Corp., (Canada),
Sr. Sub. Yankee Notes, 10.50%,
12/01/06 10,040,000 10,378,850
- ---------------------------------------------------------------
36,027,800
- ---------------------------------------------------------------
RAILROADS-0.40%
Johnstown America Industries, Inc.,
Sr. Sub. Notes, 11.75%, 08/15/05 9,820,000 9,476,300
- ---------------------------------------------------------------
RETAIL (FOOD & DRUG)-2.92%
Carr-Gottstein Foods Co.,
Sr. Sub. Notes, 12.00%, 11/15/05 19,475,000 20,765,218
- ---------------------------------------------------------------
Core-Mark International, Inc.,
Sr. Sub. Notes, 11.375%,
09/15/03(b)
(Acquired 09/24/96-11/07/96;
Cost $13,643,950) 13,510,000 13,847,750
- ---------------------------------------------------------------
Cumberland Farms,
Secured Notes, 10.50%, 10/01/03 15,004,000 14,553,880
- ---------------------------------------------------------------
Jitney-Jungle Stores of America Inc.,
Sr. Gtd. Notes, 12.00%, 03/01/06 18,000,000 19,102,500
- ---------------------------------------------------------------
68,269,348
- ---------------------------------------------------------------
RESTAURANTS-0.03%
Starbucks Corp.,
Conv. Sub. Deb., 4.25%, 11/01/02 500,000 672,500
- ---------------------------------------------------------------
RETAIL (STORES)-3.87%
Guitar Center Management Co.,
Sr. Notes, 11.00%, 07/01/06 10,200,000 10,824,750
- ---------------------------------------------------------------
Home Depot, Inc.,
Conv. Sub. Notes, 3.25%,
10/01/01 2,000,000 1,953,600
- ---------------------------------------------------------------
Loehmann's Holdings, Inc.,
Sr. Notes, 11.875%, 05/15/03 14,420,000 15,681,750
- ---------------------------------------------------------------
Pamida Inc.,
Sr. Sub. Notes, 11.75%, 03/15/03 14,950,000 12,558,000
- ---------------------------------------------------------------
Saks Holdings, Inc.,
Conv. Sub. Notes, 5.50%,
09/15/06 2,000,000 1,842,500
- ---------------------------------------------------------------
Samsonite Corp.,
Sr. Sub. Notes, 11.125%,
07/15/05 13,590,000 15,373,688
- ---------------------------------------------------------------
Specialty Retailers Inc.,
Sr. Secured Notes, 12.50%,
12/15/00(b)
(Acquired 05/23/96; Cost
$10,000,000) 10,000,000 10,475,000
- ---------------------------------------------------------------
Sr. Sub. Notes, 11.00%, 08/15/03 11,520,000 12,153,600
- ---------------------------------------------------------------
Series D Sr. Sub. Notes, 11.00%,
08/15/03 8,250,000 8,641,875
- ---------------------------------------------------------------
Staples Inc.,
Conv. Sub. Deb., 4.50%,
10/01/00(b)
(Acquired 09/12/95; Cost
$1,000,000) 1,000,000 1,029,160
- ---------------------------------------------------------------
90,533,923
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
SCHOOLS-1.96%
Herff Jones Inc.,
Sr. Sub. Notes, 11.00%, 08/15/05 $13,040,000 $ 14,099,500
- ---------------------------------------------------------------
Scholastic Brands Inc.,
Sr. Sub. Notes, 11.00%,
01/15/07(b)
(Acquired 12/10/96-12/12/96;
Cost $14,062,906) 13,955,000 14,268,988
- ---------------------------------------------------------------
Selmer Co., Inc.,
Sr. Gtd. Sub. Notes, 11.00%,
05/15/05 15,920,000 17,432,400
- ---------------------------------------------------------------
45,800,888
- ---------------------------------------------------------------
SECURITY (SAFETY SERVICES)-0.67%
Cabot Safety Corp.,
Sr. Sub. Notes, 12.50%, 07/15/05 13,975,000 15,652,000
- ---------------------------------------------------------------
SEMICONDUCTORS-0.88%
Advanced Micro Devices, Inc.,
Sr. Secured Notes, 11.00%,
08/01/03 18,965,000 20,671,850
- ---------------------------------------------------------------
STEEL-1.11%
Gulf States Steel Corp.,
First Mortgage Notes, 13.50%,
04/15/03 15,990,000 15,270,450
- ---------------------------------------------------------------
Weirton Steel Corp.,
Sr. Notes, 11.375%, 07/01/04 10,400,000 10,608,000
- ---------------------------------------------------------------
25,878,450
- ---------------------------------------------------------------
TELECOMMUNICATIONS-12.77%
Arch Communications Group, Inc.,
Sr. Disc. Notes, 10.875%,
03/15/08(a) 25,000,000 14,437,500
- ---------------------------------------------------------------
Celcaribe S.A.,
Sr. Secured Notes, 13.50%,
03/15/04 14,500,000 12,687,500
- ---------------------------------------------------------------
Sr. Secured Notes, 13.50%,
03/15/04(a)(b)(e)
(Acquired 05/17/94-05/26/94;
Cost $6,429,128) 8,000,000 9,100,000
- ---------------------------------------------------------------
Clearnet Communications Inc.,
(Canada),
Sr. Yankee Disc. Notes, 14.75%,
12/15/05(a) 30,520,000 19,113,150
- ---------------------------------------------------------------
Colt Telecom Group PLC, (United
Kingdom),
Sr. Yankee Disc. Notes, 12.00%,
12/15/06(f) 20,510,000 12,229,087
- ---------------------------------------------------------------
fONOROLA Inc., (Canada),
Sr. Yankee Secured Notes,
12.50%, 08/15/02 12,500,000 13,671,874
- ---------------------------------------------------------------
GST USA Inc.,
Secured Sr. Disc. Notes,
13.875%, 12/15/05(a) 25,320,000 15,286,950
- ---------------------------------------------------------------
InterCel, Inc.,
Sr. Disc. Notes, 12.00%,
02/01/06(a) 13,330,000 8,597,850
- ---------------------------------------------------------------
Sr. Disc. Notes, 12.00%,
05/01/06(a) 10,000,000 6,250,000
- ---------------------------------------------------------------
Microcell Telecommunications Inc.,
Sr. Disc. Notes, 14.00%,
06/01/06(a) 41,500,000 22,928,750
- ---------------------------------------------------------------
Nextlink Communications Inc.,
Sr. Notes, 12.50%, 04/15/06 19,350,000 20,849,625
- ---------------------------------------------------------------
Omnipoint Corp.,
Series A Sr. Notes, 11.625%,
08/15/06(b)
(Acquired 11/21/96; Cost
$8,149,245) 7,800,000 8,170,500
- ---------------------------------------------------------------
Sr. Notes, 11.625%, 08/15/06 11,550,000 12,098,625
- ---------------------------------------------------------------
Packaging Resources Inc.,
Sr. Notes, 11.625%, 05/01/03 6,648,060 6,153,112
- ---------------------------------------------------------------
Paging Network, Inc.,
Sr. Sub. Notes, 10.00%,
10/15/08(b)
(Acquired 10/10/96-12/04/96;
Cost $15,164,250) 15,150,000 15,396,188
- ---------------------------------------------------------------
</TABLE>
FS-43
<PAGE> 302
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELECOMMUNICATIONS-(CONTINUED)
PriCellular Wireless Corp.,
Sr. Disc. Notes, 14.00%,
11/15/01(a) $15,200,000 $ 15,124,000
- ---------------------------------------------------------------
Sr. Notes, 10.75%, 11/01/04(b)
(Acquired 10/30/96; Cost
$5,710,000) 5,710,000 5,974,088
- ---------------------------------------------------------------
ProNet, Inc.,
Sr. Sub. Notes, 11.875%,
06/15/05 14,500,000 13,775,000
- ---------------------------------------------------------------
RSL Communications, Ltd.,
Sr. Notes, 12.25%,
11/15/06(b)(g)
(Acquired 09/30/96-12/03/96;
Cost $17,623,538) 17,620,000 17,884,300
- ---------------------------------------------------------------
Sprint Spectrum L.P.,
Sr. Notes, 11.00%, 08/15/06 12,800,000 13,920,000
- ---------------------------------------------------------------
Sygnet Wireless Inc.,
Sr. Notes, 11.50%, 10/01/06 14,080,000 14,608,000
- ---------------------------------------------------------------
Teleport Communications Group Inc.,
Sr. Disc. Notes, 11.125%,
07/01/07(a) 30,000,000 20,775,000
- ---------------------------------------------------------------
299,031,099
- ---------------------------------------------------------------
TELEPHONE-0.66%
PhoneTel Technologies, Inc.,
Sr. Notes, 12.00%, 12/15/06 14,840,000 15,396,500
- ---------------------------------------------------------------
TRANSPORTATION-2.02%
Gearbulk Holding Ltd.,
Sr. Notes, 11.25%, 12/01/04 13,550,000 14,972,750
- ---------------------------------------------------------------
Stena A.B., (Sweden),
Sr. Yankee Notes, 10.50%,
12/15/05 15,980,000 17,338,300
- ---------------------------------------------------------------
Transportacion Maritima Mexicana
S.A. de CV, (Mexico), Sr. Yankee
Notes, 10.00%, 11/15/06 14,680,000 14,900,200
- ---------------------------------------------------------------
47,211,250
- ---------------------------------------------------------------
TRUCKING-0.85%
AmeriTruck Distribution Corp.,
Sr. Sub. Notes, 12.25%, 11/15/05 19,800,000 19,998,000
- ---------------------------------------------------------------
Total Corporate Bonds & Notes 2,125,880,794
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
<S> <C> <C>
COMMON STOCKS-0.77%
AUTOMOBILE/TRUCK PARTS &
TIRES-0.11%
Lear Corp.(h) 72,600 2,477,475
- ---------------------------------------------------------------
LEISURE & RECREATION-0.02%
Cobblestone Holdings Inc.(h) 23,250 465,000
- ---------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-0.15%
Genesis Health Ventures, Inc.(h) 86,069 2,678,909
- ---------------------------------------------------------------
Total Renal Care Holdings, Inc.(h) 24,000 870,000
- ---------------------------------------------------------------
3,548,909
- ---------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-0.20%
Omnicare, Inc. 138,520 4,449,955
- ---------------------------------------------------------------
OIL & GAS (DRILLING)-0.08%
Reading & Bates Corp.(h) 72,475 1,920,588
- ---------------------------------------------------------------
OIL & GAS (SERVICES)-0.08%
Kelley Oil & Gas Corp.(h) 781,250 1,904,297
- ---------------------------------------------------------------
PUBLISHING-0.03%
Affiliated Newspaper
Investments(h) 13,826 691,300
- ---------------------------------------------------------------
RETAIL (FOOD & DRUG)-0.04%
Rite Aid Corp. 24,083 957,279
- ---------------------------------------------------------------
TELECOMMUNICATIONS-0.06%
MFS Communications Co., Inc.(h) 2,001 109,050
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS-(CONTINUED)
WorldCom, Inc.(h) 52,534 $ 1,369,167
- ---------------------------------------------------------------
1,478,217
- ---------------------------------------------------------------
Total Common Stocks 17,893,020
- ---------------------------------------------------------------
PREFERRED STOCKS-4.84%
ADVERTISING/BROADCASTING-0.12%
News Corp. Ltd., (Australia),
$5.00 Conv. Pfd.(b)
(Acquired 11/04/96; Cost
$2,980,000) 29,800 2,812,375
- ---------------------------------------------------------------
Time Warner Inc.,
Series M, $102.50 PIK Conv. Pfd. 1 740
- ---------------------------------------------------------------
2,813,115
- ---------------------------------------------------------------
AEROSPACE/DEFENSE-0.16%
Loral Space & Communications,
$3.00 Conv. Pfd.(b)
(Acquired 11/01/96; Cost
$3,232,500) 64,650 3,676,969
- ---------------------------------------------------------------
CABLE TELEVISION-0.83%
Cablevision Systems Corp.,
Series M, $11.125 PIK Conv. Pfd. 216,572 19,491,457
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.36%
Microsoft Corp.,
Series A, $2.196 Conv. Pfd. 105,000 8,413,125
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-0.26%
PennCorp Financial Group, Inc.,
$3.375 Conv. Pfd. 20,000 1,680,150
- ---------------------------------------------------------------
SunAmerica, Inc., $3.188 Conv. Pfd. 106,650 4,505,963
- ---------------------------------------------------------------
6,186,113
- ---------------------------------------------------------------
FOOD/PROCESSING-0.23%
Chiquita Brands International,
Inc., Series B, $3.75 Conv. Pfd. 100,000 5,325,000
- ---------------------------------------------------------------
FUNERAL SERVICES-0.08%
SCI Financial LLC,
Series A, $3.125 Conv. Pfd. 20,000 1,882,500
- ---------------------------------------------------------------
GAS DISTRIBUTION-0.09%
NorAm Financing,
$3.125 Conv. Pfd. 35,000 2,222,500
- ---------------------------------------------------------------
HOTELS/MOTELS-0.12%
Host Marriott Financial Trust,
$3.375 Conv. Pfd.(b) (Acquired
11/25/96; Cost $2,500,000) 50,000 2,724,850
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE
PROPERTY)-0.13%
Frontier Financing Trust,
$3.125 Conv. Pfd.(b) (Acquired
10/09/96; Cost $3,000,000) 60,000 3,106,320
- ---------------------------------------------------------------
MACHINERY (HEAVY)-0.06%
Case Corp.,
Series A, $4.50 Conv. Pfd. 10,000 1,329,780
- ---------------------------------------------------------------
OIL & GAS (REFINING/MARKETING)-0.09%
Tosco Financing Trust,
$2.875 Conv. Pfd.(b) (Acquired
12/10/96; Cost $2,000,000) 40,000 2,085,000
- ---------------------------------------------------------------
OIL & GAS (SERVICES)-0.13%
Enron Corp.,
$1.36 Conv. Pfd. 30,000 720,000
- ---------------------------------------------------------------
Kelley Oil & Gas Corp.,
$2.625 Conv. Pfd. 100,000 2,387,500
- ---------------------------------------------------------------
3,107,500
- ---------------------------------------------------------------
</TABLE>
FS-44
<PAGE> 303
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PUBLISHING-1.11%
K-III Communications Corp.,
$2.875 Pfd. 300,000 $ 8,062,500
- ---------------------------------------------------------------
$10.00 Series D Pfd.(b)
(Acquired 01/19/96-12/10/96;
Cost $17,930,000) 180,000 17,685,000
- ---------------------------------------------------------------
25,747,500
- ---------------------------------------------------------------
RETAIL (STORES)-0.04%
Kmart Financing,
$3.875 Conv. Pfd. 20,000 975,000
- ---------------------------------------------------------------
TELECOMMUNICATIONS-1.03%
ICG Holdings, Inc.,
$14.25 Pfd. 19,000 20,995,000
- ---------------------------------------------------------------
MFS Communications Co., Inc.,
$2.68 Conv. Pfd. 35,000 3,193,750
- ---------------------------------------------------------------
24,188,750
- ---------------------------------------------------------------
Total Preferred Stocks 113,275,479
- ---------------------------------------------------------------
WARRANTS-0.24%
CABLE TELEVISION-0.00%
Wireless One Inc.,
expiring 10/19/00(h) 37,560 37,560
- ---------------------------------------------------------------
CHEMICALS-0.02%
Berry Plastics Corp.,
expiring 04/15/04(h) 6,000 270,120
- ---------------------------------------------------------------
Sterling Chemicals Holdings,
expiring 08/15/08(h) 7,500 262,500
- ---------------------------------------------------------------
532,620
- ---------------------------------------------------------------
COMPUTER PERIPHERALS-0.02%
Exide Electronics Group Inc.,
expiring 03/15/06(h) 13,000 390,000
- ---------------------------------------------------------------
CONTAINERS-0.01%
MVE Inc.,
expiring 02/15/02(h) 6,750 202,500
- ---------------------------------------------------------------
LEISURE & RECREATION-0.06%
IHF Capital Inc.,
Series H, expiring 11/14/99(h) 8,000 1,040,000
- ---------------------------------------------------------------
Series I, expiring 11/14/99(h) 7,250 290,000
- ---------------------------------------------------------------
1,330,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MEDICAL (PATIENT SERVICES)-0.01%
Republic Health Corp.,
expiring 04/03/00(h) 17,500 $ 315,000
- ---------------------------------------------------------------
STEEL-0.00%
Bar Technologies Inc.,
expiring 04/01/01(h) 6,000 33,000
- ---------------------------------------------------------------
Gulf States Steel Inc.,
expiring 04/15/03(h) 15,990 79,950
- ---------------------------------------------------------------
112,950
- ---------------------------------------------------------------
TELECOMMUNICATIONS-0.12%
Clearnet Communications Inc.,
(Canada),
expiring 09/15/05(h) 100,715 604,296
- ---------------------------------------------------------------
ICG Communications Inc.,
expiring 09/15/05(h) 39,600 574,200
- ---------------------------------------------------------------
InterCel Inc.,
expiring 02/01/06(h) 42,656 341,248
- ---------------------------------------------------------------
Intermedia Communications Inc.,
expiring 06/01/00(h) 1,500 52,500
- ---------------------------------------------------------------
Microcell Telecommunications Inc.,
Conditional Wts., expiring
12/31/97(b)(h) (Acquired
12/18/96; Cost $35,744) 166,000 41,500
- ---------------------------------------------------------------
expiring 12/31/97(b)(h)
(Acquired 12/18/96; Cost $992,888) 166,000 1,120,500
- ---------------------------------------------------------------
2,734,244
- ---------------------------------------------------------------
Total Warrants 5,654,874
- ---------------------------------------------------------------
REPURCHASE AGREEMENT(i)-1.97%
UBS Securities, Inc., 7.05%,
01/02/97(j) 46,218,974 46,218,974
- ---------------------------------------------------------------
TOTAL INVESTMENTS-98.63% 2,308,923,141
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.37% 32,111,225
- ---------------------------------------------------------------
NET ASSETS-100.00% $2,341,034,366
===============================================================
</TABLE>
Abbreviations:
Conv. - Convertible
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
PIK - Payment in Kind
Pfd. - Preferred
Sr. - Senior
Sub. - Subordinated
Wts. - Warrants
Notes to Schedule of Investments:
(a) Discounted bond at purchase. Interest rate shown represents coupon rate at
which the bond will accrue at a specified future date.
(b) 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, 1996 was
$373,133,229 which represented 15.94% of the Fund's net assets.
(c) Zero coupon bonds. Interest rate shown represents the rate of original issue
discount.
(d) Issued as a unit. This unit also includes 9,250 warrants to purchase 4.535
shares of common stock per warrant.
(e) Issued as a unit. This unit also includes 1,300,800 Celcaribe Ordinary Trust
Certificates.
(f) Issued as a unit. This unit also includes 20,510 warrants to purchase
ordinary shares at 302.5 pence per share.
(g) Issued as a unit. This unit also includes 17,620 warrants to purchase 1.815
shares of common stock per warrant.
(h) Non-income producing security.
(i) 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, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(j) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$550,215,417. Collateralized by $732,485,305 U.S. Government agency
obligations, 0% to 9.50% due 1/01/98 to 12/15/26.
See Notes to Financial Statements.
FS-45
<PAGE> 304
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$2,185,508,189) $2,308,923,141
- ----------------------------------------------------------
Receivables for:
Fund shares sold 9,648,445
- ----------------------------------------------------------
Dividends and interest 46,166,949
- ----------------------------------------------------------
Investment for deferred compensation plan 48,098
- ----------------------------------------------------------
Other assets 86,032
- ----------------------------------------------------------
Total assets 2,364,872,665
- ----------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 6,541,806
- ----------------------------------------------------------
Fund shares reacquired 2,455,637
- ----------------------------------------------------------
Dividends 11,121,120
- ----------------------------------------------------------
Deferred compensation plan 48,098
- ----------------------------------------------------------
Accrued advisory fees 953,278
- ----------------------------------------------------------
Accrued administrative service fees 9,349
- ----------------------------------------------------------
Accrued distribution fees 1,821,348
- ----------------------------------------------------------
Accrued trustees' fees 3,683
- ----------------------------------------------------------
Accrued transfer agent fees 311,688
- ----------------------------------------------------------
Accrued operating expenses 572,292
- ----------------------------------------------------------
Total liabilities 23,838,299
- ----------------------------------------------------------
Net assets applicable to shares
outstanding $2,341,034,366
==========================================================
NET ASSETS:
Class A $1,272,974,132
==========================================================
Class B $1,068,060,234
==========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 128,791,474
==========================================================
Class B 108,065,310
==========================================================
Class A:
Net asset value and redemption price per
share $ 9.88
==========================================================
Offering price per share:
(Net asset value of $9.88
divided by 95.25%) $ 10.37
==========================================================
Class B:
Net asset value and offering price per
share $ 9.88
==========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 194,640,314
- ----------------------------------------------------------
Dividends 3,281,146
- ----------------------------------------------------------
Total investment income 197,921,460
- ----------------------------------------------------------
EXPENSES:
Advisory fees 9,277,005
- ----------------------------------------------------------
Custodian fees 203,583
- ----------------------------------------------------------
Transfer agent fees -- Class A 1,643,305
- ----------------------------------------------------------
Transfer agent fees -- Class B 1,068,773
- ----------------------------------------------------------
Administrative service fees 98,734
- ----------------------------------------------------------
Trustees' fees 18,914
- ----------------------------------------------------------
Distribution fees -- Class A 2,631,156
- ----------------------------------------------------------
Distribution fees -- Class B 8,083,368
- ----------------------------------------------------------
Other 789,703
- ----------------------------------------------------------
Total expenses 23,814,541
- ----------------------------------------------------------
Less: Expenses paid indirectly (30,911)
- ----------------------------------------------------------
Net expenses 23,783,630
- ----------------------------------------------------------
Net investment income 174,137,830
- ----------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain on sales of investment
securities 17,869,656
- ----------------------------------------------------------
Unrealized appreciation of investment
securities 86,550,248
- ----------------------------------------------------------
Net gain on investment securities 104,419,904
- ----------------------------------------------------------
Net increase in net assets resulting from
operations $ 278,557,734
==========================================================
</TABLE>
See Notes to Financial Statements.
FS-46
<PAGE> 305
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 174,137,830 $ 103,866,411
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 17,869,656 (13,744,221)
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 86,550,248 64,363,354
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 278,557,734 154,485,544
- ----------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (102,842,087) (72,863,770)
- ----------------------------------------------------------------------------------------------
Class B (72,629,856) (31,951,946)
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- (436,906)
- ----------------------------------------------------------------------------------------------
Class B -- (191,590)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A 327,466,596 271,933,588
- ----------------------------------------------------------------------------------------------
Class B 466,449,407 352,760,393
- ----------------------------------------------------------------------------------------------
Net increase in net assets 897,001,794 673,735,313
- ----------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,444,032,572 770,297,259
- ----------------------------------------------------------------------------------------------
End of period $2,341,034,366 $1,444,032,572
==============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,295,988,395 $1,505,053,545
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 2,868,653 1,688,456
- ----------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities (81,237,634) (99,574,133)
- ----------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 123,414,952 36,864,704
- ----------------------------------------------------------------------------------------------
$2,341,034,366 $1,444,032,572
==============================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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'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). 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. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations -- Debt securities (including convertible bonds) are
valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing
FS-47
<PAGE> 306
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 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 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 or absent a last sales
price, at the mean between the closing bid and asked prices. Securities for
which market quotations either are not readily available or are questionable
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 subject to restrictions noted in section "C" below. On
December 31, 1996, undistributed net investment income was increased by
$2,514,310, paid-in capital reduced by $2,981,153 and undistributed net
realized gains increased by $466,843 in order to comply with the requirements
of the American Institute of Certified Public Accountants Statement of
Position 93-2. 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 $81,020,316 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2003. The Fund cannot distribute capital gains to
shareholders until the tax loss carryforwards have been utilized.
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.
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.
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 year ended December 31, 1996, AIM
was reimbursed $98,734 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 1996, the
Fund paid AFS $1,723,833 for such services.
The Fund received reductions in transfer agency fees payable to AFS of $28,580
from dividends received on balances in cash management bank accounts. In
addition, pricing service expenses in the amount of $2,331 were paid through
directed brokerage commissions paid by the Fund. The effect of the above
arrangements resulted in a reduction in the Fund's total expenses of $30,911
during the year ended December 31, 1996.
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 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
FS-48
<PAGE> 307
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. AIM Distributors may, from time to time, assign,
transfer or pledge to one or more assignees, its rights to all or a designated
portion of (a) compensation received by AIM Distributors from the Fund pursuant
to the Class B Plan (but not AIM Distributors' duties and obligations pursuant
to the Class B Plan) and (b) any contingent deferred sales charges payable to
AIM Distributors related to the Class B shares. During the year ended December
31, 1996, the Class A shares and the Class B shares paid AIM Distributors
$2,631,156 and $8,083,368, respectively, as compensation under the Plans.
AIM Distributors received commissions of $1,965,594 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. 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, 1996,
AIM Distributors received $976,702 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 year ended December 31, 1996, the Fund paid legal fees of $7,485
for services rendered by Kramer, Levin, Naftalis & 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 AIM. 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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 19, 1996, the Fund was
limited to borrowing $17,000,000. During the year ended December 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.08% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-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, 1996 was
$2,230,898,049 and $1,381,114,077, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $132,068,761
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (9,004,639)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $123,064,122
=========================================================
Cost of investments for tax purposes is
$2,185,859,019.
</TABLE>
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- -----------------------------
SHARES VALUE SHARES VALUE
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sold:
Class A 76,485,479 $ 725,785,892 49,241,443 $ 458,547,804
- ----------------------- --------------------------- -----------------------------
Class B 63,383,789 605,130,108 42,866,225 400,172,189
- ----------------------- --------------------------- -----------------------------
Issued as reinvestment
of dividends:
Class A 6,674,252 64,083,963 4,955,465 46,216,100
- ----------------------- --------------------------- -----------------------------
Class B 3,798,909 36,390,618 1,597,343 14,918,822
- ----------------------- --------------------------- -----------------------------
Reacquired:
Class A (48,380,296) (462,403,259) (25,047,265) (232,830,316)
- ----------------------- --------------------------- -----------------------------
Class B (18,351,224) (175,071,319) (6,678,316) (62,330,618)
- ----------------------- --------------------------- -----------------------------
83,610,909 $ 793,916,003 66,934,895 $ 624,693,981
======================= =========================== =============================
</TABLE>
FS-49
<PAGE> 308
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the ten-year period ended December 31, 1996 and for a Class
B share outstanding during each of the years in the three-year period ended
December 31, 1996 and the period September 1, 1993 (date sales commenced)
through December 31, 1993.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992(a) 1991 1990
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $ 9.43 $ 8.93 $ 10.05 $ 9.40 $ 8.86 $ 7.07 $ 8.94
- -------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.92 0.93 0.96 0.97 1.04 1.02 1.09
- -------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 0.46 0.52 (1.12) 0.69 0.55 1.81 (1.84)
- -------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Total from investment operations 1.38 1.45 (0.16) 1.66 1.59 2.83 (0.75)
- -------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.93) (0.95) (0.96) (1.01) (1.05) (1.04) (1.12)
- -------------------------------------------- ---------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 9.88 $ 9.43 $ 8.93 $ 10.05 $ 9.40 $ 8.86 $ 7.07
============================================ ========== ======== ======== ======== ======== ======== ========
Total return(b) 15.44% 16.86% (1.67)% 18.40% 18.60% 42.18% (9.03)%
============================================ ========== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,272,974 $886,106 $578,959 $550,760 $324,518 $259,677 $204,932
============================================ ========== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.97%(c)(d) 0.96% 1.00% 1.12% 1.15% 1.22% 1.21%(e)
============================================ ========== ======== ======== ======== ======== ======== ========
Ratio of net investment income to average
net assets 9.67%(c) 9.95% 10.07% 9.82% 11.00% 12.67% 13.59%(f)
============================================ ========== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 77% 61% 53% 53% 56% 61% 27%
============================================ ========== ======== ======== ======== ======== ======== ========
<CAPTION>
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $ 10.01 $ 9.67 $ 10.54
- -------------------------------------------- -------- -------- --------
Income from investment operations:
Net investment income 1.21 1.18 1.16
- -------------------------------------------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) (1.07) 0.34 (0.83)
- -------------------------------------------- -------- -------- --------
Total from investment operations 0.14 1.52 0.33
- -------------------------------------------- -------- -------- --------
Less distributions:
Dividends from net investment income (1.21) (1.18) (1.20)
- -------------------------------------------- -------- -------- --------
Net asset value, end of period $ 8.94 $ 10.01 $ 9.67
============================================ ======== ======== ========
Total return(b) 1.18% 16.41% 3.07%
============================================ ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $261,920 $274,631 $242,858
============================================ ======== ======== ========
Ratio of expenses to average net assets 0.99% 0.96%(e) 0.92%
============================================ ======== ======== ========
Ratio of net investment income to average
net assets 12.40% 11.84%(f) 11.21%
============================================ ======== ======== ========
Portfolio turnover rate 36% 76% 81%
============================================ ======== ======== ========
</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 $1,052,462,336.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly
the ratio of expenses to average net assets would have been the same.
(e) Ratios of expenses to average net assets prior to reduction of advisory fees
were 1.22% and 1.00% for years 1990 and 1988, respectively.
(f) Ratios of net investment income to average net assets prior to reduction of
advisory fees were 13.58% and 11.80% for years 1990 and 1988, respectively.
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- -------- -------- -------
<S> <C> <C> <C> <C>
CLASS B:
Net asset value, beginning of period $ 9.42 $ 8.92 $ 10.04 $ 9.96
- ------------------------------------------------------------ ---------- -------- -------- -------
Income from investment operations:
Net investment income 0.85 0.85 0.87 0.32
- ------------------------------------------------------------ ---------- -------- -------- -------
Net gains (losses) on securities (both realized and
unrealized) 0.47 0.52 (1.10) 0.07
- ------------------------------------------------------------ ---------- -------- -------- -------
Total from investment operations 1.32 1.37 (0.23) 0.39
- ------------------------------------------------------------ ---------- -------- -------- -------
Less distributions:
Dividends from net investment income (0.86) (0.87) (0.89) (0.31)
- ------------------------------------------------------------ ---------- -------- -------- -------
Net asset value, end of period $ 9.88 $ 9.42 $ 8.92 $ 10.04
============================================================ ========== ======== ======== =======
Total return(a) 14.68% 15.91% (2.48)% 4.00%
============================================================ ========== ======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,068,060 $557,926 $191,338 $31,264
============================================================ ========== ======== ======== =======
Ratio of expenses to average net assets 1.68%(b)(c) 1.73% 1.80% 1.93%(d)
============================================================ ========== ======== ======== =======
Ratio of net investment income to average net assets 8.95%(b) 9.18% 9.27% 8.99%(d)
============================================================ ========== ======== ======== =======
Portfolio turnover rate 77% 61% 53% 53%
============================================================ ========== ======== ======== =======
</TABLE>
(a) Total returns do 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 $808,336,751.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
NOTE 8-SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
FS-50
<PAGE> 309
INDEPENDENT AUDITORS' REPORT
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, 1996, and the related statement of operations
for the year then ended, the statement of changes in 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 four-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, 1996, 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, 1996, 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
four-year period then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
FS-51
<PAGE> 310
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED NON-
CONVERTIBLE BONDS & NOTES-61.41%
ADVERTISING/BROADCASTING-5.08%
Echostar Satellite Broadcasting,
Sr. Disc. Notes, 13.125%,
03/15/04(b) $ 3,000,000 $ 2,280,000
- ---------------------------------------------------------------
Katz Media Corp.,
Sr. Sub. Notes, 10.50%, 01/15/07
(acquired 12/13/96; cost
$400,000)(c) 400,000 410,500
- ---------------------------------------------------------------
SFX Broadcasting, Inc.,
Series B Sr. Sub. Notes, 10.75%,
05/15/06 1,000,000 1,057,500
- ---------------------------------------------------------------
Time Warner, Inc.,
Deb., 9.15%, 02/01/23 8,500,000 9,454,805
- ---------------------------------------------------------------
Deb., 6.85%, 01/15/26 4,300,000 4,227,717
- ---------------------------------------------------------------
United International Holdings, Inc.,
Sr. Disc. Notes, 12.78%,
11/15/99(d) 2,000,000 1,442,500
- ---------------------------------------------------------------
18,873,022
- ---------------------------------------------------------------
AIRLINES-2.34%
Airplanes Pass Through Trust,
Sub. Bonds, 10.875%, 03/15/19 1,810,000 2,010,240
- ---------------------------------------------------------------
Delta Air Lines, Inc.,
Equipment Trust Certificates,
10.50%, 04/30/16 5,000,000 6,108,200
- ---------------------------------------------------------------
Greenwich Air Services, Inc.,
Sr. Notes, 10.50%, 06/01/06 530,000 569,750
- ---------------------------------------------------------------
8,688,190
- ---------------------------------------------------------------
AUTOMOBILE (MANUFACTURERS)-2.09%
General Motors Corp.,
Deb., 8.80%, 03/01/21 6,700,000 7,748,081
- ---------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS & TIRES-0.18%
CSK Auto Inc.,
Sr. Sub. Notes, 11.00%, 11/01/06
(acquired 10/23/96; cost
$650,000)(c) 650,000 675,188
- ---------------------------------------------------------------
BANKING-3.50%
Bankers Trust New York Corp.,
Gtd. Notes, 7.75%, 12/01/26
(acquired 11/22/96; cost
$2,932,770)(c) 3,000,000 2,884,245
- ---------------------------------------------------------------
First Union Bancorp,
Sub. Deb., 7.50%, 04/15/35 5,300,000 5,587,207
- ---------------------------------------------------------------
HSBC Americas Inc.,
Sub. Notes, 7.00%, 11/01/06 2,000,000 1,978,400
- ---------------------------------------------------------------
Sovereign Bancorp, Inc.,
Sub. Notes, 8.00%, 03/15/03 2,500,000 2,551,500
- ---------------------------------------------------------------
13,001,352
- ---------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-3.88%
Coca-Cola Enterprises, Inc.,
Putable Notes, 7.24%, 06/20/20(d) 74,000,000 14,405,580
- ---------------------------------------------------------------
CABLE TELEVISION-3.47%
Comcast UK Cable Partners Ltd.,
Sr. Yankee Disc. Deb., 11.20%,
11/15/07(b) 5,000,000 3,550,000
- ---------------------------------------------------------------
Fundy Cable Ltd.,
Sr. Yankee Sec. Second Priority
Notes, 11.00%, 11/15/05 410,000 435,625
- ---------------------------------------------------------------
Heartland Wireless Communications
Inc.,
Sr. Notes, 14.00%, 10/15/04
(acquired 12/17/96; cost
$720,000)(c) 720,000 748,800
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
CABLE TELEVISION-(CONTINUED)
Kabelmedia Holdings GmbH,
Sr. Yankee Disc. Notes, 13.625%,
08/01/06(b) $ 1,400,000 $ 777,000
- ---------------------------------------------------------------
Marcus Cable Operating Co.,
Sr. Disc. Notes, 13.50%,
08/01/04(b) 1,690,000 1,390,025
- ---------------------------------------------------------------
Rifkin Acquisition Partners L.L.P.,
Sr. Sub. Notes, 11.125%, 01/15/06 630,000 655,200
- ---------------------------------------------------------------
TeleWest Communications PLC,
Sr. Yankee Disc. Deb., 11.00%,
10/01/07(b) 1,100,000 765,875
- ---------------------------------------------------------------
Viacom, Inc.,
Sr. Notes, 7.75%, 06/01/05 3,650,000 3,584,300
- ---------------------------------------------------------------
Wireless One, Inc.,
Sr. Notes, 13.00%, 10/15/03 1,000,000 980,000
- ---------------------------------------------------------------
12,886,825
- ---------------------------------------------------------------
CHEMICALS-1.38%
BPC Holding Corp.,
Series B Sr. Notes, 12.50%,
06/15/06 1,000,000 1,056,250
- ---------------------------------------------------------------
Crain Industries, Inc.,
Sr. Sub. Notes, 13.50%, 08/15/05 1,070,000 1,211,775
- ---------------------------------------------------------------
LaRoche Industries, Inc.,
Sr. Sub. Notes, 13.00%, 08/15/04 1,000,000 1,080,000
- ---------------------------------------------------------------
PrintPack Inc.,
Sr. Sub. Notes, 10.625%, 08/15/06
(acquired 08/15/96-09/04/96; cost
$1,035,625)(c) 1,030,000 1,071,200
- ---------------------------------------------------------------
Sterling Chemicals, Inc.,
Sr. Sub. Notes, 11.75%, 08/15/06 680,000 720,800
- ---------------------------------------------------------------
5,140,025
- ---------------------------------------------------------------
CONSUMER NON-DURABLES-0.29%
Hines Horticulture, Inc.,
Sr. Sub. Notes, 11.75%, 10/15/05 1,000,000 1,065,000
- ---------------------------------------------------------------
CONTAINERS-1.01%
Ivex Packaging Corp.,
Sr. Sub. Notes, 12.50%, 12/15/02 1,500,000 1,635,000
- ---------------------------------------------------------------
MVE Inc.,
Sr. Secured Notes, 12.50%,
02/15/02 1,000,000 1,066,250
- ---------------------------------------------------------------
Owens-Illinois, Inc.,
Sr. Sub. Notes, 10.00%, 08/01/02 1,000,000 1,050,000
- ---------------------------------------------------------------
3,751,250
- ---------------------------------------------------------------
ELECTRIC POWER-3.62%
AES China Generating Co.,
Sr. Yankee Notes, 10.125%,
12/15/06 220,000 229,350
- ---------------------------------------------------------------
El Paso Electric Co.,
First Mortgage Bonds, 8.90%,
02/01/06 2,500,000 2,611,325
- ---------------------------------------------------------------
First Mortgage Bonds, 9.40%,
05/01/11 4,000,000 4,255,920
- ---------------------------------------------------------------
Indiana Michigan Power, Secured
Lease
Obligation Bonds, 9.82%, 12/07/22 4,969,949 5,996,343
- ---------------------------------------------------------------
Southern California Edison Co.,
First Mortgage Notes, 8.875%,
05/01/23 357,000 373,036
- ---------------------------------------------------------------
13,465,974
- ---------------------------------------------------------------
ENERGY (ALTERNATE SOURCES)-0.29%
AES Corp.,
Sr. Sub. Notes, 10.25%, 07/15/06 1,000,000 1,075,000
- ---------------------------------------------------------------
</TABLE>
FS-52
<PAGE> 311
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
FINANCE (CONSUMER CREDIT)-2.76%
Associates Corp. of North America,
Series B Sr. Deb., 7.95%, 02/15/10 $ 6,000,000 $ 6,472,860
- ---------------------------------------------------------------
GMAC,
Notes, 9.00%, 10/15/02 3,425,000 3,770,959
- ---------------------------------------------------------------
10,243,819
- ---------------------------------------------------------------
FINANCE (LEASING COMPANIES)-0.55%
Sea Containers, Ltd.,
Series B Sr. Yankee Sub. Deb.,
12.50%, 12/01/04 1,825,000 2,025,750
- ---------------------------------------------------------------
FOOD/PROCESSING-0.85%
Chiquita Brands International, Inc.,
Sr. Notes, 10.25%, 11/01/06 860,000 920,200
- ---------------------------------------------------------------
International Home Foods Inc.,
Sr. Sub. Notes, 10.375%, 11/01/06
(acquired 10/29/96; cost
$520,000)(c) 520,000 543,400
- ---------------------------------------------------------------
Pilgrim's Pride Corp.,
Sr. Sub. Notes, 10.875%, 08/01/03 1,380,000 1,381,725
- ---------------------------------------------------------------
Ralston-Ralston Purina Co.,
Deb., 7.875%, 06/15/25 300,000 307,839
- ---------------------------------------------------------------
3,153,164
- ---------------------------------------------------------------
FOREIGN GOVERNMENT SECURITIES-3.27%
Province Of Manitoba,
Yankee Bonds, 7.75%, 07/17/16 7,500,000 7,842,075
- ---------------------------------------------------------------
Province of Ontario,
Sr. Notes, 8.00%, 03/11/03 5,350,000 4,302,505
- ---------------------------------------------------------------
12,144,580
- ---------------------------------------------------------------
GAMING-1.08%
Coast Hotels & Casinos Inc.,
Series B Secured First Mortgage
Gtd. Notes, 13.00%, 12/15/02 1,160,000 1,284,700
- ---------------------------------------------------------------
Showboat, Inc.,
First Mortgage Notes, 9.25%,
05/01/08 2,000,000 1,977,500
- ---------------------------------------------------------------
Trump Atlantic City Associates,
Secured First Mortgage Gtd. Notes,
11.25%, 05/01/06 760,000 756,200
- ---------------------------------------------------------------
4,018,400
- ---------------------------------------------------------------
GAS DISTRIBUTION-0.58%
Ferrellgas Partners, Sr.
Notes, 9.375%, 06/15/06 2,100,000 2,144,625
- ---------------------------------------------------------------
HOME BUILDING-0.21%
Continental Homes Holdings Corp.,
Sr. Notes, 10.00%, 04/15/06 745,000 771,075
- ---------------------------------------------------------------
HOTELS/MOTELS-1.42%
ITT Corp.,
Gtd. Deb., 7.375%, 11/15/15 3,350,000 3,219,819
- ---------------------------------------------------------------
John Q. Hammons Hotels Inc.,
Gtd. First Mortgage Notes, 9.75%,
10/01/05 2,000,000 2,045,000
- ---------------------------------------------------------------
5,264,819
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-0.27%
Americo Life Inc.,
Sr. Sub. Notes, 9.25%, 06/01/05 1,000,000 1,000,000
- ---------------------------------------------------------------
LEISURE & RECREATION-0.65%
Cobblestone Golf Group Inc.,
Series B Sr. Notes, 11.50%,
06/01/03 1,000,000 1,046,250
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
LEISURE & RECREATION-(CONTINUED)
Icon Health & Fitness Inc.,
Sr. Sub. Notes, 13.00%, 07/15/02 $ 1,200,000 $ 1,363,500
- ---------------------------------------------------------------
2,409,750
- ---------------------------------------------------------------
MACHINERY (HEAVY)-2.09%
Caterpillar Inc.,
Deb., 9.375%, 08/15/11 5,000,000 5,999,900
- ---------------------------------------------------------------
Fairfield Manufacturing Co., Inc.,
Sr. Sub. Notes, 11.375%, 07/01/01 1,000,000 1,050,000
- ---------------------------------------------------------------
PrimeCo. Inc.,
Sr. Sub. Notes, 12.75%, 03/01/05 627,000 717,915
- ---------------------------------------------------------------
7,767,815
- ---------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.57%
AM General Corp.,
Sr. Notes, 12.875%, 05/01/02 1,100,000 1,051,875
- ---------------------------------------------------------------
Interlake Corp.,
Sr. Notes, 12.00%, 11/15/01 1,000,000 1,076,250
- ---------------------------------------------------------------
2,128,125
- ---------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-0.31%
Dynacare Inc.,
Sr. Yankee Notes, 10.75%, 01/15/06 1,140,000 1,157,100
- ---------------------------------------------------------------
MEDICAL INSTRUMENTS/PRODUCTS-0.59%
Dade International Inc.,
Series B Sr. Sub. Notes, 11.125%,
05/01/06 1,000,000 1,087,500
- ---------------------------------------------------------------
Graphic Controls Corp., Series A
Sr. Sub. Notes, 12.00%, 09/15/05 980,000 1,090,250
- ---------------------------------------------------------------
2,177,750
- ---------------------------------------------------------------
METALS-0.65%
Rio Algom Ltd.,
Yankee Deb., 7.05%, 11/01/05 2,500,000 2,430,650
- ---------------------------------------------------------------
NATURAL GAS PIPELINE-1.69%
Transco Energy Co.,
Deb., 9.875%, 06/15/20 5,000,000 6,294,200
- ---------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-3.01%
Abraxas Petroleum Corp.,
Sr. Notes, 11.50%, 11/01/04
(acquired 11/05/96-12/03/96; cost
$1,135,850)(c) 1,130,000 1,211,925
- ---------------------------------------------------------------
Anadarko Petroleum Corp.,
Deb., 7.25%, 03/15/25 5,000,000 5,152,050
- ---------------------------------------------------------------
Mariner Energy Corp.,
Sr. Sub. Notes, 10.50%, 08/01/06
(acquired 08/12/96-09/04/96; cost
$1,043,294)(c) 1,040,000 1,107,600
- ---------------------------------------------------------------
Talisman Energy, Inc.,
Yankee Deb., 7.125%, 06/01/07 3,750,000 3,693,450
- ---------------------------------------------------------------
11,165,025
- ---------------------------------------------------------------
OIL & GAS (INTEGRATED)-0.81%
Husky Oil Ltd.,
Sr. Yankee Notes, 7.125%, 11/15/06 2,000,000 1,984,480
- ---------------------------------------------------------------
Wainoco Oil Corp.,
Sr. Notes, 12.00%, 08/01/02 1,000,000 1,030,000
- ---------------------------------------------------------------
3,014,480
- ---------------------------------------------------------------
OIL & GAS (REFINING/MARKETING)-0.27%
Petroleum Heat & Power Co., Inc.,
Sub. Deb., 12.25%, 02/01/05 890,000 991,238
- ---------------------------------------------------------------
</TABLE>
FS-53
<PAGE> 312
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
OIL & GAS (SERVICES)-1.34%
Falcon Drilling Co., Inc.,
Series B Sr. Notes, 9.75%,
01/15/01 $ 410,000 $ 431,525
- ---------------------------------------------------------------
Sun Co., Inc.,
Deb., 9.00%, 11/01/24 4,000,000 4,536,880
- ---------------------------------------------------------------
4,968,405
- ---------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.93%
RAPP International Finance, Gtd.
Yankee Sec. Notes, 11.50%,
12/15/00 970,000 1,030,625
- ---------------------------------------------------------------
Repap New Brunswick,
Sr. Yankee Second Priority Sec.
Notes, 10.625%, 04/15/05 1,110,000 1,165,500
- ---------------------------------------------------------------
Riverwood International Corp.,
Sr. Gtd. Sub. Notes, 10.875%,
04/01/08 1,360,000 1,264,800
- ---------------------------------------------------------------
3,460,925
- ---------------------------------------------------------------
POLLUTION CONTROL-0.30%
Norcal Waste Systems Inc.,
Series B Sr. Gtd. Notes, 13.00%,
11/15/05 1,000,000 1,115,000
- ---------------------------------------------------------------
PUBLISHING-2.15%
News America Holdings, Inc.,
Sr. Gtd. Deb., 9.25%, 02/01/13 7,100,000 7,983,595
- ---------------------------------------------------------------
RAILROADS-0.26%
Johnstown America Industries, Inc.,
Sr. Sub. Notes, 11.75%, 08/15/05 1,000,000 965,000
- ---------------------------------------------------------------
REAL ESTATE-0.21%
Finova Capital Corp.,
Notes, 7.40%, 05/06/06 750,000 765,428
- ---------------------------------------------------------------
RETAIL (FOOD & DRUG)-1.07%
Great Atlantic & Pacific Tea Co.,
Inc., Yankee Notes, 7.78%, 11/01/00
(acquired 10/18/95; cost
$3,900,000)(c) 3,900,000 3,975,056
- ---------------------------------------------------------------
RETAIL (STORES)-1.14%
Samsonite Corp.,
Sr. Sub. Notes, 11.125%, 07/15/05 900,000 1,018,125
- ---------------------------------------------------------------
Specialty Retailers Inc.,
Sr. Sub. Notes, 11.00%, 08/15/03 2,000,000 2,110,000
- ---------------------------------------------------------------
United Stationer Supply,
Sr. Sub. Notes, 12.75%, 05/01/05 1,000,000 1,115,000
- ---------------------------------------------------------------
4,243,125
- ---------------------------------------------------------------
SCHOOLS-0.48%
Herff Jones Inc.,
Sr. Sub. Notes, 11.00%, 08/15/05 1,000,000 1,081,250
- ---------------------------------------------------------------
Scholastic Brands Inc.,
Sr. Sub. Notes, 11.00%, 01/15/07
(acquired 12/10/96-12/12/96; cost
$710,494)(c) 705,000 720,862
- ---------------------------------------------------------------
1,802,112
- ---------------------------------------------------------------
SEMICONDUCTORS-0.32%
Advanced Micro Devices, Inc.,
Sr. Notes, 11.00%, 08/01/03 1,100,000 1,199,000
- ---------------------------------------------------------------
STEEL-0.71%
Gulf States Steel Corp.,
First Mortgage Notes, 13.50%,
04/15/03 1,650,000 1,575,750
- ---------------------------------------------------------------
GS Industries, Inc.,
Sr. Notes, 12.00%, 09/01/04 1,000,000 1,043,750
- ---------------------------------------------------------------
2,619,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
TELECOMMUNICATIONS-2.81%
Arch Communications Group, Inc.,
Sr. Disc. Notes, 10.875%,
03/15/08(b) $ 630,000 $ 363,825
- ---------------------------------------------------------------
Clearnet Communications Inc.,
Sr. Yankee Disc. Notes, 14.75%,
12/15/05(b) 1,780,000 1,114,725
- ---------------------------------------------------------------
PriCellular Wireless Corp.,
Sr. Notes, 10.75%, 11/01/04
(acquired 10/30/96; cost
$430,000)(c) 430,000 449,887
- ---------------------------------------------------------------
ProNet, Inc.,
Sr. Sub. Notes, 11.875%, 06/15/05 1,000,000 950,000
- ---------------------------------------------------------------
Sygnet Wireless Inc.,
Sr. Notes, 11.50%, 10/01/06 580,000 601,750
- ---------------------------------------------------------------
TCI Communications Inc.,
Deb., 8.75%, 08/01/15 6,000,000 5,946,660
- ---------------------------------------------------------------
Teleport Communications Group Inc.,
Sr. Disc. Notes, 11.125%,
07/01/07(b) 1,500,000 1,038,750
- ---------------------------------------------------------------
10,465,597
- ---------------------------------------------------------------
TELEPHONE-0.20%
Phonetel Technologies, Inc.,
Sr. Notes, 12.00%, 12/15/06 740,000 767,750
- ---------------------------------------------------------------
TRANSPORTATION-0.73%
Gearbulk Holdings, Ltd.,
Sr. Notes, 11.25%, 12/01/04 1,000,000 1,105,000
- ---------------------------------------------------------------
Stena A.B.,
Sr. Yankee Notes, 10.50%, 12/15/05 1,500,000 1,627,500
- ---------------------------------------------------------------
2,732,500
- ---------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes 228,140,845
- ---------------------------------------------------------------
U.S. DOLLAR DENOMINATED CONVERTIBLE
BONDS & NOTES-2.63%
ADVERTISING/BROADCASTING-0.14%
Omnicom Group, Inc.,
Conv. Sub. Deb., 4.25%, 01/03/07
(acquired 12/11/96; cost
$500,000)(c) 500,000 518,500
- ---------------------------------------------------------------
AIRLINES-0.60%
Continental Airlines, Inc.,
Conv. Sub. Notes, 6.75%, 04/15/06
(acquired 02/27/96; cost
$1,999,275)(c) 2,000,000 2,244,260
- ---------------------------------------------------------------
COMPUTER NETWORKING-0.48%
3Com Corp.,
Conv. Sub. Notes, 10.25%, 11/01/01
(acquired 11/08/94; cost
$800,000)(c) 800,000 1,781,304
- ---------------------------------------------------------------
POLLUTION CONTROL-0.33%
U.S. Filter Corp.,
Conv. Sub. Notes, 4.50%, 12/15/01 1,200,000 1,221,648
- ---------------------------------------------------------------
TRANSPORTATION-1.08%
Laidlaw, Inc.,
Yankee Conv. Deb., 6.00%, 01/15/99
(acquired 08/19/96-08/23/96; Cost
$3,955,000)(c) 3,000,000 4,005,000
- ---------------------------------------------------------------
Total U.S. Dollar Denominated
Convertible Bonds & Notes 9,770,712
- ---------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
NON-CONVERTIBLE BONDS &
NOTES(e)-8.07%
CANADA-5.82%
Bank of Montreal (Banking),
Sub. Deb., 7.92%, 07/31/12 CAD 4,000,000 3,182,648
- ---------------------------------------------------------------
</TABLE>
FS-54
<PAGE> 313
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
CANADA-(CONTINUED)
Bell Canada (Telecommunications),
Deb., 10.875, 10/11/04 CAD 3,000,000 $ 2,735,996
- ---------------------------------------------------------------
Canadian Oil Debco Inc. (Oil & Gas),
Deb., 11.00%, 10/31/00 4,495,000 3,847,323
- ---------------------------------------------------------------
NAV Canada (Transportation),
Bonds, 7.40%, 06/01/27 2,500,000 1,810,779
- ---------------------------------------------------------------
Rogers Cablesystems (Cable Television),
Sr. Sec. Priority Deb., 9.65%,
01/15/14 1,750,000 1,226,904
- ---------------------------------------------------------------
Teleglobe Canada, Inc.
(Telecommunications),
Deb., 8.35%, 06/20/03 5,000,000 4,030,162
- ---------------------------------------------------------------
Trans-Canada Pipelines (Oil & Gas),
Notes, 8.55%, 02/01/06 3,000,000 2,455,342
- ---------------------------------------------------------------
Series Q Deb., 10.625%, 10/20/09 1,750,000 1,639,323
- ---------------------------------------------------------------
Westcoast Energy Inc.,
(Electric Power), Deb., 6.45%,
12/18/06 (acquired 12/03/96; cost
$739,169)(c) 1,000,000 712,336
- ---------------------------------------------------------------
21,640,813
- ---------------------------------------------------------------
GERMANY-2.25%
International Bank for
Reconstruction & Development
(Supranational Organization),
Unsub. Global Bonds, 7.125%,
04/12/05 DEM 8,800,000 6,204,126
- ---------------------------------------------------------------
LKB Global (Banking),
Gtd. Notes, 6.00%, 01/25/06 3,300,000 2,149,890
- ---------------------------------------------------------------
8,354,016
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Non-Convertible
Bonds & Notes 29,994,829
- ---------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
CONVERTIBLE BONDS &
NOTES(e)-7.18%
JAPAN-4.52%
JUSCO Co. (Consumer Non-Durables),
Conv. Deb., 1.20%, 02/20/01 JPY 220,000,000 3,424,143
- ---------------------------------------------------------------
Matsushita Electric Industrial Co.
Ltd. (Electronic
Components/Miscellaneous),
Conv. Bonds, 1.30%, 03/29/02 250,000,000 2,558,069
- ---------------------------------------------------------------
Sony Corp. (Electronic Components/
Miscellaneous),
Conv. Bonds, 0.15%, 03/30/01 370,000,000 3,754,952
- ---------------------------------------------------------------
Conv. Bonds, 1.40%, 09/30/03 30,000,000 362,663
- ---------------------------------------------------------------
Toyota Motor Corp. (Automobile-Manufacturers),
Conv. Bonds, 1.20%, 01/28/98 455,000,000 6,677,079
- ---------------------------------------------------------------
16,776,906
- ---------------------------------------------------------------
SWITZERLAND-1.04%
Aderans Co. Ltd. (Cosmetics &
Toiletries),
Conv. Deb., 0.875%, 08/31/98 CHF 2,000,000 1,550,243
- ---------------------------------------------------------------
Yamada Denki Co. Ltd.
(Retail-Stores),
Conv. Notes, 0.25%, 03/31/00 2,700,000 2,309,675
- ---------------------------------------------------------------
3,859,918
- ---------------------------------------------------------------
UNITED KINGDOM-1.62%
LASMO PLC (Oil Equipment &
Supplies),
Conv. Bonds, 7.75%, 10/04/05 GBP 3,700,000 6,021,929
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Convertible Bonds
& Notes 26,658,753
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED
GOVERNMENT BONDS & NOTES(e)-12.29%
AUSTRALIA-3.47%
Australian Government, Bonds, 6.75%,
11/15/06 AUD 4,000,000 $ 3,043,542
- ---------------------------------------------------------------
Bonds, 10.00%, 10/15/07 6,400,000 6,044,442
- ---------------------------------------------------------------
Treasury Corp. of Victoria
Local Government, Gtd. Deb.,
12.00%, 09/22/01 4,000,000 3,803,799
- ---------------------------------------------------------------
12,891,783
- ---------------------------------------------------------------
CANADA-0.62%
Canadian Government,
Gtd. Deb., 7.00%, 12/01/06 CAD 3,000,000 2,290,586
- ---------------------------------------------------------------
DENMARK-0.76%
Kingdom of Denmark,
Gtd. Deb., 8.00%, 11/15/01 DKK 15,000,000 2,826,441
- ---------------------------------------------------------------
GERMANY-2.94%
Bundesrepublik Deutschland Deb.,
6.00%, 09/15/03 DEM 7,000,000 4,727,775
- ---------------------------------------------------------------
Deb., 6.75%, 07/15/04 5,250,000 3,662,854
- ---------------------------------------------------------------
Deb., 6.875%, 05/12/05 3,600,000 2,520,795
- ---------------------------------------------------------------
10,911,424
- ---------------------------------------------------------------
SWEDEN-1.68%
Swedish Government
Bonds, 10.25%, 05/05/03 SEK 19,000,000 3,388,429
- ---------------------------------------------------------------
Bonds, 6.00%, 02/09/05 20,000,000 2,841,244
- ---------------------------------------------------------------
6,229,673
- ---------------------------------------------------------------
UNITED KINGDOM-2.82%
United Kingdom Treasury Notes,
8.00%, 12/07/00 GBP 1,500,000 2,641,511
- ---------------------------------------------------------------
7.00%, 11/06/01 1,500,000 2,543,087
- ---------------------------------------------------------------
7.50%, 12/07/06 3,100,000 5,306,798
- ---------------------------------------------------------------
10,491,396
- ---------------------------------------------------------------
Total Non-U.S. Dollar
Denominated Government Bonds &
Notes 45,641,303
- ---------------------------------------------------------------
U.S. DOLLAR DENOMINATED CONVERTIBLE
PREFERRED STOCKS-4.23%
<CAPTION>
SHARES
<S> <C> <C>
ADVERTISING/BROADCASTING-0.51%
News Corp. Ltd.,-
$5.00 Conv. Pfd.
(acquired 11/04/96; cost
$2,000,000)(c)(f) 20,000 1,887,500
- ---------------------------------------------------------------
Time Warner Inc.-Series M
$102.50 PIK Conv. Pfd. .4 395
- ---------------------------------------------------------------
1,887,895
- ---------------------------------------------------------------
AEROSPACE/DEFENSE-0.31%
Loral Space & Communications-
$3.00 Conv. Pfd.
(acquired 11/01/96; cost
$1,000,000)(c) 20,000 1,137,500
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-0.39%
Microsoft Corp.-Series A,
$2.196 Conv. Pfd. 18,000 1,442,250
- ---------------------------------------------------------------
</TABLE>
FS-55
<PAGE> 314
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRIC POWER-0.58%
Citizens Utilities Co.-
$2.50 Conv. Pfd. 45,000 $ 2,148,750
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-0.61%
SunAmerica, Inc.-
$3.188 Conv. Pfd. 53,350 2,254,038
- ---------------------------------------------------------------
INSURANCE (LIFE & HEALTH)-1.07%
Conseco Inc.-
$4.278 Conv. PRIDES 35,000 3,981,250
- ---------------------------------------------------------------
OIL & GAS (REFINING/MARKETING)-0.28%
Tosco Financing Trust-
$2.875 Conv. Pfd.
(acquired 12/10/96-12/11/96; cost
$1,006,950)(c) 20,000 1,042,500
- ---------------------------------------------------------------
RETAIL (STORES)-0.48%
Kmart Financing-
$3.875 Conv. Pfd. 37,000 1,803,750
- ---------------------------------------------------------------
Total U.S. Dollar Denominated
Convertible Preferred Stocks 15,697,933
===============================================================
COMMON STOCKS-0.40%
UTILITIES-0.40%
National Power PLC-ADR 24,300 823,162
- ---------------------------------------------------------------
PowerGen PLC-ADR 17,300 683,350
- ---------------------------------------------------------------
Total Common Stocks 1,506,512
- ---------------------------------------------------------------
WARRANTS-0.03%
CABLE TELEVISION-0.00%
Wireless One, Inc.,
expiring 10/19/00(g) 2,670 2,670
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONTAINERS-0.01%
MVE Inc.,
expiring 02/15/02(g) 1,000 $ 30,000
- ---------------------------------------------------------------
LEISURE & RECREATION-0.01%
IHF Capital Inc.,
expiring 11/14/99(g) 1,200 48,000
- ---------------------------------------------------------------
STEEL-0.00%
Gulf States Steel Corp.,
expiring 04/15/03(g) 1,650 8,250
- ---------------------------------------------------------------
TELECOMMUNICATIONS-0.01%
Clearnet Communications Inc.,
expiring 09/15/05(g) 5,874 35,244
- ---------------------------------------------------------------
Total Warrants 124,164
===============================================================
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES-0.12%
U.S. Treasury Bonds,
6.75%, 08/15/26 $ 450,000 453,614
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS-1.83%(h)
HSBC Securities, Inc.,
7.05%, 01/02/97(i) 210,059 210,059
- ---------------------------------------------------------------
UBS Securities, Inc.,
7.05%, 01/02/97(j) 6,589,941 6,589,941
- ---------------------------------------------------------------
Total Repurchase Agreements 6,800,000
- ---------------------------------------------------------------
TOTAL INVESTMENTS-98.19% 364,788,665
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-1.81% 6,737,729
- ---------------------------------------------------------------
NET ASSETS-100.00% $371,526,394
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Principal amount is in U.S. Dollars, except as indicated by note (e).
(b) Discounted bond at purchase. Interest rate represents coupon rate at which
the bond will accrue at a specified future date.
(c) 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, 1996 was
$28,215,063 which represented 7.59% of the Fund's net assets.
(d) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount.
(e) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(f) Issued as a unit. This unit also includes 20,000 warrants to purchase
shares of common stock.
(g) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(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% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(i) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$300,117,500. Collateralized by $633,913,662 U.S. Treasury obligations, 0%
to 8.00% due 05/01/19 to 11/01/35.
(j) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$550,215,417. Collateralized by $732,485,305 U.S. Government obligations,
0% to 9.50% due 01/01/98 to 12/15/26.
Abbreviations:
<TABLE>
<S> <C> <C>
ADR - American Depository Receipts Gtd. - Guaranteed
AUD - Australian Dollar JPY - Japanese Yen
CAD - Canadian Dollar PIK - Payment in Kind
CHF - Swiss Franc PRIDES - Preferred Redemption Increase
Conv. - Convertible Dividend Equity Security
Deb. - Debentures Sec. - Secured
DEM - German Deutschemark SEK - Swedish Krona
Disc. - Discounted Sr. - Senior
DKK - Danish Krone Sub. - Subordinated
GBP - British Pound Sterling Unsub. - Unsubordinated
</TABLE>
See Notes to Financial Statements.
FS-56
<PAGE> 315
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$349,179,780) $364,788,665
- ---------------------------------------------------------
Foreign currencies, at value (cost
$249,071) 249,969
- ---------------------------------------------------------
Receivables for:
Forward currency contracts 901,610
- ---------------------------------------------------------
Fund shares sold 712,759
- ---------------------------------------------------------
Interest 6,657,133
- ---------------------------------------------------------
Investment for deferred compensation plan 68,881
- ---------------------------------------------------------
Other assets 38,223
- ---------------------------------------------------------
Total assets 373,417,240
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 500,000
- ---------------------------------------------------------
Fund shares reacquired 207,833
- ---------------------------------------------------------
Dividends to shareholders 550,302
- ---------------------------------------------------------
Deferred compensation plan 68,881
- ---------------------------------------------------------
Accrued advisory fees 142,103
- ---------------------------------------------------------
Accrued distribution fees 260,851
- ---------------------------------------------------------
Accrued administrative service fees 7,180
- ---------------------------------------------------------
Accrued transfer agent fees 59,475
- ---------------------------------------------------------
Accrued trustees' fees 1,811
- ---------------------------------------------------------
Accrued operating expenses 92,410
- ---------------------------------------------------------
Total liabilities 1,890,846
- ---------------------------------------------------------
Net assets applicable to shares outstanding $371,526,394
- ---------------------------------------------------------
NET ASSETS:
Class A $286,182,914
=========================================================
Class B $ 85,343,480
- ---------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE
Class A 34,717,454
=========================================================
Class B 10,374,382
=========================================================
CLASS A:
Net asset value and redemption price per
share $ 8.24
- ---------------------------------------------------------
Offering price per share:
(Net asset value of $8.24 divided by
95.25%) $ 8.65
- ---------------------------------------------------------
CLASS B:
Net asset value and offering price per
share $ 8.23
- ---------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 26,009,436
- ---------------------------------------------------------
Dividends (net of $42,327 foreign
withholding tax) 536,443
- ---------------------------------------------------------
Total investment income 26,545,879
- ---------------------------------------------------------
EXPENSES:
Advisory fees 1,510,254
- ---------------------------------------------------------
Custodian fees 82,806
- ---------------------------------------------------------
Distribution fees -- Class A 656,254
- ---------------------------------------------------------
Distribution fees -- Class B 650,621
- ---------------------------------------------------------
Trustees' fees 7,730
- ---------------------------------------------------------
Transfer agent fees -- Class A 351,979
- ---------------------------------------------------------
Transfer agent fees -- Class B 134,221
- ---------------------------------------------------------
Administrative service fees 75,132
- ---------------------------------------------------------
Other 266,163
- ---------------------------------------------------------
Total expenses 3,735,160
- ---------------------------------------------------------
Less: Expenses paid indirectly (5,398)
- ---------------------------------------------------------
Net expenses 3,729,762
- ---------------------------------------------------------
Net investment income 22,816,117
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCY AND FORWARD CURRENCY
CONTRACT TRANSACTIONS
Net realized gain (loss) from:
Investment securities 699,083
- ---------------------------------------------------------
Foreign currency transactions (182,290)
- ---------------------------------------------------------
Forward currency contracts 1,599,434
- ---------------------------------------------------------
2,116,227
- ---------------------------------------------------------
Unrealized appreciation (depreciation) of:
Investment securities 3,516,763
- ---------------------------------------------------------
Foreign currency transactions (74,980)
- ---------------------------------------------------------
Forward currency contracts 796,581
- ---------------------------------------------------------
4,238,364
- ---------------------------------------------------------
Net realized and unrealized gain from
investment securities, foreign currency
transactions and forward currency
contracts 6,354,591
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $ 29,170,708
- ---------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
FS-57
<PAGE> 316
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 22,816,117 $ 18,156,289
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currency transactions and forward currency contracts 2,116,227 9,871,598
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investment securities,
foreign currency transactions and forward currency
contracts 4,238,364 21,434,843
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 29,170,708 49,462,730
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (19,414,227) (16,600,806)
- --------------------------------------------------------------------------------------------
Class B (4,277,769) (1,555,483)
- --------------------------------------------------------------------------------------------
Distributions in excess of net investment income:
Class A -- (889,987)
- --------------------------------------------------------------------------------------------
Class B -- (95,903)
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A 31,245,815 22,105,318
- --------------------------------------------------------------------------------------------
Class B 39,218,171 29,160,108
- --------------------------------------------------------------------------------------------
Net increase in net assets 75,942,698 81,585,977
- --------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 295,583,696 213,997,719
- --------------------------------------------------------------------------------------------
End of period $371,526,394 $295,583,696
============================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $360,736,285 $290,272,299
- --------------------------------------------------------------------------------------------
Undistributed net investment income 33,129 846,817
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from sales of
investment securities, foreign currencies and forward
contract transactions (5,745,170) (7,799,206)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and forward contract transactions 16,502,150 12,263,786
- --------------------------------------------------------------------------------------------
$371,526,394 $295,583,696
============================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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. The Fund's investment objective is to seek 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. 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. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuations -- Debt obligations 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
FS-58
<PAGE> 317
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 or absent a last sales price, at the mean
of the closing bid and asked prices. Securities for which market quotations
are either not readily available or are questionable 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. Generally, trading in foreign
securities, as well as corporate bonds and U.S. Government 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 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 December 31, 1996 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ----------------------------- APPRECIATION
DATE DELIVER RECEIVE VALUE (DEPRECIATION)
---------- --------------- ----------- ----------- --------------
<C> <C> <C> <C> <C>
01/30/97 CHF 3,940,000 $ 3,145,709 $ 2,952,970 $192,739
03/10/97 CHF 1,000,000 774,353 752,378 21,975
01/27/97 DEM 11,200,000 7,451,763 7,291,683 160,080
02/19/97 DEM 11,200,000 7,265,179 7,302,086 (36,907)
02/03/97 JPY 630,000,000 5,742,935 5,440,212 302,723
03/05/97 JPY 360,000,000 3,214,286 3,108,817 105,469
03/17/97 JPY 546,000,000 4,870,651 4,715,120 155,531
----------- ----------- --------
$32,464,876 $31,563,266 $901,610
=========== =========== ========
</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. 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 "E" below. On
December 31, 1996, $62,191 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 foreign
currency losses and market discount on securities sold. Net assets of the
Fund were unaffected by the reclassification 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 $4,771,102 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2003. 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
FS-59
<PAGE> 318
$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 services to the Fund. During the year ended December 31, 1996, AIM
was reimbursed $75,132 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 1996, the
Fund paid AFS $305,240 for such services.
The Fund received reductions in transfer agency fees payable to AFS of $5,008
from dividends received on balances in cash management bank accounts. In
addition, pricing service expenses in the amount of $390 were paid through
directed brokerage commissions paid by the Fund. The above arrangements resulted
in a reduction in the Fund's total expenses of $5,398 during the year ended
December 31, 1996.
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 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. AIM Distributors may, from
time to time, assign, transfer or pledge to one or more assignees, its rights to
all or a portion of (a) compensation received by AIM Distributors from the Fund
pursuant to the Class B Plan (but not AIM Distributors' duties and obligations
pursuant to the Class B Plan) and (b) any contingent deferred sales charges
payable to AIM Distributors related to the Class B shares. 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, 1996, the
Class A shares and the Class B shares paid AIM Distributors $656,254 and
$650,621, respectively, as compensation under the Plans.
AIM Distributors received commissions of $248,078 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. 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, 1996,
AIM Distributors received $65,445 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 year ended December 31, 1996, the Fund paid legal fees of $3,564
for services rendered by Kramer, Levin, Naftalis & 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 AIM. 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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 19, 1996, the Fund was
limited to borrowing $4,000,000. During the year ended December 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.08% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-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, 1996 was
$317,733,500 and $254,732,190, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $19,028,658
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,419,773)
- -----------------------------------------------------------
Net unrealized appreciation of investment
securities $15,608,885
===========================================================
Investments have the same cost for tax and financial
statement purposes.
</TABLE>
FS-60
<PAGE> 319
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ -----------------------
SHARES VALUE SHARES VALUE
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 10,956,910 $87,131,342 7,497,108 $58,558,530
- -------------------------------------------------------------------------------------- -----------------------
Class B 7,662,222 60,657,835 4,199,186 32,900,136
- -------------------------------------------------------------------------------------- -----------------------
Issued as
reinvestment of
dividends:
Class A 1,985,876 15,762,291 1,859,312 14,431,705
- -------------------------------------------------------------------------------------- -----------------------
Class B 357,055 2,833,327 131,455 1,024,904
- -------------------------------------------------------------------------------------- -----------------------
Reacquired:
Class A (8,997,073) (71,647,818) (6,603,107) (50,884,917)
- -------------------------------------------------------------------------------------- -----------------------
Class B (3,079,249) (24,272,991) (611,547) (4,764,932)
- -------------------------------------------------------------------------------------- -----------------------
8,885,741 $70,463,986 6,472,407 $51,265,426
====================================================================================== =======================
</TABLE>
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the ten-year period ended December 31, 1996 and for a Class
B share outstanding during each of the years in the three-year period ended
December 31, 1996 and the period September 7, 1993 (date sales commenced)
through December 31, 1993.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992(a) 1991 1990
CLASS A: -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.17 $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41 $ 7.80
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.57 0.58 0.58 0.60 0.60 0.61 0.65
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 0.09 1.00 (1.22) 0.61 (0.03) 0.66 (0.39)
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Total from investment operations 0.66 1.58 (0.64) 1.21 0.57 1.27 0.26
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.59) (0.61) (0.49) (0.60) (0.61) (0.61) (0.65)
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Distributions from net realized capital
gains -- -- (0.01) (0.19) -- -- --
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Return of capital -- -- (0.11) -- -- -- --
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.59) (0.61) (0.61) (0.79) (0.61) (0.61) (0.65)
- ------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 8.24 $ 8.17 $ 7.20 $ 8.45 $ 8.03 $ 8.07 $ 7.41
=========================================== ======== ======== ======== ======== ======== ======== ========
Total return(b) 8.58% 22.77% (7.65)% 15.38% 7.42% 18.00% 3.65%
=========================================== ======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $286,183 $251,280 $201,677 $244,168 $218,848 $231,798 $215,987
=========================================== ======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.98%(c)(d) 0.98% 0.98% 0.98% 0.99%(e) 1.00%(e) 1.00%
=========================================== ======== ======== ======== ======== ======== ======== ========
Ratio of net investment income to average
net assets 7.13%(c) 7.52% 7.53% 7.01% 7.54%(e) 7.97%(e) 8.73%
=========================================== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate 80% 227% 185% 99% 82% 67% 106%
=========================================== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
1989 1988 1987
CLASS A: -------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 7.53 $ 7.55 $ 8.20
- ------------------------------------------- -------- -------- --------
Income from investment operations:
Net investment income 0.66 0.68 0.67
- ------------------------------------------- -------- -------- --------
Net gains (losses) on securities (both
realized and unrealized) 0.32 (0.02) (0.63)
- ------------------------------------------- -------- -------- --------
Total from investment operations 0.98 0.66 0.04
- ------------------------------------------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.71) (0.68) (0.69)
- ------------------------------------------- -------- -------- --------
Distributions from net realized capital
gains -- -- --
- ------------------------------------------- -------- -------- --------
Return of capital -- -- --
- ------------------------------------------- -------- -------- --------
Total distributions (0.71) (0.68) (0.69)
- ------------------------------------------- -------- -------- --------
Net asset value, end of period $ 7.80 $ 7.53 $ 7.55
=========================================== ======== ======== ========
Total return(b) 13.56% 9.01% 0.56%
=========================================== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $229,222 $218,946 $237,466
=========================================== ======== ======== ========
Ratio of expenses to average net assets 0.96% 0.95% 0.84%
=========================================== ======== ======== ========
Ratio of net investment income to average
net assets 8.56% 8.81% 8.64%
=========================================== ======== ======== ========
Portfolio turnover rate 222% 361% 195%
=========================================== ======== ======== ========
</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 $262,501,383.
(d) Includes indirectly paid expenses. Excluding indirectly paid expenses, the
ratio of expenses to average daily net assets would have been 0.97%.
(e) 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.
FS-61
<PAGE> 320
<TABLE>
<CAPTION>
1996 1995 1994 1993
------- ------- ------- ------
CLASS B:
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.15 $ 7.18 $ 8.43 $ 8.95
- ------------------------------------------------------------ ------- ------- ------- ------
Income from investment operations:
Net investment income 0.50 0.53 0.52 0.19
- ------------------------------------------------------------ ------- ------- ------- ------
Net gains (losses) on securities (both realized and
unrealized) 0.11 0.98 (1.23) (0.34)
- ------------------------------------------------------------ ------- ------- ------- ------
Total from investment operations 0.61 1.51 (0.71) (0.15)
- ------------------------------------------------------------ ------- ------- ------- ------
Less distributions:
Dividends from net investment income (0.53) (0.54) (0.42) (0.18)
- ------------------------------------------------------------ ------- ------- ------- ------
Distributions from net realized capital gains -- -- (0.01) (0.19)
- ------------------------------------------------------------ ------- ------- ------- ------
Return of capital -- -- (0.11) --
- ------------------------------------------------------------ ------- ------- ------- ------
Total distributions (0.53) (0.54) (0.54) (0.37)
- ------------------------------------------------------------ ------- ------- ------- ------
Net asset value, end of period $ 8.23 $ 8.15 $ 7.18 $ 8.43
============================================================ ======= ======= ======= ======
Total return(a) 7.87% 21.72% (8.46)% (0.75)%
============================================================ ======= ======= ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $85,343 $44,304 $12,321 $3,602
============================================================ ======= ======= ======= ======
Ratio of expenses to average net assets 1.80%(b)(c) 1.79% 1.83%(d) 1.75%(d)(e)
============================================================ ======= ======= ======= ======
Ratio of net investment income to average net assets 6.30%(b) 6.71% 6.69%(d) 6.24%(d)(e)
============================================================ ======= ======= ======= ======
Portfolio turnover rate 80% 227% 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 $65,062,096.
(c) Includes indirectly paid expenses. Excluding indirectly paid expenses, the
ratio of expenses to average net assets would have been the same.
(d) 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.
(e) Annualized.
NOTE 8-SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
FS-62
<PAGE> 321
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
AIM Intermediate Government Fund:
We have audited the accompanying statement of assets and
liabilities of AIM Intermediate Government Fund (a
portfolio of AIM Funds Group), including the schedule of
investments, as of December 31, 1996, and the related
statement of operations for the year then ended, the
statement of changes in 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 four-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, 1996, 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 Intermediate
Government Fund as of December 31, 1996, 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 four-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
FS-63
<PAGE> 322
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCIES-84.07%
FEDERAL HOME LOAN BANK-2.79%
Medium term notes
7.31%, 07/06/01 $ 4,000,000 $ 4,160,560
- --------------------------------------------------------------
7.36%, 07/01/04 2,800,000 2,927,176
- --------------------------------------------------------------
7,087,736
- --------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.-16.97%
Pass through certificates
9.00%, 12/01/05 to 04/01/25 12,970,540 13,693,804
- --------------------------------------------------------------
8.00%, 07/01/06 to 12/01/06 36,845 37,927
- --------------------------------------------------------------
8.50%, 07/01/07 to 05/01/26 7,571,625 7,865,307
- --------------------------------------------------------------
10.50%, 09/01/09 to 01/01/21 3,717,225 4,121,875
- --------------------------------------------------------------
7.00%, 11/01/10 to 04/01/11 2,356,430 2,358,854
- --------------------------------------------------------------
6.50%, 02/01/11 4,932,127 4,853,509
- --------------------------------------------------------------
10.00%, 11/01/11 to 02/01/16 48,261 52,810
- --------------------------------------------------------------
12.00%, 02/01/13 29,470 33,393
- --------------------------------------------------------------
9.50%, 04/01/25 9,300,140 10,043,421
- --------------------------------------------------------------
43,060,900
- --------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION-51.65%
Debentures
6.59%, 05/24/01 5,000,000 5,061,200
- --------------------------------------------------------------
8.625%, 11/10/04 3,500,000 3,688,370
- --------------------------------------------------------------
8.50%, 02/01/05 4,500,000 4,736,430
- --------------------------------------------------------------
7.875%, 02/24/05 3,000,000 3,227,790
- --------------------------------------------------------------
Pass through certificates
6.625%, 01/31/06 TBA(a) 4,500,000 4,406,580
- --------------------------------------------------------------
8.50%, 01/01/07 to 03/01/07 43,588 45,372
- --------------------------------------------------------------
7.50%, 06/01/10 to 08/01/25 29,071,654 29,360,908
- --------------------------------------------------------------
7.00%, 05/01/11 5,703,245 5,699,652
- --------------------------------------------------------------
8.00%, 09/01/11 to 07/01/26 18,464,593 18,866,082
- --------------------------------------------------------------
8.00%, 01/15/12 to 12/01/26
TBA(a)(b) 47,000,000 48,140,942
- --------------------------------------------------------------
9.50%, 07/01/16 to 08/01/22 3,685,519 3,994,423
- --------------------------------------------------------------
10.50%, 07/01/19 1,223,525 1,352,754
- --------------------------------------------------------------
10.00%, 08/01/20 2,264,208 2,495,564
- --------------------------------------------------------------
131,076,067
- --------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-10.57%
Pass through certificates
9.00%, 10/15/08 to 01/15/21 1,199,419 1,278,588
- --------------------------------------------------------------
9.50%, 06/15/09 to 03/15/23 10,151,345 11,023,608
- --------------------------------------------------------------
10.00%, 11/15/09 to 07/15/24 7,134,689 7,846,562
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION- (CONTINUED)
11.00%, 12/15/09 to 12/15/15 $ 241,254 $ 269,488
- --------------------------------------------------------------
13.50%, 07/15/10 to 04/15/15 486,215 566,671
- --------------------------------------------------------------
12.50%, 11/15/10 282,988 328,266
- --------------------------------------------------------------
13.00%, 01/15/11 to 05/15/15 515,790 600,521
- --------------------------------------------------------------
12.00%, 01/15/13 to 07/15/15 937,964 1,073,377
- --------------------------------------------------------------
10.50%, 07/15/13 to 10/15/21 2,035,778 2,257,458
- --------------------------------------------------------------
8.00%, 03/15/23 1,535,699 1,575,520
- --------------------------------------------------------------
26,820,059
- --------------------------------------------------------------
TENNESSEE VALLEY AUTHORITY-2.09%
Debentures
5.98%, 04/01/36 5,240,000 5,311,002
- --------------------------------------------------------------
Total U.S. Government Agencies 213,355,764
- --------------------------------------------------------------
U.S. TREASURY SECURITIES-30.59%
U.S. TREASURY NOTES & BONDS-29.78%
7.75%, 11/30/99 3,000,000 3,136,110
- --------------------------------------------------------------
6.375%, 01/15/00 to 08/15/02 17,000,000 17,146,730
- --------------------------------------------------------------
5.875%, 06/30/00 2,000,000 1,987,100
- --------------------------------------------------------------
6.25%, 08/31/00 to 04/30/01 13,000,000 13,045,570
- --------------------------------------------------------------
7.00%, 07/15/06 4,000,000 4,156,480
- --------------------------------------------------------------
6.50%, 10/15/06 to 11/15/26 6,500,000 6,478,070
- --------------------------------------------------------------
7.25%, 05/15/16 7,500,000 7,921,200
- --------------------------------------------------------------
7.50%, 11/15/16 5,500,000 5,953,090
- --------------------------------------------------------------
8.125%, 08/15/19 4,000,000 4,623,760
- --------------------------------------------------------------
6.875%, 08/15/25 4,500,000 4,587,795
- --------------------------------------------------------------
6.75%, 08/15/26 6,500,000 6,552,195
- --------------------------------------------------------------
75,588,100
- --------------------------------------------------------------
U.S. TREASURY STRIPS-0.81%(c)
6.64%, 11/15/08 4,000,000 1,835,720
- --------------------------------------------------------------
6.96%, 11/15/18 1,000,000 224,360
- --------------------------------------------------------------
2,060,080
- --------------------------------------------------------------
Total U.S. Treasury Securities 77,648,180
- --------------------------------------------------------------
REPURCHASE AGREEMENT-4.18%(d)
Daiwa Securities America Inc.
6.25%, 01/02/97(e) 10,609,102 10,609,102
- --------------------------------------------------------------
TOTAL INVESTMENTS-118.84% 301,613,046
- --------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-(18.84%) (47,825,605)
- --------------------------------------------------------------
NET ASSETS-100.00% $253,787,441
==============================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) At 12/31/96, cost of securities purchased on a when-issued basis totaled
$52,789,688.
(b) These securities are subject to dollar roll transactions. See Note 1 section
C of Notes to Financial Statements.
(c) 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.
(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. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$360,125,000. Collateralized by $355,195,000 U.S. Treasury obligations, 0%
to 8.875% due 06/12/97 to 08/15/26.
Abbreviations:
TBA - To Be Announced
See Notes to Financial Statements.
FS-64
<PAGE> 323
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$297,052,301) $301,613,046
- ---------------------------------------------------------
Receivables for:
Investments sold 2,784,823
- ---------------------------------------------------------
Fund shares sold 591,646
- ---------------------------------------------------------
Interest 3,024,660
- ---------------------------------------------------------
Investment for deferred compensation plan 20,806
- ---------------------------------------------------------
Other assets 163,213
- ---------------------------------------------------------
Total assets 308,198,194
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 52,813,703
- ---------------------------------------------------------
Fund shares redeemed 746,283
- ---------------------------------------------------------
Dividends 383,446
- ---------------------------------------------------------
Deferred compensation plan 20,806
- ---------------------------------------------------------
Accrued advisory fees 103,396
- ---------------------------------------------------------
Accrued administrative service fees 6,278
- ---------------------------------------------------------
Accrued distribution fees 197,844
- ---------------------------------------------------------
Accrued transfer agent fees 40,792
- ---------------------------------------------------------
Accrued operating expenses 98,205
- ---------------------------------------------------------
Total liabilities 54,410,753
- ---------------------------------------------------------
Net assets applicable to shares outstanding $253,787,441
=========================================================
NET ASSETS:
Class A $174,344,466
=========================================================
Class B $ 79,442,975
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 18,779,238
=========================================================
Class B 8,559,258
=========================================================
Class A:
Net asset value and redemption price per
share $ 9.28
=========================================================
Offering price per share:
(Net asset value of $9.28 divided
by 95.25%) $ 9.74
=========================================================
Class B:
Net asset value and offering price per
share $ 9.28
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 19,355,312
- ---------------------------------------------------------
EXPENSES:
Advisory fees 1,188,121
- ---------------------------------------------------------
Custodian fees 47,171
- ---------------------------------------------------------
Distribution fees -- Class A 437,596
- ---------------------------------------------------------
Distribution fees -- Class B 719,764
- ---------------------------------------------------------
Administrative service fees 71,348
- ---------------------------------------------------------
Interest 185,460
- ---------------------------------------------------------
Transfer agent fees -- Class A 256,058
- ---------------------------------------------------------
Transfer agent fees -- Class B 115,997
- ---------------------------------------------------------
Trustees' fees 7,527
- ---------------------------------------------------------
Other 175,222
- ---------------------------------------------------------
Total expenses 3,204,264
- ---------------------------------------------------------
Less: expenses paid indirectly (4,033)
- ---------------------------------------------------------
Net expenses 3,200,231
- ---------------------------------------------------------
Net investment income 16,155,081
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Net realized gain (loss) on sales of
investment securities (4,339,042)
- ---------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (6,405,094)
- ---------------------------------------------------------
Net gain (loss) on investment securities (10,744,136)
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $ 5,410,945
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-65
<PAGE> 324
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
- --------------------------------------------------------------------------------------------
Net investment income $ 16,155,081 $ 14,368,900
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities (4,339,042) (1,382,949)
- --------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (6,405,094) 16,712,997
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 5,410,945 29,698,948
- --------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (11,114,092) (11,460,957)
- --------------------------------------------------------------------------------------------
Class B (3,966,734) (2,319,847)
- --------------------------------------------------------------------------------------------
Return of capital:
Class A (712,857) (693,899)
- --------------------------------------------------------------------------------------------
Class B (292,831) (162,343)
- --------------------------------------------------------------------------------------------
Share transactions-net:
Class A 5,857,162 5,708,304
- --------------------------------------------------------------------------------------------
Class B 20,988,143 35,091,651
- --------------------------------------------------------------------------------------------
Net increase in net assets 16,169,736 55,861,857
- --------------------------------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------------------------------
Beginning of period 237,617,705 181,755,848
- --------------------------------------------------------------------------------------------
End of period $253,787,441 $237,617,705
============================================================================================
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------
Shares of beneficial interest $265,272,711 $239,433,094
- --------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (19,243) (12,778)
- --------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investment securities (16,026,772) (12,768,450)
- --------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 4,560,745 10,965,839
- --------------------------------------------------------------------------------------------
$253,787,441 $237,617,705
============================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Intermediate Government 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. The Fund's investment objective
is to seek 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. Information
presented in these financial statements pertains only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of 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 the last bid and asked prices based upon quotes furnished by
FS-66
<PAGE> 325
independent sources. Securities for which market quotations are either not
readily available or are questionable 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, 1996, $1,080,720 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, $1,005,688 was reclassified from undistributed net
investment income to paid in capital, consisting of returns of capital. Net
assets of the Fund were unaffected by the reclassifications discussed above.
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 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 $15,870,990 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized,
through the year 2004. 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.
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 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 year ended December 31, 1996, AIM
was reimbursed $71,348 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 1996, the
Fund paid AFS $214,797 for such services.
The Fund received reductions in transfer agency fees payable to AFS of $3,757
from dividends received on balances in cash management bank accounts. In
addition, pricing service expenses in the amount of $276 were paid through
directed brokerage commissions paid by the Fund. The above arrangements resulted
in a reduction in the Fund's total expenses of $4,033 during the year ended
December 31, 1996.
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
FS-67
<PAGE> 326
shares. The Class A Plan is designed to compensate AIM Distributors for certain
promotional and other sales related costs and 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. AIM Distributors may, from time to time, assign, transfer or pledge to
one or more designees, its rights to all or a designated portion of (a)
compensation received by AIM Distributors from the Fund pursuant to the Class B
Plan (but not AIM Distributors' duties and obligations pursuant to the Class B
Plan) and (b) any contingent deferred sales charges received by AIM Distributors
related to the Class B shares. During the year ended December 31, 1996, the
Class A shares and the Class B shares paid AIM Distributors $437,596 and
$719,764 respectively, as compensation under the Plans.
AIM Distributors received commissions of $204,498 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. 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, 1996,
AIM Distributors received $82,525 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 year ended December 31, 1996, the Fund paid legal fees of $3,411
for services rendered by Kramer, Levin, Naftalis & 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 AIM. 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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 19, 1996, the Fund was
limited to borrowing $3,200,000. During the year ended December 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.08% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-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, 1996 was
$338,127,889 and $305,224,638, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $4,952,509
- ---------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (547,546)
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities $4,404,963
=========================================================
Cost of investments for tax purposes is $297,208,083.
</TABLE>
NOTE 6 - SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------
SHARES VALUE SHARES VALUE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A 7,920,265 $74,033,231 5,766,866 $54,292,965
- --------------------- -------------------------------------------------
Class B 5,052,488 47,193,668 4,740,977 44,702,493
- --------------------- -------------------------------------------------
Issued as
reinvestment of
dividends:
Class A 1,025,026 9,536,042 993,993 9,337,931
- --------------------- -------------------------------------------------
Class B 314,728 2,925,034 172,523 1,627,255
- --------------------- -------------------------------------------------
Reacquired:
Class A (8,340,854) (77,712,111) (6,189,567) (57,922,592)
- --------------------- -------------------------------------------------
Class B (3,132,635) (29,130,559) (1,194,246) (11,238,097)
- --------------------- -------------------------------------------------
2,839,018 $26,845,305 4,290,546 $40,799,955
=================================================
</TABLE>
FS-68
<PAGE> 327
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the nine-year period ended December 31, 1996 and the period
April 28, 1987 (date operations commenced) through December 31, 1987 and for a
Class B share outstanding during the three-year period ended December 31, 1996
and the period September 7, 1993 (date sales commenced) through December 31,
1993.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992(a) 1991 1990
CLASS A: -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.70 $ 8.99 $ 10.05 $ 10.19 $ 10.34 $ 9.95 $ 9.91
- ------------------------------------------------- -------- -------- -------- -------- -------- -------- -------
Income from investment operations:
Net investment income 0.63 0.69 0.68 0.74 0.77 0.82 0.87
- ------------------------------------------------- -------- -------- -------- -------- -------- -------- -------
Net gains (losses) on securities (both realized
and unrealized) (0.42) 0.73 (1.02) (0.04) (0.15) 0.41 0.01
- ------------------------------------------------- -------- -------- -------- -------- -------- -------- -------
Total from investment operations 0.21 1.42 (0.34) 0.70 0.62 1.23 0.88
- ------------------------------------------------- -------- -------- -------- -------- -------- -------- -------
Less distributions:
Dividends from net investment income (0.59) (0.67) (0.58) (0.70) (0.74) (0.84) (0.84)
- ------------------------------------------------- -------- -------- -------- -------- -------- -------- -------
Distributions from net realized capital gains -- -- (0.04) (0.14) (0.03) -- --
- ------------------------------------------------- -------- -------- -------- -------- -------- -------- -------
Return of capital (0.04) (0.04) (0.10) -- -- -- --
- ------------------------------------------------- -------- -------- -------- -------- -------- -------- -------
Total distributions (0.63) (0.71) (0.72) (0.84) (0.77) (0.84) (0.84)
- ------------------------------------------------- -------- -------- -------- -------- -------- -------- -------
Net asset value, end of period $ 9.28 $ 9.70 $ 8.99 $ 10.05 $ 10.19 $ 10.34 $ 9.95
================================================= ======== ======== ======== ======== ======== ======== =======
Total return(b) 2.35% 16.28% (3.44)% 7.07% 6.26% 12.98% 9.39%
================================================= ======== ======== ======== ======== ======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $174,344 $176,318 $158,341 $139,586 $123,484 $101,409 $61,463
================================================= ======== ======== ======== ======== ======== ======== =======
Ratio of expenses to average net assets
(exclusive of interest expense)(c) 1.00%(d)(e) 1.08% 1.04% 1.00% 0.98% 1.00% 1.00%
================================================= ======== ======== ======== ======== ======== ======== =======
Ratio of net investment income to average net
assets(f) 6.76%(d) 7.36% 7.34% 7.08% 7.53% 8.15% 8.85%
================================================= ======== ======== ======== ======== ======== ======== =======
Portfolio turnover rate 134% 140% 109% 110% 42% 26% 16%
================================================= ======== ======== ======== ======== ======== ======== =======
<CAPTION>
1989 1988 1987
CLASS A: ------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.70 $ 9.92 $ 10.00
- ------------------------------------------------- ------- ------- -------
Income from investment operations:
Net investment income 0.90 0.89 0.55
- ------------------------------------------------- ------- ------- -------
Net gains (losses) on securities (both realized
and unrealized) 0.15 (0.27) (0.14)
- ------------------------------------------------- ------- ------- -------
Total from investment operations 1.05 0.62 0.41
- ------------------------------------------------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.84) (0.84) (0.49)
- ------------------------------------------------- ------- ------- -------
Distributions from net realized capital gains -- -- --
- ------------------------------------------------- ------- ------- -------
Return of capital -- -- --
- ------------------------------------------------- ------- ------- -------
Total distributions (0.84) (0.84) (0.49)
- ------------------------------------------------- ------- ------- -------
Net asset value, end of period $ 9.91 $ 9.70 $ 9.92
================================================= ======== ======== ========
Total return(b) 11.28% 6.43% 4.18%
================================================= ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $57,077 $48,372 $28,052
================================================= ======== ======== ========
Ratio of expenses to average net assets
(exclusive of interest expense)(c) 1.00% 1.00% 1.20%(g)
================================================= ======== ======== ========
Ratio of net investment income to average net
assets(f) 9.10% 9.11% 8.64%(g)
================================================= ======== ======== ========
Portfolio turnover rate 15% 15% 35%
================================================= ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Does not deduct sales charges and is not annualized for periods less than
one year.
(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 1994-88, respectively.
(d) Ratios are based on average net assets of $175,038,605.
(e) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(f) 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.
(g) Annualized.
<TABLE>
<CAPTION>
1996 1995 1994 1993
CLASS B: ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.69 $ 8.99 $ 10.04 $ 10.44
- ------------------------------------------------------------ ------- ------- ------- -------
Income from investment operations:
Net investment income 0.55 0.63 0.61 0.21
- ------------------------------------------------------------ ------- ------- ------- -------
Net gains (losses) on securities (both realized and
unrealized) (0.41) 0.70 (1.02) (0.27)
- ------------------------------------------------------------ ------- ------- ------- -------
Total from investment operations 0.14 1.33 (0.41) (0.06)
- ------------------------------------------------------------ ------- ------- ------- -------
Less distributions:
Dividends from net investment income (0.51) (0.59) (0.50) (0.20)
- ------------------------------------------------------------ ------- ------- ------- -------
Distributions from net realized capital gains -- -- (0.04) (0.14)
- ------------------------------------------------------------ ------- ------- ------- -------
Return of capital (0.04) (0.04) (0.10) --
- ------------------------------------------------------------ ------- ------- ------- -------
Total distributions (0.55) (0.63) (0.64) (0.34)
- ------------------------------------------------------------ ------- ------- ------- -------
Net asset value, end of period $ 9.28 $ 9.69 $ 8.99 $ 10.04
============================================================ ======= ======= ======= =======
Total return(a) 1.61% 15.22% (4.13)% (0.52)%
============================================================ ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $79,443 $61,300 $23,415 $ 6,160
============================================================ ======= ======= ======= =======
Ratio of expenses to average net assets (exclusive of
interest expense)(b) 1.76%(c)(d) 1.86% 1.82% 1.71%(f)
============================================================ ======= ======= ======= =======
Ratio of net investment income to average net assets(e) 6.00%(c) 6.58% 6.56% 6.37%(f)
============================================================ ======= ======= ======= =======
Portfolio turnover rate 134% 140% 109% 110%
============================================================ ======= ======= ======= =======
</TABLE>
(a) Does not deduct contingent deferred sales charges and is not annualized for
periods less than one year.
(b) 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.
(c) Ratios are based on average net assets of $71,976,395.
(d) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(e) 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.
(f) Annualized.
NOTE 8 - SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
FS-69
<PAGE> 328
INDEPENDENT AUDITORS' REPORT
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, 1996, and the related statement of operations
for the year then ended, the statement of changes in 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 three-year period 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, 1996, 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, 1996, the results of its
operations for the year then ended, the changes in 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 three-year period then ended, and the period October
16, 1993 (date operations commenced) through December 31,
1993, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
FS-70
<PAGE> 329
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
COMMERCIAL PAPER-43.99%(a)
ASSET-BACKED SECURITIES-17.04%
Asset Securitization
Cooperative Corp.
5.33% 01/15/97 $12,000 $ 11,975,127
- ----------------------------------------------------------------
5.32% 03/11/97 15,000 14,847,050
- ----------------------------------------------------------------
5.35% 03/11/97 6,000 5,938,475
- ----------------------------------------------------------------
Delaware Funding Corp.
5.34% 01/31/97 13,000 12,942,150
- ----------------------------------------------------------------
5.40% 02/18/97 20,000 19,856,000
- ----------------------------------------------------------------
Monte Rosa Capital Corp.
5.50% 01/22/97 16,000 15,948,667
- ----------------------------------------------------------------
5.36% 03/12/97 4,000 3,958,311
- ----------------------------------------------------------------
Receivables Capital Corp.
5.46% 01/08/97 15,000 14,984,075
- ----------------------------------------------------------------
5.43% 01/16/97 7,000 6,984,162
- ----------------------------------------------------------------
Sheffield Receivables Corp.
5.37% 02/07/97 11,000 10,939,289
- ----------------------------------------------------------------
118,373,306
- ----------------------------------------------------------------
AUTOMOBILE-2.12%
Ford Motor Credit Co.
5.32% 04/28/97 15,000 14,740,650
- ----------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-5.73%
Merrill Lynch & Co., Inc.
5.35% 02/04/97 25,000 24,873,681
- ----------------------------------------------------------------
5.35% 02/10/97 15,000 14,910,833
- ----------------------------------------------------------------
39,784,514
- ----------------------------------------------------------------
FINANCE (BUSINESS CREDIT)-2.15%
National Rural Utilities
Cooperative Finance Corp.
5.29% 02/11/97 10,000 9,939,752
- ----------------------------------------------------------------
Pitney Bowes Credit Corp.
5.36% 01/16/97 5,000 4,988,833
- ----------------------------------------------------------------
14,928,585
- ----------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-3.56%
International Lease Finance
Corp.
5.31% 03/04/97 15,000 14,862,825
- ----------------------------------------------------------------
5.29% 03/26/97 10,000 9,876,566
- ----------------------------------------------------------------
24,739,391
- ----------------------------------------------------------------
FINANCE (MISCELLANEOUS)-0.71%
BTR Dunlop Finance Inc.
5.33% 03/06/97 5,000 4,952,622
- ----------------------------------------------------------------
FINANCE (PERSONAL CREDIT)-2.67%
Student Loan Corp.
5.27% 03/12/97 10,000 9,897,528
- ----------------------------------------------------------------
Transamerica Finance Corp.
5.32% 03/12/97 8,700 8,610,004
- ----------------------------------------------------------------
18,507,532
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
MEDICAL (DRUGS)-2.14%
Bayer Corp.
5.30% 03/03/97 $15,000 $ 14,865,292
- ----------------------------------------------------------------
OIL & GAS (INTEGRATED)-6.30%
Mobil Australia Finance Co. Inc.
5.30% 02/28/97 10,000 9,914,611
- ----------------------------------------------------------------
5.37% 03/18/97 24,172 23,897,970
- ----------------------------------------------------------------
Petrofina Delaware, Inc.
5.40% 01/27/97 10,000 9,961,000
- ----------------------------------------------------------------
43,773,581
- ----------------------------------------------------------------
PUBLISHING-0.71%
McGraw-Hill Inc.
5.32% 03/11/97 5,000 4,949,017
- ----------------------------------------------------------------
TELEPHONE-0.86%
MCI Communications Corp.
5.30% 02/20/97 6,000 5,955,833
- ----------------------------------------------------------------
Total Commercial Paper 305,570,323
- ----------------------------------------------------------------
MEDIUM-TERM NOTES-2.45%
FINANCE (BUSINESS CREDIT)-1.73%
CIT Group Holdings (The),
Inc.(b)
5.61% 03/19/97 12,000 11,998,297
- ----------------------------------------------------------------
OIL & GAS (INTEGRATED)-0.72%
Shell Oil Co.
6.00% 01/15/97 5,000 5,000,800
- ----------------------------------------------------------------
Total Medium-Term Notes 16,999,097
- ----------------------------------------------------------------
MASTER NOTE AGREEMENTS-13.68%
Citicorp Securities, Inc.(c)
7.25% 01/27/97 48,000 48,000,000
- ----------------------------------------------------------------
Goldman Sachs & Co.(d)
7.13% 04/23/97 19,000 19,000,000
- ----------------------------------------------------------------
Morgan (J.P.) Securities,
Inc.(e)
5.563% 04/07/97 28,000 28,000,000
- ----------------------------------------------------------------
Total Master Note
Agreements 95,000,000
- ----------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES-6.42%
Federal National Mortgage
Association
5.29%(f) 06/02/99 32,000 32,000,000
- ----------------------------------------------------------------
Student Loan Marketing
Association
5.24%(f) 08/20/98 2,600 2,600,000
- ----------------------------------------------------------------
5.26%(f) 02/08/99 10,000 10,003,558
- ----------------------------------------------------------------
Total U.S. Government
Agency Securities 44,603,558
- ----------------------------------------------------------------
Total Investments
(excluding Repurchase
Agreements) 462,172,978
- ----------------------------------------------------------------
REPURCHASE AGREEMENTS(g)-26.81%
Dresdner Securities (USA),
Inc.(h)
7.05% 01/02/97 96,167 96,166,506
- ----------------------------------------------------------------
HSBC Securities, Inc.(i)
7.05% 01/02/97 30,000 30,000,000
- ----------------------------------------------------------------
</TABLE>
FS-71
<PAGE> 330
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
<S> <C> <C> <C>
</TABLE>
REPURCHASE AGREEMENTS-(CONTINUED)
SBC Capital Markets Inc.(j)
6.25% 01/02/97 $30,000 $ 30,000,000
- ----------------------------------------------------------------
UBS Securities Inc.(k)
7.05% 01/02/97 30,000 30,000,000
- ----------------------------------------------------------------
Total Repurchase
Agreements 186,166,506
- ----------------------------------------------------------------
TOTAL INVESTMENTS-93.35% 648,339,484(l)
- ----------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-6.65% 46,183,911
- ----------------------------------------------------------------
NET ASSETS-100.00% $694,523,395
================================================================
NOTES TO SCHEDULE OF INVESTMENTS:
(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 rate is redetermined daily. Rate shown is the rate in effect on
December 31, 1996.
(c) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon three business days notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
December 31, 1996.
(d) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon notice to the issuer. Interest rates on master notes
are redetermined periodically. Rate shown is the rate in effect on December
31, 1996.
(e) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon seven calendar days notice. Interest rates on master
notes are redetermined periodically. Rate shown is the rate in effect on
December 31, 1996.
(f) Interest rates are redetermined weekly. Rates shown are the rates in effect
on December 31, 1996.
(g) 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, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(h) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$100,039,167. Collateralized by $136,515,003 U.S. Government obligations, 0%
to 9.00% due 01/01/09 to 08/01/34.
(i) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$300,117,500. Collateralized by $633,913,662 U.S. Government obligations,
0% to 8.00% due 07/16/97 to 11/01/35.
(j) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$400,138,889. Collateralized by $473,268,844 U.S. Government obligations,
5.035% to 7.679% due 03/03/97 to 03/01/33 and $44,915,000 U.S. Treasury
obligations, 0% due 02/15/09 to 11/15/13.
(k) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$550,215,417. Collateralized by $732,485,305 U.S. Government obligations, 0%
to 9.50% due 01/01/98 to 12/15/26.
(l) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
FS-72
<PAGE> 331
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase
agreements, at value (amortized cost) $462,172,978
- ---------------------------------------------------------
Repurchase agreements 186,166,506
- ---------------------------------------------------------
Receivables for:
Capital stock sold 77,420,534
- ---------------------------------------------------------
Interest 891,168
- ---------------------------------------------------------
Investment for deferred compensation plan 85,314
- ---------------------------------------------------------
Other assets 139,530
- ---------------------------------------------------------
Total assets 726,876,030
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 31,044,304
- ---------------------------------------------------------
Dividends 186,678
- ---------------------------------------------------------
Deferred compensation plan 85,314
- ---------------------------------------------------------
Accrued advisory fees 306,767
- ---------------------------------------------------------
Accrued administrative service fees 6,175
- ---------------------------------------------------------
Accrued distribution fees 509,055
- ---------------------------------------------------------
Accrued operating expenses 25,729
- ---------------------------------------------------------
Accrued transfer agent fees 188,613
- ---------------------------------------------------------
Total liabilities 32,352,635
- ---------------------------------------------------------
Net assets applicable to shares outstanding $694,523,395
=========================================================
NET ASSETS:
Class A $287,905,201
=========================================================
Class B $ 91,148,487
=========================================================
Class C $315,469,707
=========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE:
Class A 287,864,283
=========================================================
Class B 91,170,897
=========================================================
Class C 315,473,235
=========================================================
Class A:
Net asset value and redemption price per
share $ 1.00
=========================================================
Offering price per share:
(Net asset value of $1.00 divided by
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>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $40,647,910
- ---------------------------------------------------------
EXPENSES:
Advisory fees 4,136,659
- ---------------------------------------------------------
Custodian fees 80,854
- ---------------------------------------------------------
Distribution fees -- Class A 666,569
- ---------------------------------------------------------
Distribution fees -- Class B 990,337
- ---------------------------------------------------------
Distribution fees -- Class C 964,703
- ---------------------------------------------------------
Trustees' fees 10,124
- ---------------------------------------------------------
Transfer agent fees -- Class A 582,756
- ---------------------------------------------------------
Transfer agent fees -- Class B 266,042
- ---------------------------------------------------------
Transfer agent fees -- Class C 741,975
- ---------------------------------------------------------
Administrative service fees 58,665
- ---------------------------------------------------------
Other 354,001
- ---------------------------------------------------------
Total expenses 8,852,685
- ---------------------------------------------------------
Less: Expenses paid indirectly (11,126)
- ---------------------------------------------------------
Net expenses 8,841,559
- ---------------------------------------------------------
Net investment income 31,806,351
- ---------------------------------------------------------
Net realized gain on sales of investments 108,101
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $31,914,452
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-73
<PAGE> 332
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 31,806,351 $ 22,864,306
- ------------------------------------------------------------------------------------------
Net realized gain (loss) on sales of investment securities 108,101 (93,121)
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 31,914,452 22,771,185
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (11,567,004) (8,071,868)
- ------------------------------------------------------------------------------------------
Class B (3,560,364) (1,577,348)
- ------------------------------------------------------------------------------------------
Class C (16,678,983) (13,215,090)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A 66,344,581 72,633,973
- ------------------------------------------------------------------------------------------
Class B 21,306,761 35,865,178
- ------------------------------------------------------------------------------------------
Class C 21,970,272 (66,448,589)
- ------------------------------------------------------------------------------------------
Net increase in net assets 109,729,715 41,957,441
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 584,793,680 542,836,239
- ------------------------------------------------------------------------------------------
End of period $694,523,395 $584,793,680
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $694,508,415 $584,886,801
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on sales of
investments 14,980 (93,121)
- ------------------------------------------------------------------------------------------
$694,523,395 $584,793,680
==========================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 Fund's objective is to provide as high a level of current
income as is consistent with preservation of capital and liquidity.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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.
FS-74
<PAGE> 333
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.
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.
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 year ended December 31, 1996, AIM
was reimbursed $58,665 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") for certain costs incurred in providing
transfer agency and shareholder services to the Fund. During the year ended
December 31, 1996, the Fund paid AFS $897,280 for such services.
The Fund received reductions in transfer agency fees payable to AFS of $11,126
from dividends received on balances in cash management bank accounts which
resulted in a reduction in the Fund's total expenses.
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 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 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. AIM Distributors may,
from time to time, assign, transfer or pledge to one or more assignees, its
rights to all or a portion of (a) compensation received by AIM Distributors from
the Fund pursuant to the Class B Plan (but not AIM Distributors' duties and
obligations pursuant to the Class B Plan) and (b) any contingent deferred sales
charges payable to AIM Distributors related to the Class B shares. During the
year ended December 31, 1996, the Class A shares, the Class B shares and the
Class C shares paid AIM Distributors $666,569, $990,337 and $964,703,
respectively, as compensation under the Plans.
AIM Distributors received commissions of $736,782 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. 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, 1996,
AIM Distributors received $211,316 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 year ended December 31, 1996, the Fund paid legal fees of $4,488
for services rendered by Kramer, Levin, Naftalis & 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 AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
FS-75
<PAGE> 334
NOTE 4-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold:
Class A 2,107,832,986 $ 2,107,832,986 1,236,115,617 $ 1,236,115,617
- ----------------------------------------------------- --------------------------------- ---------------------------------
Class B 334,518,591 334,518,591 150,618,548 150,618,548
- ----------------------------------------------------- --------------------------------- ---------------------------------
Class C 3,871,719,488 3,871,719,488 3,387,330,655 3,387,330,655
- ----------------------------------------------------- --------------------------------- ---------------------------------
Issued as reinvestment of dividends:
Class A 10,061,164 10,061,164 7,057,740 7,057,740
- ----------------------------------------------------- --------------------------------- ---------------------------------
Class B 3,197,896 3,197,896 1,412,061 1,412,061
- ----------------------------------------------------- --------------------------------- ---------------------------------
Class C 14,185,926 14,185,926 10,700,895 10,700,895
- ----------------------------------------------------- --------------------------------- ---------------------------------
Reacquired:
Class A (2,051,549,569) (2,051,549,569) (1,170,539,384) (1,170,539,384)
- ----------------------------------------------------- --------------------------------- ---------------------------------
Class B (316,409,726) (316,409,726) (116,165,431) (116,165,431)
- ----------------------------------------------------- --------------------------------- ---------------------------------
Class C (3,863,935,142) (3,863,935,142) (3,464,480,139) (3,464,480,139)
- ----------------------------------------------------- --------------------------------- ---------------------------------
109,621,614 $ 109,621,614 42,050,562 $ 42,050,562
===================================================== ================================= =================================
</TABLE>
NOTE 5-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share, a Class B share
and a Class C share outstanding during each of the years in the three-year
period ended December 31, 1996 and the period October 16, 1993 (date operations
commenced) through December 31, 1993.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------------------------------------- ---------------------------------------------
1996 1995 1994 1993 1996 1995 1994 1993
-------- -------- ------- -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 1.00 $ 1.00 $ 1.00 1.00 $ 1.00 $ 1.00
- ------------------------ -------- -------- ------- -------- -------- ------ -------- --------
Income from investment
operations:
Net investment income 0.0433 0.0495 0.0337 0.0048 0.0360 .0419 0.0259 0.0032
- ------------------------ -------- -------- ------- -------- -------- ------ -------- --------
Less distributions:
Dividends from net
investment income (0.0433) (0.0495) (0.0337) (0.0048) (0.0360) .0419) (0.0259) (0.0032)
- ------------------------ -------- -------- ------- -------- -------- ------- -------- --------
Net asset value, end of
period $ 1.00 $ 1.00 1.00 $ 1.00 $ 1.00 1.00 $ 1.00 $ 1.00
======================== ======== ======== ======== ======== ========= ======= ======== ========
Total return(a) 4.42% 5.06% 3.43% 2.27%(e) 3.66% 4.27% 2.62% 1.51%(e)
======================== ======== ======== ======== ======== ========= ======= ======== ========
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $287,905 $221,487 148,886 $ 81,460 $ 91,148 $69,857 $ 33,999 $ 1,289
======================== ======== ======== ======== ======== ========= ======= ======== ========
Ratio of expenses to
average net assets 1.07%(b)(c) 1.03% 0.97%(d) 1.00%(d)(e) 1.81%(b)(c) 1.78% 1.78%(f) 1.75%(e)(f)
======================== ======== ======== ======== ======== ========= ======= ======== ========
Ratio of net investment
income to average net
assets 4.34%(b) 4.91% 3.53%(d) 2.27%(d)(e) 3.60%(b) 4.14% 3.14%(f) 1.54%(e)(f)
======================== ======== ======== ======== ======== ========= ======= ======== ========
<CAPTION>
CLASS C SHARES
-------------------------------------------
1996 1995 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------ -------- -------- -------- --------
Income from investment
operations:
Net investment income 0.0433 0.0493 0.0337 0.0048
- ------------------------ -------- -------- -------- --------
Less distributions:
Dividends from net
investment income (0.0433) (0.0493) (0.0337) (0.0048)
- ------------------------ -------- -------- -------- --------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================== ======== ======== ======== ========
Total return(a) 4.41% 5.04% 3.42% 2.27%(e)
======================== ======== ======== ======== ========
Ratios/supplemental
data:
Net assets, end of
period (000s omitted) $315,470 $293,450 $359,952 $241,778
======================== ======== ======== ======== ========
Ratio of expenses to
average net assets 1.08%(b)(c) 1.04% 0.99%(g) 1.00%(e)
======================== ======== ======== ======== ========
Ratio of net investment
income to average net
assets 4.32%(b) 4.92% 3.49%(g) 2.27%(e)
======================== ======== ======== ======== ========
</TABLE>
(a) Does not deduct sales charges or contingent deferred sales charges, where
applicable.
(b) Ratios are based on average daily net assets as follows: Class A Shares -
$266,627,474, Class B Shares - $99,033,713 and Class C Shares -
$385,881,111.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly
the ratio of expenses to average daily net assets would have been the same.
(d) Ratios of expenses and net investment income to average daily net assets
prior to waiver of advisory fees are 1.06% and 3.44% for 1994 and 1.20%
(annualized) and 2.07% (annualized) for 1993.
(e) Annualized.
(f) Ratios of expenses and net investment income to average daily net assets
prior to waiver of advisory fees are 1.87% and 3.05% for 1994 and 1.95%
(annualized) and 1.34% (annualized) for 1993.
(g) Ratios of expenses and net investment income to average daily net assets
prior to waiver of advisory fees are 1.08% and 3.40% for 1994 and 1.20%
(annualized) and 2.07% (annualized) for 1993.
NOTE 6-SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
FS-76
<PAGE> 335
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, 1996, and the related statement of operations
for the year then ended, the statement of changes in 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 four-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, 1996, 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 Municipal
Bond Fund as of December 31, 1996, 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 four-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
FS-77
<PAGE> 336
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
ALABAMA-0.74%
Courtland Industrial Development
Board (Champion International
Corp. Project); Refunding
Series 1996 RB
6.40%, 11/01/26(b) -- Baa1 $2,315 $ 2,320,417
- -----------------------------------------------------------------------
ALASKA-1.79%
Alaska (State of) Housing Finance
Corp.; Collateralized First
Veterans' Home Mortgage Series
A-2 RB
6.75%, 12/01/24(b) AAA Aaa 3,755 3,891,569
- -----------------------------------------------------------------------
Alaska (State of) Housing Finance
Corp.; Collateralized Mortgage
Program First Series RB
6.875%, 06/01/33 AAA Aaa 1,635 1,707,349
- -----------------------------------------------------------------------
5,598,918
- -----------------------------------------------------------------------
ARKANSAS-1.71%
Fayetteville (City of); Water and
Sewer Refunding and Improvement
Series 1992 RB
6.15%, 08/15/12 A A 2,000 2,069,660
- -----------------------------------------------------------------------
Little Rock (City of); Sewer
Improvement Series B RB
5.75%, 02/01/06 AA+ Aa 2,000 2,050,100
- -----------------------------------------------------------------------
North Little Rock Health
Facilities Board (Baptist
Health); Series 1996 A RB
5.40%, 12/01/16(c) AAA Aaa 1,250 1,233,425
- -----------------------------------------------------------------------
5,353,185
- -----------------------------------------------------------------------
ARIZONA-2.07%
Arizona (State of) Educational
Loan Marketing Corp.; RB
6.125%, 09/01/02(b) -- Aa 1,900 1,984,968
- -----------------------------------------------------------------------
Mohave (County of) Unified School
District #1 (Lake Havasu);
Series 1996 A GO
5.90%, 07/01/15(c) AAA Aaa 1,000 1,036,300
- -----------------------------------------------------------------------
Pima (County of) Unified School
District #10 (Amphitheater);
School Improvement Series 1992
E GO
6.50%, 07/01/05 A+ A 3,100 3,456,903
- -----------------------------------------------------------------------
6,478,171
- -----------------------------------------------------------------------
CALIFORNIA-0.77%
California (State of) Housing
Finance Agency; RB
7.45%, 08/01/11(b) AA- Aa 690 730,020
- -----------------------------------------------------------------------
Sacramento (City of) California
Cogeneration Authority (Procter
& Gamble Project); Series 1995
RB
7.00%, 07/01/04 BBB- -- 500 551,635
- -----------------------------------------------------------------------
San Francisco (City and County
of) Parking Authority; Parking
Meter Series 1994 RB
7.00%, 06/01/13(c) AAA Aaa 1,000 1,137,140
- -----------------------------------------------------------------------
2,418,795
- -----------------------------------------------------------------------
COLORADO-1.26%
Adams County Building Authority;
Refunding Series 1987 A RB
10.00%, 02/01/97(c)(d)(e) -- -- 1,344 1,339,432
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
COLORADO-(CONTINUED)
Adams County School District
Number 1; Unlimited Tax
Building Series 1992-A GO
6.625%, 12/01/02(f)(g) AAA Aaa $ 500 $ 555,615
- -----------------------------------------------------------------------
Colorado (State of) Housing
Finance Authority (Single
Family Residential Housing);
Series 1987 B RB
9.00%, 09/01/17 -- Aa1 430 445,592
- -----------------------------------------------------------------------
Mesa County School District #51;
1989 Series B Certificates of
Participation
6.875%, 12/01/05(c) AAA Aaa 1,465 1,600,542
- -----------------------------------------------------------------------
3,941,181
- -----------------------------------------------------------------------
CONNECTICUT-3.36%
Connecticut (State of); General
Purpose Public Improvement
Series 1992-A GO
6.50%, 03/15/02(f)(g) NRR NRR 5,500 6,064,135
- -----------------------------------------------------------------------
Connecticut (State of)
Development Authority
(Connecticut Power & Light);
Series 1993 A RB
3.15%, 09/01/28(h)(i) A-1+ VMIG-1 335 335,000
- -----------------------------------------------------------------------
Connecticut (State of) Housing
Finance Authority; Series 1990
B-1, Sub-Series
B-1 RB
7.55%, 11/15/08 AA Aa 190 198,255
- -----------------------------------------------------------------------
Connecticut Resource Recovery
Authority (American Ref-Fuel
Co.) (Southeastern Connecticut
Project); Corporate Credit
Series 1988 RB
8.10%, 11/15/15(b) A A2 925 1,001,026
- -----------------------------------------------------------------------
Connecticut Resource Recovery
Authority (American Ref-Fuel
Co.) (Southeastern Connecticut
Project); Series 1988 A RB
7.875%, 11/15/06(b) AA- Baa1 1,700 1,833,025
- -----------------------------------------------------------------------
8.00%, 11/15/15(b) AA- Baa1 1,000 1,080,440
- -----------------------------------------------------------------------
10,511,881
- -----------------------------------------------------------------------
FLORIDA-1.32%
Escambia (County of) (Champion
International Corp. Project);
PCR
6.90%, 08/01/22(b) BBB Baa1 1,125 1,191,116
- -----------------------------------------------------------------------
Leon (County of); Certificates of
Participation Series A RB
5.875%, 01/01/98 -- Baa1 1,700 1,719,992
- -----------------------------------------------------------------------
Miami (City of) Parking System;
Series 1992 A RB
6.70%, 10/01/06 A A 1,120 1,222,491
- -----------------------------------------------------------------------
4,133,599
- -----------------------------------------------------------------------
GEORGIA-1.35%
Georgia (State of) Housing and
Finance Authority (Home
Ownership Opportunity Program);
Series C RB
6.50%, 12/01/11 AA+ Aa 975 1,025,271
- -----------------------------------------------------------------------
Georgia Municipal Electric
Authority; Series P RB
8.00%, 01/01/98(f)(g) AAA Aaa 2,000 2,121,080
- -----------------------------------------------------------------------
</TABLE>
FS-78
<PAGE> 337
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
GEORGIA-(CONTINUED)
Savannah (City of) Economic
Development Authority (Hershey
Foods Corp. Project); IDR
6.60%, 06/01/12 AA- -- $1,000 $ 1,075,390
- -----------------------------------------------------------------------
4,221,741
- -----------------------------------------------------------------------
ILLINOIS-9.08%
Berwyn (City of) (Macneal
Memorial Hospital Association);
Hospital Series 1991 RB
7.00%, 06/01/01(f)(g) AAA Aaa 3,250 3,631,420
- -----------------------------------------------------------------------
Chicago (City of); Series 1995
A-1 GO
5.25%, 01/01/15(c) AAA Aaa 1,100 1,043,559
- -----------------------------------------------------------------------
Cook (County of); Series 1992 B
GO
5.75%, 11/15/02(f)(g) AAA Aaa 2,000 2,147,440
- -----------------------------------------------------------------------
Illinois (State of); Sales Tax
Series 1993 B RB
6.50%, 06/15/13 AAA A1 1,500 1,597,185
- -----------------------------------------------------------------------
Illinois (State of) Development
Finance Authority (Chicago
Symphony Project); RB
3.45%, 06/01/31(h)(i) A-1+ VMIG-1 3,960 3,960,374
- -----------------------------------------------------------------------
Illinois (State of) Development
Finance Authority (CPC
International Project); PCR
6.75%, 05/01/16 -- A2 2,500 2,644,325
- -----------------------------------------------------------------------
Illinois Health Facilities
Authority (Evangelical Hospital
Corp.); RB
6.25%, Series A 04/15/22 AA- A1 1,000 1,016,800
- -----------------------------------------------------------------------
6.25%, Series 1992-C 04/15/22 AA- A1 1,150 1,169,320
- -----------------------------------------------------------------------
Illinois Health Facilities
Authority (Franciscan Sisters
Health Care); Refunding Series
1992 RB
6.40%, 09/01/04(c) AAA Aaa 2,475 2,728,712
- -----------------------------------------------------------------------
Illinois Health Facilities
Authority (Ravenswood Hospital
Medical Center); Refunding
Series 1987 A RB
8.80%, 06/01/06 -- Baa1 1,000 1,032,050
- -----------------------------------------------------------------------
Metropolitan Fair and Exposition
Authority; Series 1986 RB
6.00%, 06/01/14(c) AAA Aaa 2,500 2,504,600
- -----------------------------------------------------------------------
Peoria and Pekin and Waukegan
(Cities of); GNMA
Collateralized Mortgage Series
1990 RB
7.875%, 08/01/22(b) AAA -- 135 141,776
- -----------------------------------------------------------------------
University of Illinois Auxiliary
Facilities System; Series 1991
RB
5.75%, 04/01/22 AA- Aa 4,750 4,766,767
- -----------------------------------------------------------------------
28,384,328
- -----------------------------------------------------------------------
INDIANA-0.32%
Concord Independent School
District (Community Schools
Building Corp.); Refunding
First Mortgage RB
5.60%, 01/01/15(c) AAA Aaa 1,000 985,510
- -----------------------------------------------------------------------
KENTUCKY-1.30%
Kenton (County of) Public
Properties Corp. (Parking
Facilities Project); First
Mortgage RB
5.625%, 12/01/12 -- A 1,000 990,100
- -----------------------------------------------------------------------
Mount Sterling (City of); Lease
Funding Series 1993 A RB
6.15%, 03/01/13 -- Aa 3,000 3,069,120
- -----------------------------------------------------------------------
4,059,220
- -----------------------------------------------------------------------
</TABLE>
<TABLE> RATING(a) PAR MARKET
<CAPTION> S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
LOUISIANA-3.25%
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 $ 2,898,543
- -----------------------------------------------------------------------
Louisiana Public Facilities
Authority
(Our Lady of Lake Regional
Hospital); Hospital Refunding
Series C RB
6.00%, 12/01/07(c) AAA Aaa 2,500 2,619,025
- -----------------------------------------------------------------------
Louisiana Public Facilities
Authority (Tulane University of
Louisiana); RB
6.00%, 10/01/16(c) AAA Aaa 2,500 2,582,725
- -----------------------------------------------------------------------
New Orleans Levee District;
Series 1995 A RB
5.95%, 11/01/07(c) AAA Aaa 1,000 1,069,920
- -----------------------------------------------------------------------
Ouachita Parish Hospital Service
District
No 1 (Glenwood Regional Medical
Center); Refunding Series 1996
RB
5.70%, 05/15/16(c) AAA Aaa 1,000 998,750
- -----------------------------------------------------------------------
10,168,963
- -----------------------------------------------------------------------
MAINE-0.35%
Maine (State of) Education Loan
Authority; Education Loan
Series A-2 RB
6.95%, 12/01/07(b) -- A 1,020 1,091,869
- -----------------------------------------------------------------------
MARYLAND-0.65%
Maryland Health and Higher
Education Facilities Authority
(Doctors Community Hospital
Inc.); Series 1990 RB
8.75%, 07/01/00(f)(g) AAA Aaa 1,000 1,158,110
- -----------------------------------------------------------------------
Maryland State Community
Development Administration
(Department of Economic and
Community Development); Single
Family Housing Refunding Series
5 RB
7.70%, 04/01/15(b) -- Aa 830 873,509
- -----------------------------------------------------------------------
2,031,619
- -----------------------------------------------------------------------
MASSACHUSETTS-4.29%
Massachusetts (State of);
Consolidated Loan Series 1991 C
GO
7.00%, 08/01/01(f)(g) NRR NRR 2,450 2,740,301
- -----------------------------------------------------------------------
Massachusetts Health and
Education Facilities Authority
(Lowell General Hospital);
Series 1991 A RB
8.40%, 06/01/01(f)(g) NRR NRR 3,550 3,918,170
- -----------------------------------------------------------------------
Massachusetts Health and
Education Facilities Authority
(Valley Regional Health System
Issue); Series 1990 B RB
8.00%, 07/01/00(f)(g) NRR Aaa 3,000 3,402,270
- -----------------------------------------------------------------------
Massachusetts Municipal Wholesale
Electric Cooperative Power
Supply; System Series 1992 A RB
6.75%, 07/01/08(c) AAA Aaa 3,000 3,343,920
- -----------------------------------------------------------------------
13,404,661
- -----------------------------------------------------------------------
MICHIGAN-5.71%
Detroit (City of) School
District; School Building and
Site (Unlimited Tax) Series
1992 GO
6.00%, 05/01/05 AA Aa 1,000 1,059,700
- -----------------------------------------------------------------------
6.15%, 05/01/07 AA Aa 1,300 1,374,672
- -----------------------------------------------------------------------
Lake Orion Community School
District; School Building and
Site (Unlimited Tax) Refunding
Series 1994 GO
7.00%, 05/01/05(f)(g) AAA Aaa 2,500 2,890,200
- -----------------------------------------------------------------------
</TABLE>
FS-79
<PAGE> 338
<TABLE>
<CAPTION>
RATING(a) PAR MARKE
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
MICHIGAN-(CONTINUED)
Lakeview Community School
District; Unlimited Tax Series
1996 GO
5.75%, 05/01/16(b) AAA Aaa $1,000 $ 1,009,980
- -----------------------------------------------------------------------
Lincoln Park (City of) School
District; Unlimited Tax Series
1996 GO
6.00%, 05/01/12(b) AAA Aaa 1,210 1,269,871
- -----------------------------------------------------------------------
Michigan (State of) Housing
Development Authority;
Refunding Series A RB
6.60%, 04/01/12 A+ -- 1,000 1,032,210
- -----------------------------------------------------------------------
Michigan Strategic Fund
(Consumer's Power Corp.); PCR
3.55%, 04/15/18(h)(i) -- P-1 4,883 4,883,000
- -----------------------------------------------------------------------
Ypsilanti (City of) School
District; Refunding Unlimited
Tax Series 1996 GO
5.75%, 05/01/15(b) AAA Aaa 2,100 2,127,510
- -----------------------------------------------------------------------
5.75%, 05/01/16(b) AAA Aaa 2,175 2,195,010
- -----------------------------------------------------------------------
17,842,153
- -----------------------------------------------------------------------
MISSISSIPPI-1.71%
Mississippi Higher Education
Assistance Corp.; Student Loan
Series 1994 C RB
7.50%, 09/01/09(b) -- A 5,000 5,340,550
- -----------------------------------------------------------------------
MISSOURI-1.02%
Kansas City Industrial
Development Authority (General
Motors Corp. Project); PCR
6.05%, 04/01/06 A- A3 1,435 1,481,365
- -----------------------------------------------------------------------
Kansas City Municipal Assistance
Corp.
(Truman Medical Center
Charitable Foundation);
Leasehold Improvement Series
1991 A RB
7.00%, 11/01/08 A A 605 654,580
- -----------------------------------------------------------------------
Missouri (State of) Environmental
Improvement and Energy
Resources; Series 1995 C PCR
5.85%, 01/01/10 -- Aa 1,000 1,045,330
- -----------------------------------------------------------------------
3,181,275
- -----------------------------------------------------------------------
NEVADA-1.39%
Humboldt (County of) (Sierra
Pacific Project); Series 1987
PCR
6.55%, 10/01/13(c) AAA Aaa 3,000 3,228,570
- -----------------------------------------------------------------------
Las Vegas (City of); Refunding
1992 Limited Tax GO
6.50%, 04/01/02(f)(g) AAA Aaa 1,000 1,085,140
- -----------------------------------------------------------------------
4,313,710
- -----------------------------------------------------------------------
NEW HAMPSHIRE-1.85%
New Hampshire Housing Finance
Authority; Single Family
Residential Mortgage Series
1987 B RB
8.625%, 07/01/13(b) A+ Aa 1,475 1,526,123
- -----------------------------------------------------------------------
New Hampshire State Turnpike
System; Series 1990 RB
7.40%, 04/01/00(f)(g) AAA Aaa 3,850 4,267,533
- -----------------------------------------------------------------------
5,793,656
- -----------------------------------------------------------------------
NEW JERSEY-2.70%
Camden (County of) Municipal
Utilities Authority; Series
1987 RB
8.25%, 12/01/97(f)(g) AAA Aaa 750 795,532
- -----------------------------------------------------------------------
8.25%, 12/01/17 AAA Aaa 1,250 1,321,375
- -----------------------------------------------------------------------
Hudson County Correctional
Facility; Certificate of
Participation Series 1992 RB
6.60%, 12/01/21(c) AAA Aaa 1,250 1,347,475
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW JERSEY-(CONTINUED)
Lacey School District; Unlimited
Tax Series 1996 GO
5.30%, 11/01/06(c) -- Aaa $1,000 $ 1,035,540
- -----------------------------------------------------------------------
New Jersey City Economic
Development Authority (Atlantic
City Sewer Co.); Sewer Facility
Series 1991 RB
7.25%, 12/01/11(b)(d) -- -- 1,865 2,047,248
- -----------------------------------------------------------------------
New Jersey Health Care Facility
Financing Authority (St. Peters
Medical Center); Series 1987 C
RB
8.60%, 07/01/97(f)(g) AAA Aaa 1,050 1,096,746
- -----------------------------------------------------------------------
8.60%, 07/01/17(c) AAA Aaa 200 208,734
- -----------------------------------------------------------------------
New Jersey State Housing and
Mortgage Finance Agency; Home
Buyer Series M RB
6.95%, 10/01/22(b)(c) AAA Aaa 550 574,833
- -----------------------------------------------------------------------
8,427,483
- -----------------------------------------------------------------------
NEW MEXICO-1.88%
Albuquerque (City of)
(Albuquerque Academy Project);
Educational Facilities Series
1995 RB
5.75%, 10/15/15 AA- Aa 915 933,401
- -----------------------------------------------------------------------
Las Cruces South Central Solid
Waste Authority; Environmental
Services RB
5.65%, 06/01/09 -- A 575 576,104
- -----------------------------------------------------------------------
Los Alamos (County of); Utility
Series A RB
6.00%, 07/01/15(c) AAA Aaa 2,000 2,056,740
- -----------------------------------------------------------------------
Santa Fe (City of); Series 1994 A
RB
6.25%, 06/01/04(f)(g) AAA Aaa 2,100 2,294,544
- -----------------------------------------------------------------------
5,860,789
- -----------------------------------------------------------------------
NEW YORK-10.98%
New York (City of); GO
8.25%, Unlimited Tax Series
1991 F
11/15/01(f)(g) NRR Aaa 1,840 2,160,178
- -----------------------------------------------------------------------
7.00%, Unlimited Tax Series C,
Sub-Series C-1 08/01/02(f)(g) NRR NRR 55 62,058
- -----------------------------------------------------------------------
7.65%, Series 1992 F 02/01/06 BBB+ Baa1 4,775 5,311,567
- -----------------------------------------------------------------------
7.70%, Series D 02/01/09 BBB+ Baa1 2,000 2,250,940
- -----------------------------------------------------------------------
7.20%, Unlimited Tax Series H
02/01/15 BBB+ Baa1 500 538,230
- -----------------------------------------------------------------------
8.25%, Unlimited Tax Series
1991 F
11/15/15 -- Aaa 160 183,981
- -----------------------------------------------------------------------
6.25%, Unlimited Tax Series A
08/01/17 BBB+ Baa1 3,035 3,052,178
- -----------------------------------------------------------------------
7.00%, Unlimited Tax Series C,
Sub-Series C-1 08/01/17 BBB+ Baa1 1,945 2,078,699
- -----------------------------------------------------------------------
7.00%, Series B 02/01/18(c) AAA Aaa 1,000 1,100,210
- -----------------------------------------------------------------------
7.00%, Unlimited Tax Series H
02/01/20 BBB+ Baa1 350 373,398
- -----------------------------------------------------------------------
New York City Industrial
Development Agency (The
Lighthouse Inc. Project);
Series 1992 RB
6.50%, 07/01/22(i) AA Aa2 1,500 1,573,215
- -----------------------------------------------------------------------
New York State Environmental
Facility Corp.;
Water Revenue Series E PCR
6.875%, 06/15/10 A Aa 3,400 3,741,326
- -----------------------------------------------------------------------
New York State Medical Care
Facilities Authority (Mental
Health Services); Refunding
Series 1987 A RB
8.875%, 08/15/97(f)(g) AAA Aaa 940 989,086
- -----------------------------------------------------------------------
New York State Municipal Water
Finance Authority; Water and
Sewer Systems Series 1996 A RB
5.625%, 06/15/19 A- A 2,000 1,956,280
- -----------------------------------------------------------------------
</TABLE>
FS-80
<PAGE> 339
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
NEW YORK-(CONTINUED)
New York State Urban Development
Corp.; Capital Facilities 1991
Series 3 RB
7.375%, 01/01/02(f)(g) NRR Aaa $7,850 $ 8,954,731
- -----------------------------------------------------------------------
34,326,077
- -----------------------------------------------------------------------
NORTH CAROLINA-3.55%
North Carolina Eastern Municipal
Power Agency; Series 1988 A RB
8.00%, 01/01/98(f)(g) NRR Aaa 3,000 3,181,620
- -----------------------------------------------------------------------
North Carolina Eastern Municipal
Power Agency; Series A RB
6.125%, 01/01/10(c) AAA Aaa 1,500 1,590,720
- -----------------------------------------------------------------------
North Carolina Eastern Municipal
Power Agency; Refunding Series
1996 A RB
5.00%, 01/01/98 BBB Baa1 1,000 1,003,610
- -----------------------------------------------------------------------
North Carolina Housing Finance
Agency; Single Family-Series II
RB
6.20%, 03/01/16(c) AA Aa 725 736,592
- -----------------------------------------------------------------------
North Carolina Municipal Power
Agency (No. 1 Catawba Electric
Project); Refunding RB
7.25%, 01/01/07 A A 2,750 3,122,763
- -----------------------------------------------------------------------
North Carolina Municipal Power
Agency (No. 1 Catawba Electric
Project); Series 1990 RB
6.50%, 01/01/10(c) AAA Aaa 1,115 1,181,041
- -----------------------------------------------------------------------
6.50%, 01/01/10(f) AAA Aaa 260 283,143
- -----------------------------------------------------------------------
11,099,489
- -----------------------------------------------------------------------
OHIO-3.03%
Akron Bath Copley Joint Township
(Akron City Hospital); Series
1987 RB
8.875%, 11/15/97(f)(g) NRR Aaa 1,610 1,713,668
- -----------------------------------------------------------------------
Fairfield (City of) School
District; Unlimited Tax Series
1995 GO
6.10%, 12/01/15(c) AAA Aaa 1,000 1,051,060
- -----------------------------------------------------------------------
Findlay (City of); Limited Tax
Series
1996 GO
5.875%, 07/01/17 AA- A1 1,000 1,020,500
- -----------------------------------------------------------------------
Hamilton (County of); Electric
System Mortgage Series 1998 RB
8.00%, 10/15/98(f)(g) AAA Aaa 1,000 1,086,420
- -----------------------------------------------------------------------
Mason (City of) Health Care
Facilities
(MCV Health Care Facilities,
Inc.);
Series 1990 RB
7.625%, 02/01/40(c) AAA -- 2,170 2,388,996
- -----------------------------------------------------------------------
Ohio Department of Transportation
(Panhandle Rail Line Project);
Series 1992 Certificates of
Participation
6.50%, 04/15/12(c) AAA Aaa 1,100 1,179,266
- -----------------------------------------------------------------------
Washington (County of) (Marietta
Memorial Hospital); Series B RB
7.00%, 09/01/12 AAA Aaa 1,000 1,020,390
- -----------------------------------------------------------------------
9,460,300
- -----------------------------------------------------------------------
OKLAHOMA-1.82%
McAlester (City of) Public Works
Authority; Refunding and
Improvement
Series 1995 RB
5.50%, 12/01/10(c) AAA Aaa 975 987,246
- -----------------------------------------------------------------------
Southern Oklahoma Memorial
Hospital Authority; Series 1993
A RB
5.60%, 02/01/00 A A 1,250 1,280,325
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
OKLAHOMA-(CONTINUED)
Tulsa (City of) Industrial
Authority (Medical Center
Project-St. Johns Hospital); RB
6.25%, 02/15/14 AA Aa $2,000 $ 2,078,600
- -----------------------------------------------------------------------
Tulsa Public Facilities
Authority-Capital
Improvements-Water System;
Series 1988 B RB
6.00%, 03/01/08 A+ -- 1,305 1,353,363
- -----------------------------------------------------------------------
5,699,534
- -----------------------------------------------------------------------
OREGON-1.06%
Klamath Falls (City of) (Salt
Caves Hydroelectric Project);
Series D RB
4.50%, 05/01/98(f)(g) SP1+ -- 1,000 1,008,590
- -----------------------------------------------------------------------
Portland (City of) Sewer System;
Series 1994 A RB
6.20%, 06/01/12 A+ A1 1,200 1,266,708
- -----------------------------------------------------------------------
6.25%, 06/01/15 A+ A1 1,000 1,052,350
- -----------------------------------------------------------------------
3,327,648
- -----------------------------------------------------------------------
PENNSYLVANIA-2.60%
Lancaster (County of) Solid Waste
Management Authority; Resource
Recovery System Series 1988 A
RB
8.50%, 12/15/10(b) BBB A 3,500 3,707,130
- -----------------------------------------------------------------------
Pennsylvania (State of); Third
Series GO
6.75%, 11/15/13(c) AAA Aaa 1,250 1,388,663
- -----------------------------------------------------------------------
Pennsylvania Economic Development
Finance Authority (Colver
Project); Resource Recovery
Series 1994 D RB
7.05%, 12/01/10(b) BBB- -- 2,900 3,040,766
- -----------------------------------------------------------------------
8,136,559
- -----------------------------------------------------------------------
PUERTO RICO-1.77%
Puerto Rico (Commonwealth of)
Electric Power Authority; RB
7.00%, Series 1991 P
07/01/01(f)(g) A- Baa1 1,325 1,488,545
- -----------------------------------------------------------------------
6.00%, Series 1989 07/01/10 A- Baa1 4,000 4,040,280
- -----------------------------------------------------------------------
5,528,825
- -----------------------------------------------------------------------
RHODE ISLAND-0.78%
Rhode Island Depositors Economic
Protection Corp.; Special
Obligation Series 1992 A RB
6.95%, 08/01/02(f)(g) AAA Aaa 1,250 1,412,225
- -----------------------------------------------------------------------
Rhode Island Housing and Mortgage
Finance Agency; Homeownership
Opportunity Series 15 B RB
6.00%, 10/01/04 AA+ Aa 1,000 1,040,640
- -----------------------------------------------------------------------
2,452,865
- -----------------------------------------------------------------------
SOUTH CAROLINA-0.34%
South Carolina State Education
Assistance Authority;
Guaranteed Student Loan Series
1990 RB
6.60%, 09/01/01(b) AA -- 500 531,715
- -----------------------------------------------------------------------
South Carolina State Housing
Finance and Development
Authority; Homeownership
Mortgage Series 1990 C RB
7.50%, 07/01/05(b) AA Aa 500 527,690
- -----------------------------------------------------------------------
1,059,405
- -----------------------------------------------------------------------
</TABLE>
FS-81
<PAGE> 340
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TENNESSEE-1.15%
Davidson (County of) Madison
Suburban Utility District;
Water Refunding RB
5.70%, 02/01/11(c) AAA Aaa $1,180 $ 1,206,184
- -----------------------------------------------------------------------
Franklin Industrial Development
Board (Landings Apartment
Project); Multifamily Housing
Series A RB
5.75%, 04/01/10(c) -- Aaa 1,200 1,198,777
- -----------------------------------------------------------------------
Nashville and Davidson (Counties
of) Metropolitan Government;
Water and Sewer Refunding
Series 1986 RB
7.25%, 01/01/06 A A1 145 147,482
- -----------------------------------------------------------------------
Shelby (County of); Unlimited Tax
School GO
6.00%, 03/01/17 AA+ Aa 1,000 1,031,000
- -----------------------------------------------------------------------
3,583,443
- -----------------------------------------------------------------------
TEXAS-14.96%
Arlington Independent School
District; Refunding Series 1995
GO
5.75%, 02/15/21(c) -- Aaa 1,000 1,012,190
- -----------------------------------------------------------------------
Austin (City of); Utility System
RB
6.50%, 05/15/11(c) AAA Aaa 1,380 1,510,755
- -----------------------------------------------------------------------
Austin Community College
District; Combined Fee Revenue
Building and Refunding Series
1995 RB
6.10%, 02/01/13(c) AAA Aaa 1,115 1,160,280
- -----------------------------------------------------------------------
Bellville Independent School
District; Unlimited Tax School
Building and Refunding Series
1995 GO
6.125%, 02/01/20(c) -- Aaa 830 863,009
- -----------------------------------------------------------------------
Brazos Higher Education Loan
Authority Inc.; Student Loan
Refunding RB
6.30%, Refunding Series 1992
C-1
11/01/01(b) -- Aa 325 336,817
- -----------------------------------------------------------------------
6.45%, Series 1992 C-1
11/01/02(b) -- Aa 1,135 1,186,234
- -----------------------------------------------------------------------
6.50%, Series 1994 B-1
06/01/04(b) -- A 700 738,570
- -----------------------------------------------------------------------
Brazos River Authority (Houston
Lighting and Power Project);
Collateralized Series 1986 A RB
7.875%, 11/01/18(b)(c) AAA Aaa 2,825 2,912,745
- -----------------------------------------------------------------------
Carrollton (City of); GO
5.75%, 08/15/16 AA- Aa 1,000 1,010,960
- -----------------------------------------------------------------------
Comal County Industrial
Development Authority (The
Coleman Company, Inc. Project);
Industrial Development Series
1980 RB
9.25%, 08/01/00(f) NRR NRR 1,135 1,240,827
- -----------------------------------------------------------------------
Dallas (City of); Waterworks and
Sewer System Series 1994 A RB
6.00%, 10/01/14 AA Aa 2,030 2,094,331
- -----------------------------------------------------------------------
Dallas-Fort Worth Regional
Airport Authority; Airport
Series 1985 RB
6.10%, 11/01/07(c) AAA Aaa 430 432,593
- -----------------------------------------------------------------------
6.10%, 11/01/07 A A1 200 200,172
- -----------------------------------------------------------------------
Georgetown (City of); Utility
System Series 1995 A RB
6.20%, 08/15/15(c) AAA Aaa 1,500 1,560,690
- -----------------------------------------------------------------------
Hallsville Independent School
District; Unlimited Tax Series
1996 GO
5.375%, 02/15/17(b) -- Aaa 1,830 1,787,032
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
TEXAS-(CONTINUED)
Harris County; Toll Road
Unlimited Tax General
Obligation and Subordinate Lien
Refunding Series 1991 RB
6.75%, 08/01/14 AA Aa $3,850 $ 4,176,865
- -----------------------------------------------------------------------
Harris County Health Facilities
Development Corp. (Saint Luke's
Episcopal Hospital Project);
Series 1991 RB
6.70%, 02/15/03 AA Aa 1,000 1,087,250
- -----------------------------------------------------------------------
Harris County Mental Health and
Mental Retardation Authority;
Refunding Series 1992 RB
6.25%, 9/15/10(c) AAA Aaa 4,500 4,716,225
- -----------------------------------------------------------------------
Harris County Utilities District
No. 10; Waterworks and Sewer
Systems Unlimited Tax Series
1996 GO
5.50%, 10/01/21(c) AAA Aaa 520 512,346
- -----------------------------------------------------------------------
Houston (City of); Refunding
Series 1992 C GO
6.25%, 03/01/02(f)(g) NRR NRR 1,470 1,576,560
- -----------------------------------------------------------------------
Hurst, Euless, Bedford, Texas
Independent School District;
Refunding RB
6.50%, 08/15/04(f)(g) AAA Aaa 640 708,620
- -----------------------------------------------------------------------
6.50%, 08/15/24(c) AAA Aaa 360 386,734
- -----------------------------------------------------------------------
Keller (City of) Independent
School District; Certificates
of Participation Series 1994 RB
6.00%, 08/15/05(c) AAA Aaa 1,000 1,083,010
- -----------------------------------------------------------------------
Lockhart (City of); Certificates
of Participation Tax and
Utility Systems Series 1996 GO
5.85%, 08/01/11(c) AAA Aaa 605 617,402
- -----------------------------------------------------------------------
5.90%, 08/01/16(c) AAA Aaa 1,100 1,118,425
- -----------------------------------------------------------------------
North Texas Higher Education
Authority Inc.; Student Loan
Refunding Series D RB
6.10%, 04/01/08(b) -- Aa 1,000 1,009,540
- -----------------------------------------------------------------------
6.30%, 04/01/09(b) -- A 500 507,955
- -----------------------------------------------------------------------
Plano (City of) Independent
School District; Unlimited Tax
Series 1991 B GO
5.625%, 02/15/01(f)(g) AAA Aaa 2,500 2,604,275
- -----------------------------------------------------------------------
Texas (State of); Unlimited Tax
Veteran's Land GO
6.40%, 12/01/24(b) AA Aa 2,000 2,058,480
- -----------------------------------------------------------------------
Texas (State of) Department of
Housing and Community Affairs
(Asmara Project); Multifamily
Housing Series 1996 A RB
6.30%, 01/01/16 A -- 310 311,029
- -----------------------------------------------------------------------
Texas (State of) Housing Agency;
Residential Development
Mortgage Series 1987 D RB
8.40%, 07/01/20(b) A+ Aa 3,265 3,418,063
- -----------------------------------------------------------------------
Texas National Research
Laboratory Community Financing
Corp. (Superconducting Super
Collider); Lease RB
7.10%, 12/01/01(f)(g) AAA Aaa 600 677,562
- -----------------------------------------------------------------------
Victoria (County of) Texas
Hospital Citizens Medical
Center; RB
6.20%, 01/01/10(c) AAA Aaa 1,000 1,062,940
- -----------------------------------------------------------------------
Weatherford (City of) Independent
School District; Refunding
Series 1994 GO
6.40%, 02/15/12(c) AAA Aaa 1,000 1,070,990
- -----------------------------------------------------------------------
46,751,476
- -----------------------------------------------------------------------
</TABLE>
FS-82
<PAGE> 341
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
UTAH-1.36%
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 $ 915 $ 956,147
- -----------------------------------------------------------------------
7.15%, Series 1994 G-1,
07/01/06 A+ A1 915 984,778
- -----------------------------------------------------------------------
Utah (State of) Housing Finance
Agency; Series 1994 C RB
6.05%, 07/01/06 -- A1 930 954,952
- -----------------------------------------------------------------------
Utah (State of) Housing Finance
Agency; Single Family Mortgage
RB
6.45%, Series G2, 07/01/27(b) AAA Aaa 1,330 1,355,124
- -----------------------------------------------------------------------
4,251,001
- -----------------------------------------------------------------------
VIRGIN ISLANDS-1.29%
Virgin Islands Public Finance
Authority; Matching Fund Loan
Notes Series A RB
7.25%, 10/01/18(d) -- -- 1,000 1,068,490
- -----------------------------------------------------------------------
Virgin Islands Territory (Hugo
Insurance Claims Fund); Special
Tax Bond Series 1991 GO
7.75%, 10/01/06(d) -- -- 2,730 2,958,255
- -----------------------------------------------------------------------
4,026,745
- -----------------------------------------------------------------------
VIRGINIA-0.71%
Henrico (County of) Industrial
Development Authority
(Hermitage Project); RB
3.70%, 05/01/24(h)(i) -- VMIG-1 134 134,000
- -----------------------------------------------------------------------
Richmond (City of); Public
Improvement Refunding Series B
GO
6.25%, 01/15/18 AA A1 2,000 2,084,320
- -----------------------------------------------------------------------
2,218,320
- -----------------------------------------------------------------------
WASHINGTON-2.37%
Clark (County of) Gamas School
District #117; GO
6.00%, 12/01/14(c) AAA Aaa 1,000 1,045,500
- -----------------------------------------------------------------------
King (County of); Unlimited Tax
GO
5.50%, 07/01/07(f) AAA Aaa 500 516,080
- -----------------------------------------------------------------------
King (County of); Unlimited Tax
Refunding GO
6.50%, 12/01/11 AA+ Aa1 500 504,020
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATING(a) PAR MARKET
S&P MOODY'S (000) VALUE
<S> <C> <C> <C> <C>
WASHINGTON-(CONTINUED)
Pend Oreille (County of) Public
Utility District #1; Electric
Series B RB
6.30%, 01/01/17 BBB+ A $1,400 $ 1,422,162
- -----------------------------------------------------------------------
Seattle (City of) Metropolitan
Sewer District; Series T RB
6.80%, 01/01/11 AA- A1 1,780 1,905,223
- -----------------------------------------------------------------------
Washington State Public Power
Supply System (Nuclear Project
No. 1); Refunding Series A RB
5.75%, 07/01/12(c) AAA Aaa 2,000 2,023,440
- -----------------------------------------------------------------------
7,416,425
- -----------------------------------------------------------------------
WISCONSIN-1.00%
Wisconsin Housing and Economic
Development Authority; Home
Ownership RB
7.40%, Series 1994 F
07/01/13(b) AA Aa 1,000 1,067,130
- -----------------------------------------------------------------------
8.00%, Series 1990 E
03/01/21(b) A+ Aa 525 549,985
- -----------------------------------------------------------------------
Wisconsin Health and Educational
Facilities Authority (Sinai
Samaritan Medical Center); RB
5.75%, Series 1994 F
08/15/16(c) AA Aa 1,500 1,504,935
- -----------------------------------------------------------------------
3,122,050
=======================================================================
WYOMING-0.66%
Natrona (County of) Wyoming
Medical Center; RB
6.00%, 09/15/11(c) AAA Aaa 1,000 1,038,730
- -----------------------------------------------------------------------
Sweetwater (County of) (Idaho
Power Company Project);
Pollution Control Refunding
Series 1996 A RB
6.05%, 07/15/26 A A3 1,000 1,024,160
- -----------------------------------------------------------------------
2,062,890
- -----------------------------------------------------------------------
TOTAL INVESTMENTS-99.30% 310,386,726
- -----------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.70% 2,195,076
- -----------------------------------------------------------------------
NET ASSETS-100.00% $312,581,802
=======================================================================
</TABLE>
Investment Abbreviations:
GO - General Obligation Bonds
IDR - Industrial Development Revenue Bonds
NRR - Not Re-Rated
PCR - Pollution Control Revenue Bonds
RB - Revenue Bonds
Notes to Schedule of Investments:
(a) Ratings assigned by Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Corporation ("S&P"). NRR
indicates a security that is not re-rated subsequent to
funding of an escrow fund (consisting of U.S. Treasury
obligations); this funding is pursuant to an advance
refunding of the security. Ratings are not covered by
Independent Auditors' Report.
(b) Security subject to the alternative minimum tax.
(c) Secured by bond insurance.
(d) Unrated security; determined by the investment advisor to be
of comparable quality to the rated securities in which the
Fund may invest pursuant to guidelines of quality adopted by
the Board of Trustees and followed by the investment
advisor.
(e) Zero coupon bonds. The interest rate shown represents the
rate of original issue discount.
(f) Secured by an escrow fund of U.S. Treasury obligations.
(g) Security has an irrevocable call or mandatory put by the
issuer. Maturity date reflects such call or put.
(h) 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 in
effect on December 31, 1996.
(i) Secured by a letter of credit.
See Notes to Financial Statements.
FS-83
<PAGE> 342
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$292,806,066) $310,386,726
- ----------------------------------------------------------
Receivables for:
Fund shares sold 146,870
- ----------------------------------------------------------
Interest 5,581,407
- ----------------------------------------------------------
Investment for deferred compensation plan 61,435
- ----------------------------------------------------------
Other assets 16,396
- ----------------------------------------------------------
Total assets 316,192,834
- ----------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,787,782
- ----------------------------------------------------------
Fund shares reacquired 885,081
- ----------------------------------------------------------
Dividends 562,525
- ----------------------------------------------------------
Accrued advisory fees 123,518
- ----------------------------------------------------------
Accrued administrative service fees 6,634
- ----------------------------------------------------------
Accrued distribution fees 211,478
- ----------------------------------------------------------
Accrued trustees' fees 2,026
- ----------------------------------------------------------
Accrued transfer agent fees 10,694
- ----------------------------------------------------------
Accrued operating expenses and other
payables 21,294
- ----------------------------------------------------------
Total liabilities 3,611,032
- ----------------------------------------------------------
Net assets applicable to shares outstanding $312,581,802
==========================================================
NET ASSETS:
Class A $278,812,285
==========================================================
Class B $ 33,769,517
==========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 34,050,982
==========================================================
Class B 4,122,096
==========================================================
Class A:
Net asset value and redemption price per
share $ 8.19
==========================================================
Offering price per share:
(Net asset value of $8.19 divided
by 95.25%) $ 8.60
==========================================================
Class B:
Net asset value and offering price per
share $ 8.19
==========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $18,543,407
- ----------------------------------------------------------
EXPENSES:
Advisory fees 1,417,007
- ----------------------------------------------------------
Custodian fees 11,493
- ----------------------------------------------------------
Transfer agent fees - Class A 129,670
- ----------------------------------------------------------
Transfer agent fees - Class B 21,248
- ----------------------------------------------------------
Administrative service fees 71,857
- ----------------------------------------------------------
Trustees' fees 7,795
- ----------------------------------------------------------
Distribution fees - Class A 691,812
- ----------------------------------------------------------
Distribution fees - Class B 275,301
- ----------------------------------------------------------
Other 50,454
- ----------------------------------------------------------
Total expenses 2,676,637
- ----------------------------------------------------------
Less: Expenses paid indirectly (4,978)
- ----------------------------------------------------------
Net expenses 2,671,659
- ----------------------------------------------------------
Net investment income 15,871,748
- ----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES:
Realized gain on sales of investment
securities 118,748
- ----------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (4,496,798)
- ----------------------------------------------------------
Net gain (loss) on investment securities (4,378,050)
- ----------------------------------------------------------
Net increase in net assets resulting from
operations $11,493,698
==========================================================
</TABLE>
See Notes to Financial Statements.
FS-84
<PAGE> 343
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 15,871,748 $ 15,091,309
- ------------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 118,748 674,681
- ------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (4,496,798) 19,230,259
- ------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 11,493,698 34,996,249
- ------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (14,634,820) (14,621,874)
- ------------------------------------------------------------------------------------------
Class B (1,210,672) (654,391)
- ------------------------------------------------------------------------------------------
Return of capital:
Class A -- (1,011,782)
- ------------------------------------------------------------------------------------------
Class B -- (45,282)
- ------------------------------------------------------------------------------------------
Share transactions-net:
Class A (1,870,211) 9,550,157
- ------------------------------------------------------------------------------------------
Class B 12,523,478 11,436,172
- ------------------------------------------------------------------------------------------
Net increase in net assets 6,301,473 39,649,249
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 306,280,329 266,631,080
- ------------------------------------------------------------------------------------------
End of period $312,581,802 $306,280,329
==========================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $296,629,932 $285,976,665
- ------------------------------------------------------------------------------------------
Undistributed net investment income (34,765) (61,021)
- ------------------------------------------------------------------------------------------
Undistributed net realized gain (loss) on investment
securities (1,594,025) (1,712,773)
- ------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 17,580,660 22,077,458
- ------------------------------------------------------------------------------------------
$312,581,802 $306,280,329
==========================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 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'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.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 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 either are not readily available or are
questionable
FS-85
<PAGE> 344
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. Notwithstanding the above, 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.
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 $1,594,025 (which may be carried forward to offset future
taxable capital gains, if any) which expires, if not previously utilized, in
the year 2002. The Fund cannot distribute capital gains to shareholders until
the tax loss carryforwards have been utilized.
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.
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.
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 year ended December 31, 1996, AIM
was reimbursed $71,857 for such services.
The Fund, pursuant to a transfer agent and service agreement, has agreed to
pay A I M Fund Services, Inc. ("AFS") a fee for providing transfer agency and
shareholder services to the Fund. During the year ended December 31, 1996, AFS
was paid $104,022 for such services.
The Fund received reductions in transfer agency fees payable to AFS of $4,641
from dividends received on balances in cash management accounts. In addition,
pricing service expenses in the amount of $337 were paid through directed
brokerage commissions paid by the Fund. The above arrangements resulted in a
reduction of the Fund's total expenses of $4,978 during the year ended December
31, 1996.
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 provides for 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. AIM Distributors may,
from time to time, assign, transfer or pledge to one or more assignees, its
rights to all or a designated portion of (a) compensation payable to AIM
Distributors from the Fund pursuant to the Class B Plan (but not AIM
Distributors' duties and obligations pursuant to the Class B Plan) and (b) any
contingent deferred sales charges received by AIM Distributors related to the
Class B shares. During the year ended December 31, 1996, the Class A shares and
the Class B shares paid AIM Distributors $691,812 and $275,301, respectively, as
compensation under the Plans.
AIM Distributors received commissions of $122,269 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. 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, 1996,
AIM Distributors received $49,906 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 year ended December 31, 1996, the Fund paid legal fees of $3,549
for services rendered by Kramer, Levin, Naftalis & 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 AIM. 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-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 19, 1996, the Fund was
limited to borrowing $4,900,000. During the year ended December 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.08% on the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
FS-86
<PAGE> 345
NOTE 5-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, 1996 was
$83,704,766 and $73,917,831, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $17,589,340
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,680)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $17,580,660
=========================================================================
Investments have the same cost for tax and financial statement purposes.
</TABLE>
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ---------------------------
SHARES VALUE SHARES VALUE
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A 5,797,996 $ 47,332,136 6,038,257 $ 48,938,165
- ------------------------------------------------------------ -------------------------- ---------------------------
Class B 2,660,265 21,695,791 1,963,653 15,985,997
- ------------------------------------------------------------ -------------------------- ---------------------------
Issued as reinvestment of dividends:
Class A 1,054,624 8,611,381 1,117,182 9,074,834
- ------------------------------------------------------------ -------------------------- ---------------------------
Class B 85,876 701,022 50,725 412,983
- ------------------------------------------------------------ -------------------------- ---------------------------
Reacquired:
Class A (7,075,891) (57,813,728) (5,965,522) (48,462,842)
- ------------------------------------------------------------ -------------------------- ---------------------------
Class B (1,208,742) (9,873,335) (608,842) (4,962,808)
- ------------------------------------------------------------ -------------------------- ---------------------------
1,314,128 $ 10,653,267 2,595,453 $ 20,986,329
============================================================ ========================= ===========================
</TABLE>
NOTE 7-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the ten-year period ended December 31, 1996 and for a
Class B share outstanding during each of the years in the three-year period
ended December 31, 1996 and the period September 1, 1993 (date sales commenced)
through December 31, 1993.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992(a) 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $ 8.31 $ 7.78 $ 8.61 $ 8.27 $ 8.13 $ 7.66 $ 7.81
- -------------------------------------------- ------- -------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.43 0.43 0.46 0.48 0.51 0.52 0.53
- -------------------------------------------- ------- -------- -------- -------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) (0.12) 0.56 (0.78) 0.46 0.21 0.46 (0.14)
- -------------------------------------------- ------- -------- -------- -------- -------- -------- --------
Total from investment operations 0.31 0.99 (0.32) 0.94 0.72 0.98 0.39
- -------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.43) (0.43) (0.45) (0.48) (0.51) (0.51) (0.53)
- -------------------------------------------- ------- -------- -------- -------- -------- -------- --------
Distributions from net realized capital
gains -- -- (0.03) (0.11) (0.07) -- --
- -------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Returns of capital -- (0.03) (0.03) (0.01) -- -- (0.01)
- -------------------------------------------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.43) (0.46) (0.51) (0.60) (0.58) (0.51) (0.54)
- -------------------------------------------- ------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 8.19 $ 8.31 $ 7.78 $ 8.61 $ 8.27 $ 8.13 $ 7.66
============================================ ======= ======== ======== ======== ======== ======== ========
Total return(b) 3.90% 13.05% (3.79)% 11.66% 9.10% 13.30% 5.27%
============================================ ======= ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $278,812 $284,803 $257,456 $294,209 $271,205 $273,037 $258,194
============================================ ======= ======== ======== ======== ======== ======== ========
Ratio of expenses to average net assets 0.80%(c)(d) 0.88% 0.89% 0.91% 0.90% 0.94% 0.91%
============================================ ======= ======== ======== ======== ======== ======== ========
Ratio of net investment income to average
net assets 5.29%(c) 5.26% 5.61% 5.65% 6.15% 6.58% 6.91%
============================================ ======= ======== ======== ======== ======== ======== ========
Portfolio turnover rate 26% 36% 43% 24% 160% 289% 230%
============================================ ======= ======== ======== ======== ======== ======== ========
<CAPTION>
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
CLASS A:
Net asset value, beginning of period $ 7.64 $ 7.32 $ 8.41
- -------------------------------------------- -------- -------- --------
Income from investment operations:
Net investment income 0.54 0.53 0.51
- -------------------------------------------- -------- -------- --------
Net gains (losses) on securities
(both realized and unrealized) 0.18 0.34 (0.65)
- -------------------------------------------- -------- -------- --------
Total from investment operations 0.72 0.87 (0.14)
- -------------------------------------------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.55) (0.55) (0.49)
- -------------------------------------------- -------- -------- --------
Distributions from net realized capital
gains -- -- (0.46)
- -------------------------------------------- -------- -------- --------
Returns of capital -- -- --
- -------------------------------------------- -------- -------- --------
Total distributions (0.55) (0.55) (0.95)
- -------------------------------------------- -------- -------- --------
Net asset value, end of period $ 7.81 $ 7.64 $ 7.32
============================================ ======== ======== ========
Total return(b) 9.70% 12.33% (1.88)%
============================================ ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $262,997 $243,480 $237,225
============================================ ======== ======== ========
Ratio of expenses to average net assets 0.89% 0.87% 0.80%
============================================ ======== ======== ========
Ratio of net investment income to average
net assets 6.97% 7.11% 6.71%
============================================ ======== ======== ========
Portfolio turnover rate 305% 381% 392%
============================================ ======== ======== ========
</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 daily net assets of $276,724,764.
(d) Ratio included expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
FS-87
<PAGE> 346
<TABLE>
<CAPTION>
1996 1995 1994 1993
------- ------- ------ ------
<S> <C> <C> <C> <C>
CLASS B:
Net asset value, beginning of period $ 8.31 $ 7.78 $ 8.61 $ 8.71
- ------------------------------------------------------------ ------- ------- ------ ------
Income from investment operations:
Net investment income 0.37 0.39 0.39 0.14
- ------------------------------------------------------------ ------- ------- ------ ------
Net gains (losses) on securities (both realized and
unrealized) (0.13) 0.54 (0.78) 0.01
- ------------------------------------------------------------ ------- ------- ------ ------
Total from investment operations 0.24 0.93 (0.39) 0.15
- ------------------------------------------------------------ ------- ------- ------ ------
Less distributions:
Dividends from net investment income (0.36) (0.37) (0.38) (0.13)
- ------------------------------------------------------------ ------- ------- ------ ------
Distributions from net realized capital gains -- -- (0.03) (0.11)
- ------------------------------------------------------------ ------- ------- ------ ------
Returns of capital -- (0.03) (0.03) (0.01)
- ------------------------------------------------------------ ------- ------- ------ ------
Total distributions (0.36) (0.40) (0.44) (0.25)
- ------------------------------------------------------------ ------- ------- ------ ------
Net asset value, end of period $ 8.19 $ 8.31 $ 7.78 $ 8.61
============================================================ ======= ======= ====== ======
Total return(a) 2.99% 12.14% (4.57)% 1.95%
============================================================ ======= ======= ====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $33,770 $21,478 $9,175 $2,319
============================================================ ======= ======= ====== ======
Ratio of expenses to average net assets(b) 1.61%(d)(e) 1.68% 1.67% 1.65%(f)
============================================================ ======= ======= ====== ======
Ratio of net investment income to average net assets(c) 4.49%(d) 4.46% 4.83% 4.91%(f)
============================================================ ======= ======= ====== ======
Portfolio turnover rate 26% 36% 43% 24%
============================================================ ======= ======= ====== ======
</TABLE>
(a) Total returns do not deduct contingent deferred sales charges and are not
annualized for periods less than one year.
(b) Ratios of expenses to average daily net assets prior to expense
reimbursements are 1.77%, 1.84% and 3.08% (annualized) for the period
1995-1993, respectively.
(c) Ratios of net investment income to average daily net assets prior to expense
reimbursements are 4.37%, 4.66% and 3.48% (annualized) for the period
1995-1993, respectively.
(d) Ratios are based on average daily net assets of $27,530,145.
(e) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(f) Annualized.
NOTE 8-SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
FS-88
<PAGE> 347
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 AIM Value Fund (a portfolio of AIM Funds
Group), including the schedule of investments, as of
December 31, 1996, and the related statement of operations
for the year then ended, the statement of changes in 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 four-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, 1996, 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, 1996, 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 four-year
period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
FS-89
<PAGE> 348
SCHEDULE OF INVESTMENTS
December 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS-67.69%
AEROSPACE/DEFENSE-0.85%
Boeing Co. 550,000 $ 58,506,250
- ---------------------------------------------------------------
United Technologies Corp. 399,800 26,386,800
- ---------------------------------------------------------------
84,893,050
- ---------------------------------------------------------------
AUTOMOBILE/TRUCK PARTS & TIRES-0.17%
Borg-Warner Automotive, Inc. 450,000 17,325,000
- ---------------------------------------------------------------
BEVERAGES (SOFT DRINKS)-0.29%
PepsiCo, Inc. 1,000,000 29,250,000
- ---------------------------------------------------------------
BIOTECHNOLOGY-1.17%
Biogen, Inc.(a) 1,095,100 42,435,125
- ---------------------------------------------------------------
Guidant Corp. 1,300,000 74,100,000
- ---------------------------------------------------------------
116,535,125
- ---------------------------------------------------------------
BUSINESS SERVICES-0.10%
Cognizant Corp. 300,000 9,900,000
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.84%
IMC Global, Inc. 1,200,000 46,950,000
- ---------------------------------------------------------------
Praxair, Inc. 800,000 36,900,000
- ---------------------------------------------------------------
83,850,000
- ---------------------------------------------------------------
COMPUTER MAINFRAMES-0.19%
International Business Machines
Corp. 125,000 18,875,000
- ---------------------------------------------------------------
COMPUTER MINI/PCS-0.45%
Sun Microsystems, Inc.(a) 600,000 15,412,500
- ---------------------------------------------------------------
Wang Laboratories, Inc.(a) 1,448,500 29,332,125
- ---------------------------------------------------------------
44,744,625
- ---------------------------------------------------------------
COMPUTER NETWORKING-0.52%
Cisco Systems, Inc.(a) 400,000 25,450,000
- ---------------------------------------------------------------
Comverse Technology, Inc.(a) 687,700 26,003,656
- ---------------------------------------------------------------
51,453,656
- ---------------------------------------------------------------
COMPUTER PERIPHERALS-0.76%
Seagate Technology, Inc.(a) 800,000 31,600,000
- ---------------------------------------------------------------
U.S. Robotics Corp.(a) 343,100 24,703,200
- ---------------------------------------------------------------
Western Digital Corp.(a) 350,000 19,906,250
- ---------------------------------------------------------------
76,209,450
- ---------------------------------------------------------------
COMPUTER SOFTWARE/SERVICES-2.09%
American Management Systems, Inc.(a) 1,400,000 34,300,000
- ---------------------------------------------------------------
Computer Associates International,
Inc. 600,000 29,850,000
- ---------------------------------------------------------------
CompuWare Corp.(a) 277,600 13,914,700
- ---------------------------------------------------------------
Informix Corp.(a) 1,000,000 20,375,000
- ---------------------------------------------------------------
National Data Corp. 300,000 13,050,000
- ---------------------------------------------------------------
Network General Corp.(a) 800,000 24,200,000
- ---------------------------------------------------------------
Wallace Computer Services, Inc. 2,100,000 72,450,000
- ---------------------------------------------------------------
208,139,700
- ---------------------------------------------------------------
CONGLOMERATES-0.39%
Loews Corp. 362,300 34,146,775
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONGLOMERATES-(CONTINUED)
U.S. Industries, Inc.(a) 135,500 $ 4,657,813
- ---------------------------------------------------------------
38,804,588
- ---------------------------------------------------------------
CONTAINERS-0.28%
First Brands Corp. 1,000,000 28,375,000
- ---------------------------------------------------------------
COSMETICS & TOILETRIES-0.20%
Clorox Co. 200,000 20,075,000
- ---------------------------------------------------------------
ELECTRIC POWER-4.92%
Allegheny Power System, Inc. 2,000,000 60,750,000
- ---------------------------------------------------------------
American Electric Power Co. 2,600,000 106,925,000
- ---------------------------------------------------------------
Baltimore Gas & Electric Co. 800,000 21,400,000
- ---------------------------------------------------------------
Consolidated Edison Co. of New
York, Inc. 1,400,000 40,950,000
- ---------------------------------------------------------------
DQE, Inc. 500,000 14,500,000
- ---------------------------------------------------------------
Duke Power Co. 500,000 23,125,000
- ---------------------------------------------------------------
Edison International 1,737,100 34,524,863
- ---------------------------------------------------------------
Entergy Corp. 1,000,000 27,750,000
- ---------------------------------------------------------------
FPL Group, Inc. 500,000 23,000,000
- ---------------------------------------------------------------
Illinova Corp. 875,300 24,070,750
- ---------------------------------------------------------------
Texas Utilities Co. 600,000 24,450,000
- ---------------------------------------------------------------
Unicom Corp. 3,296,800 89,425,700
- ---------------------------------------------------------------
490,871,313
- ---------------------------------------------------------------
FINANCE (ASSET MANAGEMENT)-0.57%
Merrill Lynch & Co., Inc. 700,000 57,050,000
- ---------------------------------------------------------------
FINANCE (CONSUMER CREDIT)-5.36%
Federal Home Loan Mortgage Corp. 500,000 55,062,500
- ---------------------------------------------------------------
Federal National Mortgage
Association 10,000,000 372,500,000
- ---------------------------------------------------------------
Student Loan Marketing Association 1,147,300 106,842,313
- ---------------------------------------------------------------
534,404,813
- ---------------------------------------------------------------
FOOD/PROCESSING-2.82%
Archer-Daniels-Midland Co. 5,000,000 110,000,000
- ---------------------------------------------------------------
Flowers Industries, Inc. 1,400,000 30,100,000
- ---------------------------------------------------------------
Interstate Bakeries Corp. 800,000 39,300,000
- ---------------------------------------------------------------
Nabisco Holdings Corp.-Class A 1,279,500 49,740,563
- ---------------------------------------------------------------
Ralcorp Holdings, Inc.(a) 1,062,600 22,447,425
- ---------------------------------------------------------------
Ralston-Ralston Purina Group 400,000 29,350,000
- ---------------------------------------------------------------
280,937,988
- ---------------------------------------------------------------
FUNERAL SERVICES-0.89%
Service Corp. International 2,800,000 78,400,000
- ---------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 300,000 10,200,000
- ---------------------------------------------------------------
88,600,000
- ---------------------------------------------------------------
GAS DISTRIBUTION-0.10%
KN Energy, Inc. 256,800 10,079,400
- ---------------------------------------------------------------
HOME BUILDING-0.21%
Clayton Homes, Inc. 1,548,300 20,902,050
- ---------------------------------------------------------------
HOTELS/MOTELS-0.09%
Choice Hotels International, Inc.(a) 500,000 8,812,500
- ---------------------------------------------------------------
</TABLE>
FS-90
<PAGE> 349
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (LIFE & HEALTH)-1.01%
Conseco Inc. 383,900 $ 24,473,625
- ---------------------------------------------------------------
Provident Companies, Inc. 1,000,000 48,375,000
- ---------------------------------------------------------------
Safeco Corp. 700,000 27,606,250
- ---------------------------------------------------------------
100,454,875
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE PROPERTY)-6.90%
Allstate Corp. 1,845,500 106,808,313
- ---------------------------------------------------------------
American International Group, Inc. 1,000,000 108,250,000
- ---------------------------------------------------------------
Chubb Corp. 353,300 18,989,875
- ---------------------------------------------------------------
CIGNA Corp. 700,000 95,637,500
- ---------------------------------------------------------------
CNA Financial Corp.(a) 400,000 42,800,000
- ---------------------------------------------------------------
Exel Limited 1,400,000 53,025,000
- ---------------------------------------------------------------
ITT Hartford Group, Inc. 1,200,000 81,000,000
- ---------------------------------------------------------------
MBIA, Inc. 500,000 50,625,000
- ---------------------------------------------------------------
Progressive Corp. 271,900 18,319,262
- ---------------------------------------------------------------
Transatlantic Holdings, Inc. 203,800 16,405,900
- ---------------------------------------------------------------
Travelers Group, Inc. 2,133,333 96,799,985
- ---------------------------------------------------------------
688,660,835
- ---------------------------------------------------------------
LEISURE & RECREATION-0.98%
Callaway Golf Co. 1,400,000 40,250,000
- ---------------------------------------------------------------
Carnival Corp.-Class A 1,740,200 57,426,600
- ---------------------------------------------------------------
97,676,600
- ---------------------------------------------------------------
MACHINERY (HEAVY)-0.16%
Case Corp. 300,000 16,350,000
- ---------------------------------------------------------------
MACHINERY (MISCELLANEOUS)-0.39%
Pentair, Inc. 1,200,000 38,700,000
- ---------------------------------------------------------------
MEDICAL (DRUGS)-4.04%
American Home Products Corp. 1,000,000 58,625,000
- ---------------------------------------------------------------
Bristol-Myers Squibb Co. 2,200,000 239,250,000
- ---------------------------------------------------------------
ICN Pharmaceuticals, Inc. 1,431,435 28,091,912
- ---------------------------------------------------------------
R.P. Scherer Corp.(a) 500,000 25,125,000
- ---------------------------------------------------------------
Schering-Plough Corp. 800,000 51,800,000
- ---------------------------------------------------------------
402,891,912
- ---------------------------------------------------------------
MEDICAL (INSTRUMENTS/PRODUCTS)-4.28%
Baxter International, Inc. 7,517,800 308,229,800
- ---------------------------------------------------------------
Boston Scientific Corp.(a) 600,000 36,000,000
- ---------------------------------------------------------------
Hillenbrand Industries, Inc. 800,000 29,000,000
- ---------------------------------------------------------------
St. Jude Medical, Inc.(a) 800,000 34,100,000
- ---------------------------------------------------------------
Sybron International Corp.(a) 600,000 19,800,000
- ---------------------------------------------------------------
427,129,800
- ---------------------------------------------------------------
MEDICAL (PATIENT SERVICES)-6.24%
Columbia/HCA Healthcare Corp. 8,500,000 346,375,000
- ---------------------------------------------------------------
Health Care and Retirement Corp.(a) 1,200,000 34,350,000
- ---------------------------------------------------------------
Manor Care, Inc. 500,000 13,500,000
- ---------------------------------------------------------------
MedPartners, Inc.(a) 7,500,000 157,500,000
- ---------------------------------------------------------------
OrNda HealthCorp(a) 1,800,000 52,650,000
- ---------------------------------------------------------------
Quorum Health Group, Inc.(a) 600,000 17,850,000
- ---------------------------------------------------------------
622,225,000
- ---------------------------------------------------------------
NATURAL GAS PIPELINE-1.31%
Columbia Gas System, Inc. 700,000 $ 44,537,500
- ---------------------------------------------------------------
El Paso Natural Gas Co. 1,714,100 86,562,050
- ---------------------------------------------------------------
131,099,550
- ---------------------------------------------------------------
OFFICE PRODUCTS-0.35%
Reynolds & Reynolds Co.-Class A 1,339,200 34,819,200
- ---------------------------------------------------------------
OIL & GAS-2.67%
Halliburton Co. 469,800 28,305,450
- ---------------------------------------------------------------
Mobil Corp. 300,000 36,675,000
- ---------------------------------------------------------------
NorAm Energy Corp. 1,000,000 15,375,000
- ---------------------------------------------------------------
Oryx Energy Co.(a) 4,000,000 99,000,000
- ---------------------------------------------------------------
Pennzoil Co. 700,000 39,550,000
- ---------------------------------------------------------------
Unocal Corp. 1,185,300 48,152,812
- ---------------------------------------------------------------
267,058,262
- ---------------------------------------------------------------
OIL & GAS
(REFINING/MARKETING)-0.48%
Tosco Corp. 602,907 47,705,016
- ---------------------------------------------------------------
OIL EQUIPMENT & SUPPLIES-1.55%
Baker Hughes, Inc. 1,800,000 62,100,000
- ---------------------------------------------------------------
BJ Services Co.(a) 721,500 36,796,500
- ---------------------------------------------------------------
Noble Drilling Corp.(a) 1,000,000 19,875,000
- ---------------------------------------------------------------
Tidewater, Inc. 800,000 36,200,000
- ---------------------------------------------------------------
154,971,500
- ---------------------------------------------------------------
PUBLISHING-0.48%
Gannett Company, Inc. 340,000 25,457,500
- ---------------------------------------------------------------
Knight-Ridder, Inc. 300,000 11,475,000
- ---------------------------------------------------------------
Scripps (E.W.) Co.-Class A 300,000 10,500,000
- ---------------------------------------------------------------
47,432,500
- ---------------------------------------------------------------
RETAIL (FOOD & DRUG)-0.93%
American Stores Co. 900,000 36,787,500
- ---------------------------------------------------------------
Safeway, Inc.(a) 1,300,000 55,575,000
- ---------------------------------------------------------------
92,362,500
- ---------------------------------------------------------------
RETAIL (STORES)-0.05%
Meyer (Fred), Inc.(a) 154,300 5,477,650
- ---------------------------------------------------------------
SHOES & RELATED APPAREL-0.26%
Nike, Inc.-Class B 435,200 26,003,200
- ---------------------------------------------------------------
TELECOMMUNICATIONS-4.63%
Lucent Technologies, Inc. 1,022,400 47,286,000
- ---------------------------------------------------------------
MFS Communications Co., Inc.(a) 4,835,092 263,512,514
- ---------------------------------------------------------------
WorldCom, Inc.(a) 5,778,300 150,596,944
- ---------------------------------------------------------------
461,395,458
- ---------------------------------------------------------------
TELEPHONE-3.41%
Ameritech Corp. 3,194,600 193,672,625
- ---------------------------------------------------------------
BellSouth Corp. 2,000,000 80,750,000
- ---------------------------------------------------------------
Cincinnati Bell, Inc. 400,000 24,650,000
- ---------------------------------------------------------------
SBC Communications, Inc. 800,000 41,400,000
- ---------------------------------------------------------------
340,472,625
- ---------------------------------------------------------------
TOBACCO-4.31%
DIMON, Inc. 1,100,000 25,437,500
- ---------------------------------------------------------------
</TABLE>
FS-91
<PAGE> 350
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TOBACCO-(CONTINUED)
Philip Morris Companies, Inc. 2,600,000 $ 292,825,000
- ---------------------------------------------------------------
RJR Nabisco Holdings Corp. 3,283,800 111,649,200
- ---------------------------------------------------------------
429,911,700
- ---------------------------------------------------------------
Total Domestic Common Stocks 6,752,886,441
- ---------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-19.14%
ARGENTINA-0.38%
YPF Sociedad Anonima-ADR (Oil &
Gas-Exploration & Production) 1,500,000 37,875,000
- ---------------------------------------------------------------
AUSTRALIA-0.49%
Westpac Banking Corp. Ltd.
(Banking) 8,649,037 49,222,721
- ---------------------------------------------------------------
BERMUDA-0.02%
PartnerRe Ltd.
(Insurance-Multi-Line Property) 52,600 1,788,400
- ---------------------------------------------------------------
BRAZIL-0.15%
Telecomunicacoes Brasileiras S.A.
Telebras-ADR
(Telecommunications) 200,000 15,300,000
- ---------------------------------------------------------------
CANADA-2.86%
Canadian National Railway Co.
(Railroads) 1,600,000 60,800,000
- ---------------------------------------------------------------
Canadian Pacific, Ltd.
(Transportation) 6,200,000 164,300,000
- ---------------------------------------------------------------
CanWest Global Communications
Corp. (Advertising/Broadcasting) 1,800,000 18,450,000
- ---------------------------------------------------------------
Northern Telecom Ltd.
(Telecommunications) 400,000 24,750,000
- ---------------------------------------------------------------
Potash Corp. of Saskatchewan Inc.
(Chemicals) 200,000 17,000,000
- ---------------------------------------------------------------
285,300,000
- ---------------------------------------------------------------
DENMARK-0.58%
Danisco A.S. (Food/Processing) 460,000 27,955,456
- ---------------------------------------------------------------
Novo Nordisk A.S.-Class B
(Medical-Drugs) 160,500 30,242,921
- ---------------------------------------------------------------
58,198,377
- ---------------------------------------------------------------
FRANCE-0.98%
Rhone-Poulenc Rorer, Inc.-Class A
(Medical-Drugs) 517,900 17,657,610
- ---------------------------------------------------------------
Rhone-Poulenc Rorer, Inc.
(Medical-Drugs) 954,900 74,601,563
- ---------------------------------------------------------------
Roussel Uclaf (Medical-Drugs) 16,900 4,973,750
- ---------------------------------------------------------------
97,232,923
- ---------------------------------------------------------------
GERMANY-0.44%
VEBA A.G. (Electric Power) 760,000 43,956,330
- ---------------------------------------------------------------
HONG KONG-1.15%
Cheung Kong Holdings Ltd. (Real
Estate) 3,421,000 30,408,397
- ---------------------------------------------------------------
Citic Pacific Ltd. (Banking) 5,000,000 29,025,794
- ---------------------------------------------------------------
First Pacific Co. Ltd.
(Conglomerates) 7,850,000 10,200,076
- ---------------------------------------------------------------
Hang Seng Bank Ltd. (Banking) 1,200,000 14,584,007
- ---------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Real
Estate) 2,459,000 30,123,505
- ---------------------------------------------------------------
114,341,779
- ---------------------------------------------------------------
ITALY-1.60%
Edison S.p.A. (Electric Power) 3,000,000 18,911,667
- ---------------------------------------------------------------
Fila Holding S.p.A.-ADR
(Retail-Stores) 384,200 22,331,625
- ---------------------------------------------------------------
Istituto Mobiliare Italiano S.p.A.
(Banking) 3,263,500 27,837,633
- ---------------------------------------------------------------
ITALY-(CONTINUED)
Telecom Italia Mobile S.p.A.
(Telecommunications) 14,500,000 36,751,813
- ---------------------------------------------------------------
Telecom Italia S.p.A.
(Telecommunications) 20,800,000 $ 54,022,413
- ---------------------------------------------------------------
159,855,151
- ---------------------------------------------------------------
JAPAN-0.38%
Fuji Photo Film (Leisure &
Recreation) 750,000 24,738,796
- ---------------------------------------------------------------
Honda Motor Co.
(Automobile-Manufacturers) 450,000 12,861,584
- ---------------------------------------------------------------
37,600,380
- ---------------------------------------------------------------
MALAYSIA-0.03%
Malayan Banking Berhad (Banking) 272,000 3,015,640
- ---------------------------------------------------------------
NETHERLANDS-1.02%
Royal Dutch Petroleum Co. (Oil &
Gas-Services) 200,000 34,150,000
- ---------------------------------------------------------------
VNU-Verenigde Nederlandse
Uitgeversbedrijven Verenigd
Bezit (Publishing) 3,000,000 62,728,062
- ---------------------------------------------------------------
Wolters Kluwer N.V. (Publishing) 40,000 5,317,116
- ---------------------------------------------------------------
102,195,178
- ---------------------------------------------------------------
NORWAY-0.16%
Storebrand A.S.A.
(Insurance-Multi-Line
Property)(a) 2,854,250 16,390,752
- ---------------------------------------------------------------
PHILIPPINES-0.26%
C & P Homes, Inc. (Home Building) 10,050,000 5,158,745
- ---------------------------------------------------------------
Filinvest Land Inc. (Real
Estate)(a) 19,833,000 6,183,673
- ---------------------------------------------------------------
Metro Pacific Corp.
(Conglomerates) 58,708,000 14,509,582
- ---------------------------------------------------------------
25,852,000
- ---------------------------------------------------------------
SPAIN-1.75%
Banco Popular Espanol S.A.
(Banking) 200,000 39,283,651
- ---------------------------------------------------------------
Empresa Nacional de Electricidad,
S.A. (Electric Power) 1,200,000 85,407,280
- ---------------------------------------------------------------
Iberdrola S.A. (Electric Power) 3,500,000 49,605,237
- ---------------------------------------------------------------
174,296,168
- ---------------------------------------------------------------
SWEDEN-1.21%
Hennes & Mauritz A.B.-Class B
(Retail-Stores) 300,000 41,525,535
- ---------------------------------------------------------------
Nordbanken A.B. (Banking) 262,250 7,940,678
- ---------------------------------------------------------------
Skandinaviska Enskilda
Banken-Class A (Banking) 4,000,000 41,056,320
- ---------------------------------------------------------------
Telefonaktiebolaget L.M.
Ericsson-ADR
(Telecommunications) 1,000,000 30,187,500
- ---------------------------------------------------------------
120,710,033
- ---------------------------------------------------------------
SWITZERLAND-1.84%
Novartis A.G. (Medical-Drugs)(a) 159,990 183,238,453
- ---------------------------------------------------------------
THAILAND-0.18%
Krung Thai Bank PLC (Banking) 5,918,100 11,422,677
- ---------------------------------------------------------------
Thai Farmers Bank PLC (Banking) 1,046,600 6,529,517
- ---------------------------------------------------------------
Thai Farmers Bank PLC-Wts.,
expiring 09/15/02 (Banking)(a) 137,500 130,015
- ---------------------------------------------------------------
18,082,209
- ---------------------------------------------------------------
UNITED KINGDOM-3.66%
Burton Group PLC (Retail-Stores) 1,800,000 4,810,690
- ---------------------------------------------------------------
</TABLE>
FS-92
<PAGE> 351
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
Granada Group PLC (Leisure &
Recreation) 4,000,000 $ 59,139,970
- ---------------------------------------------------------------
Railtrack Group PLC (Railroads) 3,500,000 23,235,395
- ---------------------------------------------------------------
SmithKline Beecham PLC-ADR
(Medical-Drugs) 3,000,000 204,000,000
- ---------------------------------------------------------------
Standard Chartered PLC
(Finance-Asset Management) 3,982,300 49,190,308
- ---------------------------------------------------------------
Unilever PLC (Consumer
Non-Durables) 1,000,000 24,267,603
- ---------------------------------------------------------------
364,643,966
- ---------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests 1,909,095,460
- ---------------------------------------------------------------
PREFERRED STOCKS-0.38%
INSURANCE (LIFE & HEALTH)-0.12%
Conseco Inc.-$4.278 Conv. PRIDES 105,000 11,943,750
- ---------------------------------------------------------------
TELECOMMUNICATIONS-0.26%
MFS Communications Co., Inc.-$2.68
Conv. Pfd. 283,100 25,832,875
- ---------------------------------------------------------------
Total Preferred Stocks 37,776,625
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS-0.26%
COMPUTER SOFTWARE/SERVICES-0.26%
First Financial Management Corp.,
Conv. Deb., 5.00%, 12/15/99 $15,250,000 26,391,193
- ---------------------------------------------------------------
COMMERCIAL PAPER TRUST-1.50%
Citibank, N.A., 4.945%,
12/26/97(b) 150,000,000 150,000,000
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MASTER NOTE AGREEMENTS-1.58%
Citicorp Securities, Inc.,
5.875%(c), 01/27/97 $24,000,000 $ 24,000,000
- ---------------------------------------------------------------
Goldman, Sachs & Co., 5.755%(d),
04/23/97 54,000,000 54,000,000
- ---------------------------------------------------------------
Morgan Stanley Group Inc.,
5.725%(c), 05/28/97 80,000,000 80,000,000
- ---------------------------------------------------------------
Total Master Note Agreements 158,000,000
- ---------------------------------------------------------------
U.S. TREASURY SECURITIES-4.48%
U.S. TREASURY BILLS-4.48%(e)
5.22%, 01/02/97 347,825,000 347,775,998
- ---------------------------------------------------------------
5.14%, 03/06/97 100,000,000 99,151,000
- ---------------------------------------------------------------
Total U.S. Treasury Securities 446,926,998
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS-4.78%(f)
HSBC Securities, Inc.,
7.05%(g), 01/02/97 19,021,553 19,021,553
- ---------------------------------------------------------------
Merrill Lynch & Co. Inc.,
6.50%(h), 01/02/97 400,000,000 400,000,000
- ---------------------------------------------------------------
Merrill Lynch & Co. Inc.,
7.05%(i), 01/02/97 27,359,031 27,359,031
- ---------------------------------------------------------------
Morgan Stanley Group, Inc.,
7.05%(j), 01/02/97 30,000,000 30,000,000
- ---------------------------------------------------------------
Total Repurchase Agreements 476,380,584
- ---------------------------------------------------------------
TOTAL INVESTMENTS-99.81% 9,957,457,301
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.19% 18,537,009
- ---------------------------------------------------------------
NET ASSETS-100.00% $9,975,994,310
===============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Variable rate trust certificates representing an interest in a trust
(comprised of eligible debt obligations) entitling the Fund to receive
variable rate interest. The Fund has the right, upon seven calendar days'
notice to the trustee, to put its certificates to the trust at par value
plus accrued interest. Because variable rate trust certificates involve a
trust and a third party put feature, they involve complexities and potential
risks that may not be present where the debt obligation is owned directly.
Rate shown is the rate in effect on December 31, 1996.
(c) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon 3 business days' notice to the issuer. Interest
rates on master notes are redetermined periodically. Rate shown is the rate
in effect on December 31, 1996.
(d) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon 7 business days' prior written notice to the issuer.
Interest rates on master notes are redetermined periodically. Rate shown is
the rate in effect on December 31, 1996.
(e) 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.
(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. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(g) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$300,117,500. Collateralized by U.S. Government obligations, 0% to 8.00% due
07/16/97 to 11/01/35 with an aggregate market value at December 31, 1996 of
$306,000,188.
(h) Repurchase agreement entered into 12/31/96 with a maturing value of
$400,144,444. Collateralized by U.S. Government obligations, 6.00% to 12.00%
due 03/01/01 to 11/01/26 with an aggregate market value at December 31, 1996
of $408,003,538.
(i) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$200,078,333. Collateralized by U.S. Government obligations, 0% to 15.50%
due 03/01/97 to 12/01/26 with an aggregate market value at December 31,
1996 of $204,003,804.
(j) Joint repurchase agreement entered into 12/31/96 with a maturing value of
$300,117,500. Collateralized by U.S. Government obligations, 6.50% to
12.00% due 10/15/10 to 12/20/26 with an aggregate market value at December
31, 1996 of $307,371,109.
Abbreviations:
ADR - American Depository Receipt
Conv. - Convertible
Deb. - Debentures
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
Wts. - Warrants
See Notes to Financial Statements.
FS-93
<PAGE> 352
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$8,588,978,881) $ 9,957,457,301
- ----------------------------------------------------------
Foreign currencies, at value (cost
$83,365,445) 82,577,413
- ----------------------------------------------------------
Receivables for:
Investments sold 34,148,878
- ----------------------------------------------------------
Fund shares sold 21,265,654
- ----------------------------------------------------------
Dividends and interest 19,239,351
- ----------------------------------------------------------
Investment for deferred compensation plan 57,673
- ----------------------------------------------------------
Other assets 166,862
- ----------------------------------------------------------
Total assets 10,114,913,132
- ----------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 44,248,364
- ----------------------------------------------------------
Fund shares reacquired 40,121,185
- ----------------------------------------------------------
Options written 36,831,463
- ----------------------------------------------------------
Deferred compensation plan 57,673
- ----------------------------------------------------------
Accrued advisory fees 5,076,114
- ----------------------------------------------------------
Accrued administrative service fees 18,619
- ----------------------------------------------------------
Accrued distribution fees 8,170,140
- ----------------------------------------------------------
Accrued transfer agent fees 2,510,426
- ----------------------------------------------------------
Accrued trustees' fees 17,930
- ----------------------------------------------------------
Accrued operating expenses 1,866,908
- ----------------------------------------------------------
Total liabilities 138,918,822
- ----------------------------------------------------------
Net assets applicable to shares
outstanding $ 9,975,994,310
==========================================================
NET ASSETS:
Class A $ 5,100,060,952
==========================================================
Class B $ 4,875,933,358
==========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE:
Class A 174,979,851
==========================================================
Class B 168,596,396
==========================================================
Class A:
Net asset value and redemption price
per share $ 29.15
==========================================================
Offering price per share:
(Net asset value of $29.15
divided by 94.50%) $ 30.85
==========================================================
Class B:
Net asset value and offering price per
share $ 28.92
==========================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $3,459,015 foreign
withholding tax) $ 140,639,640
- ----------------------------------------------------------
Interest 87,267,409
- ----------------------------------------------------------
Total investment income 227,907,049
- ----------------------------------------------------------
EXPENSES:
Advisory fees 51,821,484
- ----------------------------------------------------------
Custodian fees 1,348,989
- ----------------------------------------------------------
Distribution fees -- Class A 10,740,282
- ----------------------------------------------------------
Distribution fees -- Class B 39,533,247
- ----------------------------------------------------------
Administrative service fees 196,586
- ----------------------------------------------------------
Trustees' fees 58,939
- ----------------------------------------------------------
Transfer agent fees -- Class A 7,667,173
- ----------------------------------------------------------
Transfer agent fees -- Class B 10,273,753
- ----------------------------------------------------------
Other 4,429,849
- ----------------------------------------------------------
Total expenses 126,070,302
- ----------------------------------------------------------
Less: Fees waived by advisor (1,562,359)
- ----------------------------------------------------------
Expenses paid indirectly (136,415)
- ----------------------------------------------------------
Net expenses 124,371,528
- ----------------------------------------------------------
Net investment income 103,535,521
- ----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN
CURRENCIES, FUTURES AND OPTIONS
TRANSACTIONS:
Net realized gain (loss) from:
Investment securities 335,204,694
- ----------------------------------------------------------
Foreign currencies (1,465,209)
- ----------------------------------------------------------
Futures contracts 35,626,021
- ----------------------------------------------------------
Options contracts 9,794,340
- ----------------------------------------------------------
379,159,846
- ----------------------------------------------------------
Unrealized appreciation (depreciation) of:
Investment securities 705,017,998
- ----------------------------------------------------------
Foreign currencies (1,035,558)
- ----------------------------------------------------------
Futures contracts (11,292,015)
- ----------------------------------------------------------
Options contracts (4,770,527)
- ----------------------------------------------------------
687,919,898
- ----------------------------------------------------------
Net gain from investment securities,
foreign currencies, futures and options
transactions 1,067,079,744
- ----------------------------------------------------------
Net increase in net assets resulting from
operations $1,170,615,265
==========================================================
</TABLE>
See Notes to Financial Statements.
FS-94
<PAGE> 353
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income $ 103,535,521 $ 16,293,031
- ------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and options transactions 379,159,846 412,157,661
- ------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies,
futures and options contracts 687,919,898 561,870,244
- ------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,170,615,265 990,320,936
- ------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (68,036,562) (10,460,381)
- ------------------------------------------------------------------------------------------------
Class B (33,169,539) --
- ------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (182,879,810) (183,638,497)
- ------------------------------------------------------------------------------------------------
Class B (175,428,877) (154,081,759)
- ------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 1,320,636,081 1,629,870,392
- ------------------------------------------------------------------------------------------------
Class B 1,674,774,506 1,958,628,734
- ------------------------------------------------------------------------------------------------
Net increase in net assets 3,706,511,064 4,230,639,425
- ------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 6,269,483,246 2,038,843,821
- ------------------------------------------------------------------------------------------------
End of period $9,975,994,310 $6,269,483,246
================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $8,530,223,852 $5,534,813,265
- ------------------------------------------------------------------------------------------------
Undistributed net investment income 6,940,026 6,075,815
- ------------------------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign
currencies, futures and options transactions 76,188,601 53,872,233
- ------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies, futures and options contracts 1,362,641,831 674,721,933
- ------------------------------------------------------------------------------------------------
$9,975,994,310 $6,269,483,246
================================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
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 Fund's investment objective is to seek 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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of 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 (except
convertible bonds) 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
FS-95
<PAGE> 354
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. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) 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
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued at the mean between last bid and asked
prices based upon quotes furnished by independent sources. Securities for
which market quotations either are not readily available or are questionable
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.
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 the 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 currency 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 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.
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. On December 31, 1996,
$1,465,209 was reclassified from undistributed net realized gains to
undistributed net investment income as a result of differing book/tax
treatment of foreign currency transactions. Net assets of the Fund were
unaffected as a result of this reclassification.
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 value of the Fund's portfolio 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 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
FS-96
<PAGE> 355
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.
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.
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. AIM is currently
voluntarily waiving a portion of its advisory fees payable by the Fund to AIM to
the extent necessary to reduce the fees paid by the Fund at net asset levels
higher than those currently incorporated in the present advisory fee schedule.
AIM will receive a fee calculated at 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 to and including $2 billion, plus 0.60% of the
Fund's average daily net assets in excess of $2 billion. The waiver of fees is
entirely voluntary and the Board of Trustees would be advised of any decision by
AIM to discontinue the waiver. During the year ended December 31, 1996, AIM
voluntarily waived advisory fees in the amount of $1,562,359.
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 year ended December 31, 1996, AIM
was reimbursed $196,586 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 year ended December 31, 1996, AFS was paid
$9,776,850 for such services.
The Fund received reductions in transfer agency fees payable to AFS of
$126,199 from dividends received on balances in cash management accounts. In
addition, pricing service expenses in the amount of $10,216 were paid through
directed brokerage commissions paid by the Fund. The above arrangements resulted
in a reduction of the Fund's total expenses of $136,415 during the year ended
December 31, 1996.
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 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. AIM Distributors may, from time to time, assign,
transfer or pledge to one or more assignees, its rights to all or a portion of
(a) compensation received by AIM Distributors from the Fund pursuant to the
Class B Plan (but not AIM Distributors' duties and obligations pursuant to the
Class B Plan) and (b) any contingent deferred sales charges payable to AIM
Distributors related to the Class B shares. During the year ended December 31,
1996, the Class A shares and the Class B shares paid AIM Distributors
$10,740,282 and $39,533,247, respectively, as compensation pursuant to the
Plans.
AIM Distributors received commissions of $7,792,991 from sales of the Class A
shares of the Fund during the year ended December 31, 1996. 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, 1996,
AIM Distributors received $1,988,299 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 year ended December 31, 1996, the Fund paid legal fees of $18,622
for services rendered by Kramer, Levin, Naftalis & 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 AIM. The Trust may invest trustees' fees, if so
elected by a trustee, in mutual fund shares in accordance with a deferred
compensation plan.
FS-97
<PAGE> 356
NOTE 4-BANK BORROWINGS
The Fund is a participant in a committed line of credit facility with a
syndicate administered by The Chase Manhattan Bank. The Fund may borrow up to
the lesser of (i) $325,000,000 or (ii) the limits set by its prospectus for
borrowings. The Fund and other funds advised by AIM which are parties to the
line of credit may borrow on a first come, first served basis. Interest on
borrowings under the line of credit is payable on maturity or prepayment date.
Prior to an amendment of the line of credit on July 19, 1996, the Fund was
limited to borrowing $56,800,000. During the year ended December 31, 1996, the
Fund did not borrow under the line of credit agreement. The funds which are
parties to the line of credit are charged a commitment fee of 0.08% of the
unused balance of the committed line. The commitment fee is allocated among such
funds based on their respective average net assets for the period.
NOTE 5-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, 1996 was
$11,872,784,862 and $8,787,111,126, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $1,466,690,588
- ----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (105,343,330)
- ----------------------------------------------------------
Net unrealized appreciation of investment
securities $1,361,347,258
==========================================================
Cost of investments for tax purposes is $8,596,110,043.
</TABLE>
NOTE 6-SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
SHARES VALUE SHARES VALUE
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Sold:
Class A 83,369,308 $2,309,759,146 79,351,992 $2,054,533,413
- --------------------- ---------------------------- ----------------------------
Class B 73,576,913 2,011,544,498 75,466,438 1,966,370,940
- --------------------- ---------------------------- ----------------------------
Issued as
reinvestment of
dividends:
Class A 8,503,122 239,780,446 6,956,211 184,199,771
- --------------------- ---------------------------- ----------------------------
Class B 7,058,251 197,560,616 5,526,910 145,522,539
- --------------------- ---------------------------- ----------------------------
Reacquired:
Class A (44,030,263) (1,228,903,511) (23,428,920) (608,862,792)
- --------------------- ---------------------------- ----------------------------
Class B (19,368,345) (534,330,608) (5,847,788) (153,264,745)
- --------------------- ---------------------------- ----------------------------
109,108,986 $2,995,410,587 138,024,843 $3,588,499,126
============================ ============================
</TABLE>
NOTE 7-OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
--------------------------
NUMBER
OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
<S> <C> <C>
Beginning of period 4,000 $ 1,731,692
- ----------------------------------------------------------------------------------------
Written 244,171 78,737,578
- ----------------------------------------------------------------------------------------
Closed (42,715) (16,676,651)
- ----------------------------------------------------------------------------------------
Exercised (64,525) (7,877,711)
- ----------------------------------------------------------------------------------------
Expired (40,808) (23,997,281)
- ----------------------------------------------------------------------------------------
End of period 100,123 $ 31,917,627
========================================================================================
</TABLE>
FS-98
<PAGE> 357
Open call option contracts written at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
NUMBER DECEMBER 31, UNREALIZED
CONTRACT STRIKE OF PREMIUM 1996 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
----- -------- ------ --------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Boston Scientific Corp. Jan. 50 3,000 $ 1,040,965 $ 3,093,750 $(2,052,785)
Case Corp. Jul. 55 3,000 1,513,689 1,293,750 219,939
Clorox Co. Jan. 95 2,000 1,122,962 1,150,000 (27,038)
Comverse Technology, Inc. Jan. 40 2,000 901,970 225,000 676,970
Fila Holding S.p.a. - ADR Jan. 75 3,130 2,180,021 39,125 2,140,896
Informix Corp. Jan. 20 10,000 1,594,946 1,343,750 251,196
Lucent Technologies, Inc. Jan 40 6,000 2,015,932 3,900,000 (1,884,068)
Lucent Technologies, Inc. Jan. 45 3,995 1,498,075 848,938 649,137
MedPartners, Inc. Mar. 22.5 15,000 4,025,427 1,312,500 2,712,927
Merrill Lynch & Co., Inc. Jan. 75 3,000 1,303,816 2,100,000 (796,184)
Mobil Corp. Jan. 115 3,000 2,049,231 2,306,250 (257,019)
Nike, Inc. - Class B Jan. 60 4,000 1,091,963 750,000 341,963
Northern Telecom Ltd. Jan. 60 2,000 716,976 637,500 79,476
PepsiCo, Inc. Jan. 30 10,000 3,308,743 468,750 2,839,993
Travelers Group, Inc. Mar. 33.75 8,000 3,079,097 10,000,000 (6,920,903)
United Technologies Corp. Jan. 65 998 321,216 174,650 146,566
United Technologies Corp. Jan. 67.5 1,000 220,732 62,500 158,232
WorldCom, Inc. Jan. 22.5 20,000 3,931,866 7,125,000 (3,193,134)
- ---------------------------------------------------------------------------------------------------------------------------------
100,123 $31,917,627 $36,831,463 $(4,913,836)
=================================================================================================================================
</TABLE>
NOTE 8-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a Class A share outstanding during
each of the years in the ten-year period ended December 31, 1996 and for a Class
B share outstanding during each of the years in the three-year period ended
December 31, 1996 and the period October 18, 1993 (date sales commenced) through
December 31, 1993.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992(a) 1991
------------ ------------ ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A:
Net asset value, beginning of
period $ 26.81 $ 21.14 $ 20.82 $ 18.24 $ 17.55 $ 13.75
- ---------------------------------- ------------ ------------ ------------ --------- --------- ---------
Income from investment operations:
Net investment income 0.43(b) 0.14 0.16 0.04 0.12 0.13
- ---------------------------------- ------------ ------------ ------------ --------- --------- ---------
Net gains on securities (both
realized and unrealized) 3.42 7.21 0.52 3.34 2.68 5.73
- ---------------------------------- ------------ ------------ ------------ --------- --------- ---------
Total from investment
operations 3.85 7.35 0.68 3.38 2.80 5.86
- ---------------------------------- ------------ ------------ ------------ --------- --------- ---------
Less distributions:
Dividends from net investment
income (0.41) (0.09) (0.16) (0.03) (0.12) (0.14)
- ---------------------------------- ------------ ------------ ------------ --------- --------- ---------
Distributions from net realized
capital gains (1.10) (1.59) (0.20) (0.77) (1.99) (1.92)
- ---------------------------------- ------------ ------------ ------------ --------- --------- ---------
Total distributions (1.51) (1.68) (0.36) (0.80) (2.11) (2.06)
- ---------------------------------- ------------ ------------ ------------ --------- --------- ---------
Net asset value, end of period $ 29.15 $ 26.81 $ 21.14 $ 20.82 $ 18.24 $ 17.55
================================== ============ ============ ============ ========= ========= =========
Total return(c) 14.52% 34.85% 3.28% 18.71% 16.39% 43.45%
================================== ============ ============ ============ ========= ========= =========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $5,100,061 $ 3,408,952 $ 1,358,725 $765,305 $239,663 $152,149
================================== ============ ============ ============ ========= ========= =========
Ratio of expenses to average net
assets(d) 1.11%(e)(f) 1.12% 0.98% 1.09% 1.16% 1.22%
================================== ============ ============ ============ ========= ========= =========
Ratio of net investment income to
average net assets(g) 1.65%(e) 0.74% 0.92% 0.30% 0.75% 0.89%
================================== ============ ============ ============ ========= ========= =========
Portfolio turnover rate 126% 151% 127% 177% 170% 135%
================================== ============ ============ ============ ========= ========= =========
Average broker commission rate(h) $ 0.0436 N/A N/A N/A N/A N/A
================================== ============ ============ ============ ========= ========= =========
<CAPTION>
1990 1989 1988 1987
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS A:
Net asset value, beginning of
period $ 14.53 $ 12.79 $ 11.47 $ 12.26
- ---------------------------------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.26 0.40 0.26 0.25
- ---------------------------------- -------- -------- -------- --------
Net gains on securities (both
realized and unrealized) 0.01 3.58 2.07 0.53
- ---------------------------------- -------- -------- -------- --------
Total from investment
operations 0.27 3.98 2.33 0.78
- ---------------------------------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income (0.26) (0.43) (0.26) (0.39)
- ---------------------------------- -------- -------- -------- --------
Distributions from net realized
capital gains (0.79) (1.81) (0.75) (1.18)
- ---------------------------------- -------- -------- -------- --------
Total distributions (1.05) (2.24) (1.01) (1.57)
- ---------------------------------- -------- -------- -------- --------
Net asset value, end of period $ 13.75 $ 14.53 $ 12.79 $ 11.47
================================== ======== ======== ======== ========
Total return(c) 1.88% 31.54% 20.61% 5.96%
================================== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $86,565 $76,444 $60,076 $55,527
================================== ======== ======== ======== ========
Ratio of expenses to average net
assets(d) 1.21% 1.00% 1.00% 1.00%
================================== ======== ======== ======== ========
Ratio of net investment income to
average net assets(g) 1.87% 2.65% 1.98% 1.91%
================================== ======== ======== ======== ========
Portfolio turnover rate 131% 152% 124% 219%
================================== ======== ======== ======== ========
Average broker commission rate(h) N/A N/A N/A N/A
================================== ======== ======== ======== ========
</TABLE>
(a) The Fund changed investment advisors on June 30, 1992.
(b) Calculated using average shares outstanding.
(c) Total returns do not deduct sales charges.
(d) Ratios of expenses to average net assets prior to reduction of advisory fees
were 1.13%, 1.13%, 1.23%, 1.09% and 1.08% for 1996, 1995 and 1990-88,
respectively.
(e) Ratios are based on average net assets of $4,296,112,779.
(f) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have been the same.
(g) Ratios of net investment income to average net assets prior to reduction of
advisory fees were 1.63%, 0.73%, 1.85%, 2.56% and 1.90% for 1996, 1995 and
1990-88, respectively.
(h) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
FS-99
<PAGE> 358
NOTE 8-FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ ------------ --------- --------
<S> <C> <C> <C> <C>
CLASS B:
Net asset value, beginning of period $ 26.65 $ 21.13 $ 20.82 $ 21.80
- ------------------------------------------------------------ ------------ ------------ --------- --------
Income from investment operations:
Net investment income (loss) 0.20(a) (0.01) -- 0.02
- ------------------------------------------------------------ ------------ ------------ --------- --------
Net gains (losses) on securities (both realized and
unrealized) 3.38 7.12 0.51 (0.21)
- ------------------------------------------------------------ ------------ ------------ --------- --------
Total from investment operations 3.58 7.11 0.51 (0.19)
- ------------------------------------------------------------ ------------ ------------ --------- --------
Less distributions:
Dividends from net investment income (0.21) -- -- (0.02)
- ------------------------------------------------------------ ------------ ------------ --------- --------
Distributions from net realized capital gains (1.10) (1.59) (0.20) (0.77)
- ------------------------------------------------------------ ------------ ------------ --------- --------
Total distributions (1.31) (1.59) (0.20) (0.79)
- ------------------------------------------------------------ ------------ ------------ --------- --------
Net asset value, end of period $ 28.92 $ 26.65 $ 21.13 $ 20.82
============================================================ ============ ============ ========= ========
Total return(b) 13.57% 33.73% 2.46% (0.74)%
============================================================ ============ ============ ========= ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 4,875,933 $ 2,860,531 $ 680,119 $ 63,215
============================================================ ============ ============ ========= ========
Ratio of expenses to average net assets(c) 1.94%(d)(e) 1.94% 1.90% 1.85%(f)
============================================================ ============ ============ ========= ========
Ratio of net investment income (loss) to average net
assets(c) 0.82%(d) (0.08)% 0.00% (0.46)%(f)
============================================================ ============ ============ ========= ========
Portfolio turnover rate 126% 151% 127% 177%
============================================================ ============ ============ ========= ========
Average broker commission rate(g) $ 0.0436 N/A N/A N/A
============================================================ ============ ============ ========= ========
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns do not deduct contingent deferred sales charges and for
periods less than one year are not annualized.
(c) The ratios of expenses to average net assets prior to waiver of advisory
fees were 1.96% and 1.96% for 1996 and 1995, respectively. The ratio of net
investment income (loss) to average net assets prior to waiver of advisory
fees were 0.81% and (0.09)% for 1996 and 1995, respectively.
(d) Ratios are based on average net assets of $3,953,324,717.
(e) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have been the same.
(f) Annualized.
(g) Disclosure requirement beginning with the Fund's fiscal year ended December
31, 1996.
NOTE 9-SUBSEQUENT EVENT
On November 4, 1996, A I M Management Group Inc. ("AIM Management") and INVESCO
plc announced the execution of an agreement and plan of merger pursuant to which
AIM Management will be merged with and into a direct wholly-owned subsidiary of
INVESCO plc. AIM Management is the parent company of the Fund's advisor. The
merger is expected to take place during the first quarter of 1997.
FS-100
<PAGE> 359
APPENDIX II
July 31, 1997
Dear INVESCO Advisor Fund Shareholder:
So far, 1997 has been an exceptional year for the stock market. The S&P
posted a 17.5% return in the second quarter alone, its fourth best quarter out
of the last 25 years. Many of you heard Federal Reserve Chairman Greenspan ex-
press concern near the end of last year that the market was experiencing "irra-
tional exuberance." Interestingly, his comment came with the market some 1,600
points below current levels.
We are pleased to report the Advisor Funds turned in yet another period of
outstanding performance through the six-month period ended June 1997. The total
return reported below is for Class C Shares. Class A performance is available
in the FINANCIAL HIGHLIGHTS section beginning on page 27 in this report.
The EQUITY FUND, our core, value-driven portfolio, returned 18.3% for the
first half of 1997. Our discipline evaluates each company's historical profit-
ability relative to its current price. With its bias towards larger, high qual-
ity companies, the portfolio is built to perform well in all kinds of markets.
While the international markets have not kept pace with the spectacular rise
in U.S. stocks, the INTERNATIONAL VALUE FUND continues to outpace the EAFE (Eu-
rope, Australia, Far East) Index with a 14.6% return through June 30th. While
our emphasis is on stock selection as opposed to country selection, the fund is
well diversified by country and industry sector for risk control.
The FLEX FUND'S performance is impacted by its asset allocation (percentage
of stocks versus bonds) and the returns of its stocks and bonds. During the
first half of 1997 the fund benefited from an overweighing in stocks of 66% and
an underweighting in bonds of 34%, leading to a double digit return of 13.2%.
With its mixture of stocks and bonds, the Flex Fund is well positioned to par-
ticipate in up markets while protecting value in down ones.
The second quarter presented tremendous opportunity for multi-asset funds
such as MULTIFLEX. In contrast to previous months when large capitalization
stocks were the only stars, the market was more balanced from April to June as
small capitalization stocks, international stocks and real estate securities
all participated in the rally. This more representative market bodes well for
MultiFlex, which benefits as different equity and fixed income sectors rotate
in and out of favor. Year-to-date, the MultiFlex Fund has returned 10.9% with
four of five components outperforming their benchmarks, leaving it well ahead
of its 20/20/20/ 20/20 benchmark.
After providing +35% gains in 1996, real estate securities have achieved more
sustainable returns in 1997. The REAL ESTATE FUND was up 4.4% for the first six
months of the year. The fund maintains a broadly diversified portfolio with
participation in all the major property sectors, with the heaviest concentra-
tions in Hotel, Office and Retail. The REIT holdings in the portfolio have a
larger than average capitalization and a higher level of retained earnings. We
believe their characteristics offer the fund a superior measure of liquidity
and dividend safety.
The bond market has not produced the outstanding returns as seen in the stock
market thus far in 1997. For the six-month period, the INCOME FUND was up 2.1%.
The fund's maturity strategy remains slightly defensive with an average matu-
rity of 6.2 years, shorter than the Government/Corporate Bond Index. Relative
to the index, the fund is overweighted in Treasuries and Mortgages and under-
weighted in Corporates.
As you know, effective August 4, 1997, the INVESCO Advisor Funds become the
AIM Advisor Funds. While the name is different, I can assure you that there
will be no change in the way these portfolios are managed. INVESCO will con-
tinue to manage the funds and provide the same risk-averse disciplines utilized
since their inception. Our new partners at AIM look forward to offering you new
and expanded investment options and services. We greatly appreciate your con-
tinued confidence in our company, and welcome the opportunity to serve you in
the future.
Sincerely,
/s/ Hubert L. Harris, Jr.
Hubert L. Harris, Jr.
Chairman
<PAGE> 360
INVESCO Advisor Funds, Inc.
STATEMENT OF INVESTMENT SECURITIES
June 30, 1997
(unaudited)
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR FLEX FUND
COMMON STOCKS 66.44%
BASIC MATERIALS 1.90%
Dow Chemical Co. ........................................ 75,000 $ 6,534,375
Westvaco Corp. .......................................... 135,000 4,244,062
------------
10,778,437
------------
CAPITAL GOODS 6.36%
Boeing Co. .............................................. 100,000 5,306,250
COMPAQ Computer Corp.* .................................. 80,000 7,940,000
General Electric Co. .................................... 120,000 7,845,000
Lockheed Martin Corp. ................................... 70,000 7,249,375
Snap-On, Inc. ........................................... 60,000 2,362,500
Whirlpool Corp. ......................................... 100,000 5,456,250
------------
36,159,375
------------
CONSUMER CYCLICAL 8.77%
Deluxe Corp. ............................................ 150,000 5,118,750
Ford Motor Co. .......................................... 175,000 6,606,250
Gannett Co., Inc. ....................................... 50,000 4,937,500
K Mart Corp.* ........................................... 250,000 3,062,500
Liz Claiborne, Inc. ..................................... 100,000 4,662,500
McDonald's Corp. ........................................ 110,000 5,314,375
Penney (J.C.) Co., Inc. ................................. 100,000 5,218,750
Reebok International, Ltd. .............................. 75,000 3,506,250
Rite Aid Corp. .......................................... 75,000 3,740,625
V.F. Corp. .............................................. 90,000 7,661,250
------------
49,828,750
------------
CONSUMER STAPLES 15.87%
Abbott Laboratories ..................................... 100,000 6,675,000
American Home Products Corp. ............................ 100,000 7,650,000
Anheuser-Busch Cos., Inc. ............................... 150,000 6,290,625
Archer-Daniels-Midland Co. .............................. 300,000 7,050,000
Columbia/HCA Healthcare Corp. ........................... 125,000 4,914,063
Fleming Cos., Inc. ...................................... 100,000 1,800,000
Gallaher Group PLC, ADR* ................................ 110,000 2,028,125
Genuine Parts Co. ....................................... 187,500 6,351,562
Heinz (H.J.) Co. ........................................ 125,000 5,765,625
Lilly (Eli) & Co. ....................................... 75,000 8,198,438
Mylan Laboratories, Inc. ................................ 350,000 5,162,500
Philip Morris Cos., Inc. ................................ 180,000 7,987,500
Schering-Plough Corp. ................................... 160,000 7,660,000
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
Supervalu, Inc. ......................................... 150,000 $ 5,175,000
Unilever N.V., PLC ...................................... 35,000 7,492,188
------------
90,200,626
------------
DIVERSIFIED 5.24%
Fortune Brands, Inc. .................................... 110,000 4,104,375
Hanson PLC, ADR ......................................... 43,750 1,093,750
Minnesota Mining & Manufacturing Co. .................... 70,000 7,140,000
National Service Industries, Inc. ....................... 100,000 4,868,750
Phelps Dodge Corp. ...................................... 70,000 5,963,125
Textron, Inc. ........................................... 100,000 6,637,500
------------
29,807,500
------------
ENERGY 5.20%
Amoco Corp. ............................................. 50,000 4,346,875
Energy Group PLC, ADR ................................... 43,750 1,853,906
Exxon Corp. ............................................. 100,000 6,150,000
Repsol SA, ADR .......................................... 200,000 8,487,500
Royal Dutch Petroleum Co. ............................... 160,000 8,700,000
------------
29,538,281
------------
FINANCE 12.21%
American General Corp. .................................. 110,000 5,252,500
Dun & Bradstreet Corp. .................................. 200,000 5,250,000
First Chicago NBD Corp. ................................. 150,000 9,075,000
First of America Bank Corp. ............................. 135,000 6,176,250
First Union Corp. ....................................... 30,000 2,775,000
Marsh & McLennan Cos., Inc. ............................. 100,000 7,137,500
Morgan Stanley, Dean Witter,
Discover & Co........................................... 181,500 7,815,844
NationsBank Corp. ....................................... 100,000 6,450,000
Ohio Casualty Corp. ..................................... 150,000 6,600,000
SAFECO Corp. ............................................ 150,000 7,003,125
Wachovia Corp. .......................................... 100,000 5,831,250
------------
69,366,469
------------
TECHNOLOGY 3.55%
Computer Associates International, Inc. ................. 100,000 5,568,750
Hewlett-Packard Co. ..................................... 100,000 5,600,000
International Business Machines Corp. ................... 100,000 9,018,750
------------
20,187,500
------------
TRANSPORTATION & SERVICES 1.80%
Browning-Ferris Industries, Inc. ........................ 150,000 4,987,500
Illinois Central Corp. .................................. 150,000 5,240,625
------------
10,228,125
------------
UTILITIES 5.54%
Edison International Corp. .............................. 250,000 6,218,750
GPU Corp. ............................................... 175,000 6,278,125
NYNEX Corp. ............................................. 115,000 6,626,875
</TABLE>
1
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<TABLE>
- - ---------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - ---------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR FLEX FUND (CONTINUED)
Telefonica de Espana, ADR ............................... 60,000 $ 5,175,000
Telefonos de Mexico SA, "L", ADR ........................ 150,000 7,162,500
------------
31,461,250
------------
TOTAL COMMON STOCKS
(Cost $220,139,805) .................................... 377,556,313
------------
FIXED INCOME SECURITIES 28.71%
U.S. GOVERNMENT OBLIGATIONS 21.34%
U.S. TREASURY NOTES
6.125%, 03/31/1998 ..................................... 10,000,000 10,031,250
7.125%, 10/15/1998 ..................................... 10,000,000 10,146,880
8.875%, 02/15/1999 ..................................... 11,250,000 11,738,678
6.750%, 06/30/1999 ..................................... 5,000,000 5,060,940
6.375%, 07/15/1999 ..................................... 10,000,000 10,056,250
8.750%, 08/15/2000 ..................................... 9,000,000 9,624,375
7.875%, 08/15/2001 ..................................... 7,000,000 7,380,625
7.500%, 05/15/2002 ..................................... 4,500,000 4,708,125
6.250%, 02/15/2003 ..................................... 5,000,000 4,960,940
7.250%, 05/15/2004 ..................................... 10,000,000 10,421,880
6.500%, 08/15/2005 ..................................... 7,000,000 6,982,500
9.375%, 02/15/2006 ..................................... 8,000,000 9,482,504
9.250%, 02/15/2016 ..................................... 9,000,000 11,261,250
7.250%, 08/15/2022 ..................................... 9,000,000 9,390,942
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $120,242,101)..................................... 121,247,139
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 4.67%
FEDERAL HOME LOAN MORTGAGE CORP. GOLD
6.500%, 07/01/2001, Pool #G50362 ....................... 3,715,458 3,694,559
8.000%, 10/01/2010, Pool #G10518 ....................... 2,650,238 2,723,949
------------
6,418,508
------------
FEDERAL NATIONAL MORTGAGE ASSN.
8.500%, 03/01/2010, Pool #313136 ....................... 2,645,598 2,735,715
6.500%, 06/01/2011, Pool #250579 ....................... 2,791,609 2,734,032
6.500%, 05/01/2026, Pool #313097 ....................... 4,809,765 4,600,853
7.500%, 11/01/2026, Pool #250736 ....................... 2,936,806 2,943,237
------------
13,013,837
------------
GOVERNMENT NATIONAL MORTGAGE ASSN.
6.500%, 10/15/2008, Pool #354668 ....................... 1,311,297 1,290,808
7.000%, 10/15/2008, Pool #372807 ....................... 1,223,564 1,225,094
6.000%, 11/15/2008, Pool #365945 ....................... 1,389,479 1,341,715
7.500%, 03/15/2026, Pool #417287 ....................... 3,215,112 3,223,160
------------
7,080,777
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $26,621,569)...................................... 26,513,122
------------
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS 2.70%
FINANCE 0.95%
Commercial Credit Corp.,
5.550%, 02/15/2001 .................................... 3,000,000 $ 2,888,808
National City Corp., 7.200%, 05/15/2005................. 1,000,000 1,008,956
NationsBank Corp., 5.375%, 04/15/2000................... 1,550,000 1,504,687
------------
5,402,451
------------
INDUSTRIAL 1.23%
ConAgra, Inc., 9.750%, 11/01/1997 ...................... 1,000,000 1,012,080
Ford Motor Co., 7.500%, 11/15/1999 ..................... 750,000 766,273
Rockwell International, Inc.,
6.625%, 06/01/2005 .................................... 1,500,000 1,476,513
Sherwin Williams, 6.500%, 02/01/2002 ................... 3,000,000 2,978,943
Wal-Mart Stores, Inc.,
5.500%, 03/01/1998 .................................... 750,000 747,734
------------
6,981,543
------------
UTILITIES 0.52%
Pennsylvania Power & Light Co.,
6.875%, 02/01/2003 .................................... 1,000,000 995,118
Pennsylvania Power & Light Co.,
6.550%, 03/01/2006 .................................... 1,900,000 1,826,022
Union Electric Co.,
6.750%, 10/15/1999 .................................... 150,000 150,952
------------
2,972,092
------------
TOTAL CORPORATE BONDS
(Cost $15,662,444)..................................... 15,356,086
------------
TOTAL FIXED INCOME SECURITIES
(Cost $162,526,114).................................... 163,116,347
------------
SHORT TERM INVESTMENTS 4.85%
COMMERCIAL PAPER 1.76%
Greenwich Funding Corp.
5.550%, 07/10/1997 .................................... 5,000,000 4,993,062
Greenwich Funding Corp.
5.550%, 07/11/1997 .................................... 5,000,000 4,992,292
------------
TOTAL COMMERCIAL PAPER
(Cost $9,985,354)...................................... 9,985,354
------------
OTHER SECURITIES 3.09%
UMB Bank, N.A., Money Market Fiduciary+, 4.290% ........ 17,573,482 17,573,482
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $27,558,836) .................................... 27,558,836
------------
TOTAL INVESTMENTS
(100.00%) (Cost $410,224,755#) ........................ $568,231,496
============
</TABLE>
2
<PAGE> 362
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR EQUITY FUND
COMMON STOCKS 95.31%
BASIC MATERIALS 2.47%
Dow Chemical Co. ........................................ 17,000 $ 1,481,125
Great Lakes Chemical Corp. .............................. 20,000 1,047,500
Westvaco Corp. .......................................... 45,000 1,414,687
------------
3,943,312
------------
CAPITAL GOODS 7.79%
Boeing Co. .............................................. 29,000 1,538,812
Dover Corp. ............................................. 24,000 1,476,000
Lockheed Martin Corp. ................................... 35,860 3,713,751
Pitney Bowes, Inc. ...................................... 20,700 1,474,875
Raytheon Co. ............................................ 39,400 2,009,400
Unifi, Inc. ............................................. 60,000 2,242,500
------------
12,455,338
------------
CONSUMER CYCLICAL 9.69%
Cooper Tire & Rubber Co. ................................ 62,000 1,364,000
Disney (Walt) Co. ....................................... 14,000 1,123,500
Gap, Inc. ............................................... 50,000 1,943,750
Mattel, Inc. ............................................ 60,000 2,032,500
Maytag Corp. ............................................ 106,900 2,792,762
McDonald's Corp. ........................................ 27,600 1,333,425
Penney (J.C.) Co., Inc. ................................. 40,000 2,087,500
Russell Corp. ........................................... 56,000 1,659,000
Shaw Industries, Inc. ................................... 109,000 1,158,125
------------
15,494,562
------------
CONSUMER STAPLES 22.39%
Abbott Laboratories ..................................... 41,600 2,776,800
American Home Products Corp. ............................ 42,000 3,213,000
Archer-Daniels-Midland Co. .............................. 85,000 1,997,500
Columbia/HCA Healthcare Corp. ........................... 70,200 2,759,738
Gallaher Group PLC, ADR* ................................ 50,000 921,875
Heinz (H.J.) Co. ........................................ 58,350 2,691,394
Kimberly-Clark Corp. .................................... 40,000 1,990,000
Lilly (Eli) & Co. ....................................... 24,200 2,645,363
Merck & Co., Inc. ....................................... 30,900 3,198,150
Mylan Laboratories, Inc. ................................ 77,000 1,135,750
Nike, Inc., Cl. B ....................................... 20,000 1,167,500
PepsiCo., Inc. .......................................... 85,000 3,192,812
Philip Morris Cos., Inc. ................................ 71,700 3,181,687
Schering-Plough Corp. ................................... 71,200 3,408,700
Tyson Foods, Inc., Cl. A ................................ 79,000 1,510,875
------------
35,791,144
------------
DIVERSIFIED 6.80%
Cognizant Corp. ......................................... 40,000 1,620,000
Fortune Brands, Inc. .................................... 50,000 1,865,625
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
General Electric Co. .................................... 48,000 $ 3,138,000
Textron, Inc. ........................................... 64,000 4,248,000
------------
10,871,625
------------
ENERGY 6.65%
Amoco Corp. ............................................. 24,600 2,138,663
Exxon Corp. ............................................. 44,000 2,706,000
Repsol SA, ADR .......................................... 60,000 2,546,250
Royal Dutch Petroleum Co. ............................... 59,600 3,240,750
------------
10,631,663
------------
ENVIRONMENTAL SERVICES 1.00%
Waste Management, Inc. .................................. 50,000 1,606,250
------------
FINANCE 19.86%
American General Corp. .................................. 48,600 2,320,650
American International Group, Inc. ...................... 23,100 3,450,563
Chubb Corp. ............................................. 25,000 1,671,875
Dun & Bradstreet Corp. .................................. 90,000 2,362,500
Fannie Mae .............................................. 40,000 1,745,000
First Chicago NBD Corp. ................................. 53,800 3,254,900
First of America Bank Corp. ............................. 60,000 2,745,000
First Union Corp. ....................................... 30,000 2,775,000
General RE Corp. ........................................ 13,500 2,457,000
Jefferson-Pilot Corp. ................................... 24,000 1,677,000
Morgan Stanley, Dean Witter,
Discover & Co. ......................................... 61,050 2,628,966
NationsBank Corp. ....................................... 45,674 2,945,973
SAFECO Corp. ............................................ 37,000 1,727,437
------------
31,761,864
------------
TECHNOLOGY 12.30%
COMPAQ Computer Corp.* .................................. 20,500 2,034,625
Computer Associates International, Inc. ................. 55,000 3,062,813
Electronic Data Systems Corp. ........................... 45,000 1,845,000
Hewlett-Packard Co. ..................................... 56,000 3,136,000
Intel Corp. ............................................. 3,500 496,344
International Business Machines Corp. ................... 36,000 3,246,750
Motorola, Inc. .......................................... 25,000 1,900,000
Xerox Corp. ............................................. 50,000 3,943,750
------------
19,665,282
------------
TRANSPORTATION & SERVICES 1.02%
Illinois Central Corp. .................................. 46,500 1,624,594
------------
UTILITIES 5.34%
CINergy Corp. ........................................... 61,000 2,123,562
Entergy Corp. ........................................... 40,000 1,095,000
Southern New England Telecommunications Corp. ........... 60,000 2,332,500
</TABLE>
3
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<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR EQUITY FUND (CONTINUED)
Telefonos de Mexico SA, "L", ADR ........................ 40,800 $ 1,948,200
Texas Utilities Co. ..................................... 30,000 1,033,125
------------
8,532,387
------------
TOTAL COMMON STOCKS
(Cost $91,714,679) ..................................... 152,378,021
------------
SHORT TERM INVESTMENTS 4.69%
COMMERCIAL PAPER 2.22%
Greenwich Funding Corp. 5.580%, 07/07/1997 .............. 2,000,000 1,998,140
Air Products & Chemicals, Inc. 5.530%, 07/22/1997 ....... 1,565,000 1,559,952
------------
TOTAL COMMERCIAL PAPER
(Cost $3,558,092) ...................................... 3,558,092
------------
OTHER SECURITIES 2.47%
UMB Bank, N.A., Money Market Fiduciary+, 4.290% ......... 3,942,932 3,942,932
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $7,501,024) ...................................... 7,501,024
------------
TOTAL INVESTMENTS
(100.00%) (Cost $99,215,703#) .......................... $159,879,045
============
INVESCO ADVISOR MULTIFLEX FUND
COMMON STOCKS 80.01%
LARGE CAPITALIZATION EQUITIES 17.03%
Abbott Laboratories ..................................... 17,650 $ 1,178,138
Air Products & Chemicals, Inc. .......................... 3,400 276,250
American General Corp. .................................. 19,900 950,225
American Home Products Corp. ............................ 11,000 841,500
American International Group, Inc. ...................... 6,950 1,038,156
Amoco Corp. ............................................. 4,000 347,750
Archer-Daniels-Midland Co. .............................. 48,500 1,139,750
Atlantic Richfield Co. .................................. 7,800 549,900
Biomet, Inc. ............................................ 19,500 363,187
Boeing Co. .............................................. 6,800 360,825
Bristol-Myers Squibb Co. ................................ 17,900 1,449,900
Chubb Corp. ............................................. 2,900 193,937
Columbia/HCA Healthcare Corp. ........................... 25,828 1,015,363
COMPAQ Computer Corp.* .................................. 7,800 774,150
Computer Associates International, Inc. ................. 10,400 579,150
Cooper Tire & Rubber Co. ................................ 22,300 490,600
Disney (Walt) Co. ....................................... 5,000 401,250
Dover Corp. ............................................. 14,850 913,275
Dow Chemical Co. ........................................ 6,200 540,175
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
DTE Energy Co. .......................................... 26,700 $ 737,588
Dun & Bradstreet Corp. .................................. 14,100 370,125
Electronic Data Systems Corp. ........................... 7,700 315,700
Emerson Electric Co. .................................... 17,600 969,100
Exxon Corp. ............................................. 17,400 1,070,100
Fannie Mae .............................................. 24,300 1,060,087
First Chicago NBD Corp. ................................. 17,000 1,028,500
Ford Motor Co. .......................................... 16,600 626,650
Fortune Brands, Inc. .................................... 14,500 541,031
Gallaher Group PLC, ADR* ................................ 14,500 267,344
Gannett Co., Inc. ....................................... 7,000 691,250
General Electric Co. .................................... 11,000 719,125
General RE Corp. ........................................ 3,800 691,600
Great Lakes Chemical Corp. .............................. 15,500 811,813
Heinz (H.J.) Co. ........................................ 19,000 876,375
Hewlett-Packard Co. ..................................... 18,400 1,030,400
Intel Corp. ............................................. 2,500 354,531
International Business Machines Corp. ................... 9,400 847,763
Jefferson-Pilot Corp. ................................... 2,600 181,675
Johnson & Johnson ....................................... 10,800 695,250
Kimberly-Clark Corp. .................................... 18,200 905,450
Lilly (Eli) & Co. ....................................... 7,500 819,844
Lockheed Martin Corp. ................................... 9,616 995,857
Marsh & McLennan Cos., Inc. ............................. 8,050 574,569
Mattel, Inc. ............................................ 21,200 718,150
McDonald's Corp. ........................................ 10,500 507,281
Merck & Co., Inc. ....................................... 9,100 941,850
Minnesota Mining & Manufacturing Co. .................... 9,000 918,000
Morgan Stanley, Dean Witter,
Discover & Co. ......................................... 14,850 639,478
Motorola, Inc. .......................................... 5,200 395,200
NationsBank Corp. ....................................... 21,662 1,397,199
Norfolk Southern Corp. .................................. 3,500 352,625
Penney (J.C.), Inc. ..................................... 13,375 698,008
PepsiCo, Inc. ........................................... 28,350 1,064,897
Phelps Dodge Corp. ...................................... 8,500 724,094
Philip Morris Cos., Inc. ................................ 29,250 1,297,969
Pitney Bowes, Inc. ...................................... 7,900 562,875
Ralston-Purina Group .................................... 12,100 994,469
Raytheon Co. ............................................ 20,000 1,020,000
Rite Aid Corp. .......................................... 18,000 897,750
Royal Dutch Petroleum Co. ............................... 27,600 1,500,750
Russell Corp. ........................................... 5,100 151,087
SAFECO Corp. ............................................ 18,500 863,719
Salomon, Inc. ........................................... 13,000 723,125
Schering-Plough Corp. ................................... 30,100 1,441,038
Shaw Industries, Inc. ................................... 13,000 138,125
Southern Co. ............................................ 25,000 546,875
Southern New England Telecommunications Corp. ........... 23,350 907,731
Texas Utilities Co. ..................................... 11,000 378,813
Textron, Inc. ........................................... 20,000 1,327,500
</TABLE>
4
<PAGE> 364
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR MULTIFLEX FUND (CONTINUED)
Unifi, Inc. ............................................. 10,000 $ 373,750
Vulcan Materials Co. .................................... 11,000 863,500
Wachovia Corp. .......................................... 10,000 583,125
Wal-Mart Stores, Inc. ................................... 10,500 355,031
Waste Management, Inc. .................................. 22,500 722,812
Westvaco Corp. .......................................... 18,000 565,875
Whirlpool Corp. ......................................... 11,500 627,469
Xerox Corp. ............................................. 14,500 1,143,687
York International Corp. ................................ 12,500 575,000
------------
57,504,065
------------
SMALL CAPITALIZATION EQUITIES 23.59%
Actel Corp.* ............................................ 8,400 143,325
Acuson Corp.* ........................................... 18,700 430,100
ACX Technologies, Inc.* ................................. 10,200 229,500
Acxiom Corp.* ........................................... 25,400 520,700
ADAC Laboratories ....................................... 16,200 382,725
Advanced Technology Laboratories, Inc.* ................. 12,500 537,500
Aeroquip-Vickers, Inc. .................................. 7,800 368,550
Airborne Freight Corp. .................................. 11,600 485,750
ALBANK Financial Corp. .................................. 15,840 625,680
Alex Brown, Inc. ....................................... 4,200 296,625
America West Holdings Corp., Cl. B* ..................... 13,100 189,950
American Bankers Insurance Group, Inc. . ................ 17,600 1,113,200
AmeriSource Health Corp., Cl. A* ........................ 4,900 244,388
Amylin Pharmaceuticals, Inc.* ........................... 5,130 70,537
Applebee's International, Inc. .......................... 16,100 430,675
AptarGroup, Inc. ........................................ 6,700 303,175
Arvin Industries, Inc. .................................. 17,500 476,875
Ashland Coal, Inc. ...................................... 8,300 236,550
Aspen Technologies, Inc.* ............................... 9,600 361,200
Astoria Financial Corp. ................................. 22,100 1,049,750
Ballard Medical Products ................................ 32,400 650,025
BancTec, Inc.* .......................................... 21,800 565,437
Bell Industries, Inc.* .................................. 11,464 179,125
Berkley (W.R.) Corp. .................................... 11,200 659,400
Bindley Western Industries, Inc. ........................ 18,900 433,519
Black Box Corp.* ........................................ 4,200 169,050
Blount International, Inc., Cl. A ....................... 5,100 217,069
Boole & Babbage, Inc.* .................................. 18,000 382,500
Borg-Warner Automotive, Inc. ............................ 14,600 789,313
Brinker International, Inc.* ............................ 10,000 142,500
Bristol Hotel Co.* ...................................... 2,500 96,250
Brown & Sharpe Manufacturing Co.,
Cl. A* ................................................. 8,400 127,050
Burr-Brown Corp.* ....................................... 4,300 148,350
Cabot Oil & Gas Corp., Cl. A ............................ 20,100 354,263
Camco International, Inc. ............................... 7,700 421,575
Carlisle Cos., Inc. ..................................... 12,800 446,400
Carmike Cinemas, Inc., Cl. A* ........................... 17,000 556,750
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
Carson Pirie Scott & Co.* ............................... 7,800 $ 247,650
Carter-Wallace, Inc. .................................... 31,900 570,212
CCB Financial Corp. ..................................... 5,100 372,937
Centex Corp. ............................................ 28,300 1,149,687
Central Louisiana Electric Co. .......................... 7,600 213,750
Central Maine Power Co. ................................. 16,000 198,000
Chart Industries, Inc. .................................. 7,100 194,362
Chesapeake Corp. ........................................ 23,200 783,000
CILCORP, Inc. ........................................... 5,500 226,531
CKE Restaurants, Inc. ................................... 22,350 706,819
CMAC Investment Corp. ................................... 10,300 491,825
Coast Savings Financial, Inc.* .......................... 15,600 708,825
Cognex Corp.* ........................................... 9,400 249,100
Commonwealth Energy System .............................. 10,400 248,950
Computer Management Sciences, Inc.* ..................... 2,500 51,250
Computer Task Group, Inc. ............................... 24,600 916,350
Coors (Adolph) Co., Cl. B ............................... 20,300 540,487
Cullen/Frost Bankers, Inc. .............................. 26,000 1,101,750
Dallas Semiconductor Corp. .............................. 9,300 365,025
Data General Corp.* ..................................... 10,700 278,200
Davox Corp.* ............................................ 12,800 457,600
Dean Foods Co. .......................................... 12,100 488,538
Delphi Financial Group, Inc., Cl. A* .................... 6,732 259,182
DeVry, Inc.* ............................................ 21,500 580,500
Dexter Corp. ............................................ 28,800 921,600
Dionex Corp.* ........................................... 9,100 466,375
E'town Corp. ............................................ 5,100 157,463
Earthgrains Co. ......................................... 7,800 511,388
Energen Corp. ........................................... 16,500 555,844
Ethan Allen Interiors, Inc. ............................. 6,600 376,200
EVI, Inc.* .............................................. 7,400 310,800
Expeditors International of
Washington, Inc. ....................................... 26,800 760,450
Fair Isaac & Co., Inc. .................................. 6,000 267,375
Faulding, Inc.* ......................................... 400 4,900
First Michigan Bank Corp. ............................... 6,930 209,633
First Midwest Bancorp, Inc. ............................. 11,500 364,406
Fred Meyer, Inc.* ....................................... 5,900 304,956
Frontier Insurance Group, Inc. .......................... 10,810 699,948
Fuller (H.B.) Co. ....................................... 5,000 275,000
Furniture Brands International, Inc.* ................... 32,700 633,563
G & K Services, Inc., Cl. A ............................. 10,900 406,025
Gerber Scientific, Inc. ................................. 22,900 452,275
Getchell Gold Corp.* .................................... 5,600 197,400
Gilead Sciences, Inc.* .................................. 7,700 212,712
Guarantee Life Cos., Inc. ............................... 16,700 419,588
Harbinger Corp.* ........................................ 9,300 260,400
Hawaiian Electric Industries, Inc. ...................... 15,200 587,100
Heartland Express, Inc.* ................................ 8,850 207,975
Home Ownership Funding, Pfd. ............................ 6,400 624,000
Horace Mann Educators Corp. ............................. 10,800 529,200
Houghton Mifflin Co. .................................... 9,200 614,100
</TABLE>
5
<PAGE> 365
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR MULTIFLEX FUND (CONTINUED)
ICN Pharmaceuticals, Inc. ............................... 7,200 $ 206,550
IDEX Corp. .............................................. 19,200 633,600
IES Industries, Inc. .................................... 8,800 259,600
Illinois Central Corp. .................................. 25,000 873,438
Immunex Corp.* .......................................... 12,500 453,125
Imperial Bancorp* ....................................... 8,900 256,988
Imperial Credit Industries, Inc.* ....................... 10,500 215,906
Integrated Health Services, Inc. ........................ 13,300 512,050
Interface, Inc. ......................................... 15,400 340,725
International Multifoods Corp. .......................... 11,600 291,450
Interstate Power Co. .................................... 9,300 266,213
Invacare Corp. .......................................... 34,500 806,437
Ionics, Inc.* ........................................... 4,700 213,850
Jabil Circuit, Inc.* .................................... 5,500 461,312
Jones Medical Industries, Inc. .......................... 4,200 199,500
Keane, Inc.* ............................................ 2,900 150,800
Kellwood Co. ............................................ 11,300 313,575
Kinetic Concepts, Inc. .................................. 36,600 658,800
Lands' End, Inc.* ....................................... 28,200 835,425
Lawyers Title Corp. ..................................... 12,300 232,163
Lazara Properties, Inc., Pfd. ........................... 5,000 492,750
Life Re Corp. ........................................... 5,200 242,450
Logicon, Inc. ........................................... 5,200 275,600
Louis Dreyfus Natural Gas Corp.* ........................ 24,200 393,250
Luby's Cafeterias, Inc. ................................. 10,400 207,350
Magna Group, Inc. ....................................... 12,200 423,950
Manitowoc Co., Inc. ..................................... 9,900 462,825
McClatchy Newspapers, Inc., Cl. A ....................... 7,000 205,625
Medusa Corp. ............................................ 8,800 337,700
Methode Electronics, Inc., Cl. A ........................ 26,300 522,712
Metromedia International Group, Inc.* ................... 4,800 60,900
Miller (Herman), Inc. ................................... 12,400 446,400
Minnesota Power & Light Co. ............................. 8,300 252,113
Multicare Cos., Inc.* ................................... 25,250 691,219
National Data Corp. ..................................... 5,700 246,881
National Steel Corp., Cl. B* ............................ 24,300 408,544
Nautica Enterprises, Inc.* .............................. 10,100 267,019
NeXstar Pharmaceuticals, Inc.* .......................... 6,800 96,900
Norrell Corp. ........................................... 29,800 983,400
Nortek, Inc.* ........................................... 6,700 161,637
NovaCare, Inc.* ......................................... 9,500 131,813
Octel Communications Corp.* ............................. 5,000 117,187
ONBANCorp., Inc. ........................................ 7,700 392,700
Oneida, Ltd. ............................................ 11,500 306,906
ONEOK, Inc. ............................................. 10,200 328,313
Orion Capital Corp. ..................................... 11,200 826,000
Parker & Parsley Petroleum Co. .......................... 15,700 555,387
Periphonics Corp.* ...................................... 16,000 344,000
Perrigo Co.* ............................................ 56,400 705,000
Pier 1 Imports, Inc. .................................... 6,500 172,250
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
Poe & Brown, Inc. ....................................... 18,200 $ 673,400
Precision Castparts Corp. ............................... 5,950 354,769
Presidential Life Corp. ................................. 55,800 1,081,125
Primadonna Resorts, Inc.* ............................... 26,500 511,781
Prime Hospitality Corp.* ................................ 13,000 256,750
Pulitzer Publishing Co. ................................. 6,400 339,200
Pulte Corp. ............................................. 6,800 235,025
Quaker Fabric Corp.* .................................... 3,000 49,500
Quanex Corp. ............................................ 32,500 997,344
Quick & Reilly Group, Inc. .............................. 33,275 773,644
Raymond James Financial, Inc. ........................... 16,350 447,581
Reliance Group Holdings, Inc. ........................... 49,200 584,250
Remedy Corp.* ........................................... 5,300 212,000
Richfood Holdings, Inc. ................................. 3,000 78,000
Robbins & Myers, Inc. ................................... 23,100 750,750
Ross Stores, Inc. ....................................... 22,800 745,275
Scotsman Industries, Inc. ............................... 9,000 256,500
Sequa Corp., Cl. A* ..................................... 5,500 310,062
ShopKo Stores, Inc. ..................................... 15,400 392,700
SIGCORP, Inc. ........................................... 10,950 277,856
Sirrom Capital Corp. .................................... 2,900 100,050
Snyder Oil Corp. ........................................ 57,900 1,063,912
Sofamor Danek Group, Inc.* .............................. 8,800 402,600
Sovereign Bancorp ....................................... 28,900 440,725
Springs Industries, Inc., Cl. A ......................... 11,400 601,350
St. John Knits, Inc. .................................... 12,600 680,400
Standard Commercial Corp.* .............................. 13,534 235,153
Steel Dynamics, Inc.* ................................... 1,800 45,000
Stone & Webster, Inc. ................................... 14,900 636,044
Stratus Computer, Inc.* ................................. 6,700 335,000
Structural Dynamics Research Corp.* ..................... 4,100 107,625
Symantec Corp.* ......................................... 6,400 124,800
Tech Data Corp.* ........................................ 12,300 386,681
Technitrol, Inc. ........................................ 9,000 246,375
Tesoro Petroleum Corp.* ................................. 2,200 32,587
The Sports Authority, Inc.* ............................. 18,100 351,819
TheraTech, Inc.* ........................................ 3,800 44,650
Tier One Properties, Inc., Pfd. ......................... 5,000 498,125
Transaction Systems Architects, Inc.,
Cl. A* ................................................. 8,600 296,700
Tredegar Industries, Inc. ............................... 17,500 971,250
Trigon Healthcare, Inc.* ................................ 8,700 210,975
U.S. Home Corp.* ........................................ 7,200 191,250
U.S. Trust Corp. ........................................ 9,700 457,112
UNC, Inc.* .............................................. 21,600 315,900
United Stationers, Inc.* ................................ 3,300 83,325
Universal Corp. ......................................... 11,300 358,775
Universal Health Services, Inc., Cl. B* ................. 16,800 646,800
U.S. Office Products Co.* ............................... 5,300 161,981
Veritas DGC, Inc.* ...................................... 2,500 56,875
Waban, Inc.* ............................................ 11,700 376,594
Wang Laboratories, Inc.* ................................ 24,500 522,156
</TABLE>
6
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<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR MULTIFLEX FUND (CONTINUED)
Werner Enterprises, Inc. ................................ 18,300 $ 354,562
West Co., Inc. .......................................... 16,200 463,725
WestPoint Stevens, Inc.* ................................ 9,100 356,038
World Fuel Services Corp. ............................... 23,800 520,625
Yellow Corp.* ........................................... 17,800 398,275
Zilog, Inc.* ............................................ 22,600 429,400
------------
79,639,551
------------
INTERNATIONAL EQUITIES 20.79%
ABN AMRO Holdings N.V., ADR ............................. 80,000 1,510,000
Akzo Nobel N.V., ADR .................................... 20,000 1,382,500
Amcor, Ltd., ADR ........................................ 40,000 1,050,000
Associated British Foods PLC, ADR ....................... 165,000 1,423,834
Astra AB, ADR ........................................... 80,000 1,520,000
Banco Santander SA, ADR ................................. 62,700 1,939,781
BASF AG, ADR ............................................ 40,000 1,479,452
Bayer AG, ADR ........................................... 27,400 1,053,837
British Airways PLC, ADR ................................ 10,000 1,149,375
British Telecommunications PLC, ADR ..................... 20,000 1,485,000
Carlton Communications PLC, ADR ......................... 35,000 1,505,000
Cemex SA, "B", ADR ...................................... 80,000 770,000
Compagnie Cervecerias Unidas SA, ADR .................... 45,000 987,187
Credit Suisse Group, ADR ................................ 50,000 1,607,675
Dai Nippon Printing Co., Ltd., ADR ...................... 7,000 1,584,310
Den Danske Bank, ADR .................................... 14,000 1,363,954
Deutsche Bank AG, ADR ................................... 20,000 1,169,560
Development Bank of
Singapore, Ltd., ADR ................................... 30,000 1,510,500
Empresa Nacional
de Electricidad SA, ADR ................................ 18,000 1,531,125
Fuji Photo Film Co., Ltd., ADR .......................... 44,000 1,776,500
Glaxo Wellcome PLC, ADR ................................. 35,000 1,463,438
Groupe Danone, ADR ...................................... 35,000 1,157,733
Hitachi, Ltd., ADR ...................................... 12,000 1,356,000
Hong Kong Electric Holdings, Ltd., ADR .................. 200,000 805,440
HSBC Holdings PLC, ADR .................................. 5,000 1,503,752
Istituto Mobiliare Italiano SA, ADR ..................... 35,000 953,750
Kirin Brewery Co., Ltd., ADR ............................ 12,000 1,248,000
Konica Corp., ADR ....................................... 18,000 1,149,840
Kyocera Corp., ADR ...................................... 9,000 1,431,000
LVMH (Moet Hennessy Louis
Vuitton), ADR .......................................... 20,000 1,077,500
Matsushita Electric
Industrial Co., Ltd., ADR .............................. 6,000 1,227,000
National Australia Bank, Ltd., ADR ...................... 25,000 1,782,813
Nestle SA, ADR .......................................... 27,000 1,783,517
Norsk Hydro A/S, ADR .................................... 30,000 1,625,625
Novartis AG, ADR ........................................ 26,666 2,136,480
Novo Nordisk A/S, ADR ................................... 30,000 1,646,250
Portugal Telecommunications SA, ADR ..................... 30,000 1,203,750
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
PowerGen PLC, ADR ....................................... 30,000 $ 1,455,000
Repsol SA, ADR .......................................... 27,000 1,145,813
Rio Tinto, Ltd., ADR* ................................... 24,000 1,623,905
RWE AG, ADR ............................................. 27,000 1,162,099
Sekisui House, Ltd., ADR ................................ 10,000 1,013,700
Shell Transport & Trading Co., ADR ...................... 12,500 1,571,875
Societe Generale, ADR ................................... 60,000 1,340,839
Stet Societa Finanziaria Telefonica SA, ADR.............. 30,000 1,751,250
Sun Hung Kai Properties, Ltd., ADR ...................... 85,000 1,023,094
Telefonica de Espana, ADR ............................... 20,000 1,725,000
Telefonos de Mexico SA, "L", ADR ........................ 15,000 716,250
Total SA, ADR ........................................... 30,000 1,522,500
Unilever N.V., PLC ...................................... 8,000 1,712,500
Vitro SA, ADR* .......................................... 1,160 13,050
Volvo AB, ADR ........................................... 40,000 1,070,000
------------
70,198,353
------------
REAL ESTATE EQUITIES 18.60%
American General Hospitality Corp. ...................... 103,300 2,556,675
Arden Realty Group, Inc. ................................ 56,900 1,479,400
Bay Apartment Communities, Inc. ......................... 40,600 1,502,200
Beacon Properties Corp. ................................. 88,800 2,963,700
Cali Realty Corp. ....................................... 54,200 1,842,800
CBL & Associates Properties, Inc. ....................... 79,600 1,910,400
Chelsea GCA Realty, Inc. ................................ 32,200 1,223,600
Duke Realty Investments, Inc. ........................... 33,200 1,344,600
Equity Residential Properties Trust ..................... 51,500 2,446,250
Essex Property Trust, Inc. .............................. 75,500 2,425,437
Excel Realty Trust, Inc. ................................ 35,500 936,312
FelCor Suite Hotels, Inc. ............................... 75,800 2,823,550
First Industrial Realty Trust, Inc. ..................... 79,000 2,310,750
Gables Residential Trust ................................ 60,100 1,517,525
General Growth Properties Trust ......................... 5,600 187,600
Glenborough Realty Trust, Inc. .......................... 19,100 482,275
Healthcare Realty Trust, Inc. ........................... 51,000 1,421,625
Highwoods Properties, Inc. .............................. 38,100 1,219,200
JDN Realty Corp. ........................................ 58,100 1,815,625
JP Realty, Inc. ......................................... 25,700 697,112
Kilroy Realty Corp. ..................................... 60,700 1,532,675
Kimco Realty Corp. ...................................... 28,050 890,588
Koger Equity, Inc. ...................................... 83,000 1,514,750
Liberty Property Trust .................................. 102,900 2,559,637
Merry Land & Investment Co., Inc. ....................... 69,300 1,502,944
MGI Properties, Inc. .................................... 69,900 1,542,169
Nationwide Health Properties, Inc. ...................... 35,900 789,800
Parkway Properties, Inc. ................................ 26,600 714,875
Patriot American Hospitality, Inc. ...................... 132,900 3,388,950
Prentiss Properties Trust ............................... 76,500 1,960,313
Price REIT, Inc. ........................................ 33,000 1,200,375
Public Storage, Inc. .................................... 77,900 2,278,575
RFS Hotel Investors, Inc. ............................... 55,500 999,000
Security Capital Industrial Trust ....................... 26,500 569,750
</TABLE>
7
<PAGE> 367
<TABLE>
- - ---------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - ---------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR MULTIFLEX FUND (CONTINUED)
Shurgard Storage Centers, Inc. ........................... 33,100 $ 926,800
Simon DeBartolo Group, Inc. .............................. 71,600 2,291,200
Spieker Properties, Inc. ................................. 23,200 816,350
Starwood Lodging Trust ................................... 28,350 1,210,191
Sun Communities, Inc. .................................... 24,000 805,500
Sunstone Hotel Investors, Inc. ........................... 64,900 941,050
TriNet Corporate Realty Trust, Inc. ...................... 38,300 1,266,294
------------
62,808,422
------------
TOTAL COMMON STOCKS
(Cost $206,152,617) ..................................... 270,150,391
------------
FIXED INCOME SECURITIES 17.64%
U.S. GOVERNMENT OBLIGATIONS 9.73%
U.S. TREASURY NOTES
5.500%, 09/30/1997 ...................................... 2,400,000 2,400,000
5.750%, 09/30/1997 ...................................... 1,550,000 1,550,969
5.875%, 08/15/1998 ...................................... 3,300,000 3,298,970
5.875%, 10/31/1998 ...................................... 2,300,000 2,297,125
6.875%, 07/31/1999 ...................................... 800,000 811,750
7.750%, 12/31/1999 ...................................... 1,655,000 1,713,959
6.250%, 05/31/2000 ...................................... 1,700,000 1,701,063
6.125%, 09/30/2000 ...................................... 1,150,000 1,144,610
6.250%, 02/15/2003 ...................................... 1,425,000 1,413,868
7.250%, 08/15/2004 ...................................... 1,010,000 1,052,925
6.875%, 05/15/2006 ...................................... 5,725,000 5,843,078
8.750%, 05/15/2017 ...................................... 3,095,000 3,723,672
7.875%, 02/15/2021 ...................................... 5,300,000 5,906,188
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $32,543,572) ...................................... 32,858,177
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 3.86%
Fannie Mae
6.500%, 04/30/1999 ...................................... 1,000,000 1,000,651
Federal Home Loan Bank
6.075%, 01/22/1999 ...................................... 2,000,000 1,998,826
Federal Home Loan Mortgage Corp.,
Pool #380070, 9.000%, 01/01/2005 ........................ 305,675 317,233
Federal Home Loan Mortgage Corp.,
1506 E PAC, 5.700%, 04/15/2005 .......................... 1,000,000 984,020
Federal Home Loan Mortgage Corp.,
185 E PAC, 9.000%, 08/15/2006 ........................... 903,440 934,681
Federal Home Loan Mortgage Corp.,
Pool #554938, 8.000%, 08/01/2017 ........................ 339,496 347,241
Federal National Mortgage Assn.,
1992-152 J PAC, 7.000%, 05/25/2006 ...................... 810,000 813,937
Federal National Mortgage Assn.,
1992-24 H PAC, 7.500%, 11/25/2006 ....................... 1,000,000 1,016,190
Federal National Mortgage Assn.,
1994-85 K, 6.000%, 06/25/2009 ........................... 652,384 615,192
</TABLE>
<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
Federal National Mortgage Assn.,
Pool #190723, 6.000%, 04/01/2024 ...................... 2,008,627 $ 1,868,656
FHA/VA, Pool #140283
6.500%, 08/01/2003 .................................... 377,647 373,724
Government National Mortgage Assn., 1996-13 G, 7.000%,
01/16/2007 ............................................ 1,000,000 1,006,210
Government National Mortgage Assn.,
Pool #398551, 6.500%, 04/15/2026 ...................... 832,985 796,284
Government National Mortgage Assn.,
Pool #422835, 6.500%, 05/15/2026 ...................... 1,002,999 958,807
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $13,032,589) .................................... 13,031,652
------------
ASSET BACKED SECURITIES 1.91%
ContiMortgage Home Equity Loan Trust,
1995-4 A4, 6.330%, 10/15/2010 ......................... 605,000 605,091
ContiMortgage Home Equity Loan Trust,
1997-1 A3, 6.480%, 01/15/2012 ......................... 1,000,000 1,000,050
First Plus Home Loan Trust,
1997-1 A2, 6.280%, 09/10/2006 ......................... 1,000,000 1,001,740
IMC Home Equity Loan Trust,
1997-3 A3, 6.710%, 01/20/2012 ......................... 1,500,000 1,500,469
NationsBank Auto Owner Trust
6.375%, 07/15/2006 .................................... 1,325,000 1,331,598
Premier Auto Trust,
1996-4 A3, 6.200%, 11/06/2000 ......................... 1,000,000 1,002,710
------------
TOTAL ASSET BACKED SECURITIES
(Cost $6,425,898) ..................................... 6,441,658
------------
CORPORATE BONDS 2.14%
Associates Corp., N.A.,
7.750%, 02/15/2005 .................................... 1,200,000 1,271,881
BellSouth Telecommunications, Inc.,
5.850%, 11/15/2045 .................................... 1,000,000 988,417
Beneficial Corp., 8.400%, 05/15/2008 ................... 1,000,000 1,115,673
General Electric Capital Corp.,
5.800% (Variable Rate), 04/01/2008 .................... 1,200,000 1,289,654
GTE Corp., 10.250%, 11/01/2020 ......................... 620,000 708,819
Motorola, Inc., 8.400%, 08/15/2031 ..................... 735,000 848,536
Spieker Properties, Inc.,
6.950%, 12/15/2002 .................................... 325,000 321,459
U.S. West Capital Funding Corp.,
6.310%, 11/01/2005 .................................... 675,000 666,396
------------
TOTAL CORPORATE BONDS
(Cost $7,163,175) ..................................... 7,210,835
------------
TOTAL FIXED INCOME SECURITIES
(Cost $59,165,234) .................................... 59,542,322
------------
</TABLE>
8
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<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR MULTIFLEX FUND (CONTINUED)
SHORT TERM INVESTMENTS 2.35%
UMB Bank, N.A., Money Market Fiduciary+, 4.290% ......... 7,949,700 $ 7,949,700
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $7,949,700) ...................................... 7,949,700
------------
TOTAL INVESTMENTS
(100.00%) (Cost $273,267,551#) ......................... $337,642,413
============
INVESCO ADVISOR INTERNATIONAL VALUE FUND
COMMON STOCKS 95.98%
BASIC MATERIALS 5.35%
BASF AG, ADR ............................................ 40,000 $ 1,479,452
Cemex SA, "B", ADR ...................................... 125,000 1,203,713
Rio Tinto, Ltd., ADR* ................................... 27,000 1,826,893
------------
4,510,058
------------
CONSUMER CYCLICAL 2.83%
Canon, Inc., ADR ........................................ 12,000 1,638,000
Marui, Ltd., ADR ........................................ 20,000 744,558
------------
2,382,558
------------
CONSUMER STAPLES 19.43%
Amcor, Ltd., ADR ........................................ 50,000 1,312,500
Associated British Foods PLC, ADR ....................... 195,000 1,682,714
Dai Nippon Printing Co., Ltd., ADR ...................... 9,000 2,037,053
Glaxo Wellcome PLC, ADR ................................. 40,000 1,672,500
Groupe Danone, ADR ...................................... 50,000 1,653,905
J. Sainsbury PLC, ADR ................................... 60,000 1,455,600
Kirin Brewery Co., Ltd., ADR ............................ 15,000 1,560,000
LVMH (Moet-Hennessy Louis
Vuitton), ADR .......................................... 20,000 1,077,500
Nestle SA, ADR .......................................... 30,000 1,981,686
Unilever N.V., PLC ...................................... 9,000 1,926,562
------------
16,360,020
------------
DIVERSIFIED 14.84%
Akzo Nobel N.V., ADR .................................... 25,000 1,728,125
Bayer AG, ADR ........................................... 30,000 1,153,836
Elf Aquitaine SA, ADR ................................... 30,000 1,633,125
Kyocera Corp., ADR ...................................... 10,000 1,590,000
Norsk Hydro A/S, ADR .................................... 30,000 1,625,625
Novo-Nordisk A/S, ADR ................................... 35,000 1,920,625
RWE AG, ADR ............................................. 40,000 1,721,628
Swire Pacific, Ltd., ADR ................................ 125,000 1,125,388
------------
12,498,352
------------
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
ENERGY 4.34%
Repsol SA, ADR .......................................... 40,000 $ 1,697,500
Royal Dutch Petroleum Co. ............................... 36,000 1,957,500
------------
3,655,000
------------
ELECTRONICS 5.84%
Carlton Communications PLC, ADR ......................... 40,000 1,720,000
Fuji Photo Film Co., Ltd., ADR .......................... 40,000 1,615,000
Hitachi, Ltd., ADR ...................................... 14,000 1,582,000
------------
4,917,000
------------
FINANCE 19.80%
Banco Santander SA, ADR ................................. 60,000 1,856,250
Den Danske Bank, ADR .................................... 20,000 1,948,506
Deutshe Bank AG, ADR .................................... 30,000 1,732,500
Development Bank of
Singapore, Ltd., ADR ................................... 35,000 1,762,250
HSBC Holdings PLC, ADR .................................. 7,000 2,105,253
ING Groep N.V., ADR ..................................... 45,000 2,086,875
Istituto Mobiliare Italiano, ADR ........................ 55,000 1,498,750
National Australia Bank, Ltd., ADR ...................... 30,000 2,139,375
Societe Generale Paris, ADR ............................. 69,000 1,541,964
------------
16,671,723
------------
PHARMACEUTICALS 5.18%
Astra AB, "A", ADR ...................................... 104,667 1,988,673
Astra AB, "B", ADR ...................................... 5,333 95,994
Novartis AG, ADR ........................................ 28,466 2,278,686
------------
4,363,353
------------
REAL ESTATE & HOUSING 2.63%
Sekisui House, Ltd., ADR ................................ 10,000 1,013,719
Sun Hung Kai Properties, Ltd., ADR ...................... 100,000 1,203,640
------------
2,217,359
------------
TELECOMMUNICATIONS 9.15%
British Telecommunications PLC, ADR ..................... 25,000 1,856,250
Stet Societa Finanziaria
Telefonica SA, ADR ..................................... 35,000 2,043,125
Telecomunicacoes Brasileiras SA, ADR .................... 8,000 1,214,000
Telefonica de Espana, ADR ............................... 19,000 1,638,750
Telefonos de Mexico SA, "L", ADR ........................ 20,000 955,000
------------
7,707,125
------------
TRANSPORTATION & SERVICES 2.05%
British Airways PLC, ADR ................................ 15,000 1,724,062
------------
</TABLE>
9
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<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR INTERNATIONAL VALUE FUND (CONTINUED)
UTILITIES 4.54%
Empresa Nacional
de Electridad SA, ADR ................................. 25,000 $ 2,126,562
PowerGen PLC, ADR ...................................... 35,000 1,697,500
------------
3,824,062
------------
TOTAL COMMON STOCKS
(Cost $64,974,353) .................................... 80,830,672
------------
SHORT TERM INVESTMENTS 4.02%
UMB Bank, N.A., Money Market Fiduciary+, 4.290% ........ 3,388,746 3,388,746
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $3,388,746) ..................................... 3,388,746
------------
TOTAL INVESTMENTS
(100.00%) (Cost $68,363,099#) ......................... $ 84,219,418
============
</TABLE>
The Fund's Portfolio of Investments at June 30, 1997, was concentrated in the
following countries:
<TABLE>
<CAPTION>
% OF MARKET
COUNTRY INVESTMENTS VALUE
- - --------------------------------------------------------------------------------
<S> <C> <C>
Australia............................................... 6.27% $ 5,278,768
Brazil.................................................. 1.44% 1,214,000
Denmark................................................. 2.28% 1,920,625
France.................................................. 7.01% 5,906,494
Germany................................................. 7.23% 6,087,416
Great Britain........................................... 16.52% 13,913,879
Hong Kong............................................... 1.33% 1,125,388
Italy................................................... 4.21% 3,541,875
Japan................................................... 15.42% 12,983,970
Mexico.................................................. 1.13% 955,000
Netherlands............................................. 11.46% 9,647,568
Norway.................................................. 1.93% 1,625,625
Singapore............................................... 2.09% 1,762,250
Spain................................................... 10.12% 8,522,775
Sweden.................................................. 2.48% 2,084,667
Switzerland............................................. 5.06% 4,260,372
United States........................................... 4.02% 3,388,746
------ -----------
TOTAL................................................... 100.00% $84,219,418
====== ===========
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR REAL ESTATE FUND
COMMON STOCKS 94.66%
DIVERSIFIED 6.72%
First Union Real Estate Investments....................... 25,000 $ 353,125
Glenborough Realty Trust, Inc............................. 13,300 335,825
MGI Properties, Inc....................................... 27,900 615,544
Trizec Hahn Corp.......................................... 41,000 876,375
-----------
2,180,869
-----------
FINANCE 1.54%
AMRESCO, Inc.*............................................ 23,300 500,950
-----------
HEALTHCARE 1.96%
Healthcare Realty Trust, Inc.............................. 22,800 635,550
-----------
INDUSTRIAL 17.81%
Bedford Property Investors, Inc. ......................... 45,800 921,725
Duke Realty Investments, Inc.............................. 18,050 731,025
First Industrial Realty Trust, Inc........................ 34,700 1,014,975
Liberty Property Trust.................................... 44,450 1,105,694
Prentiss Properties Trust................................. 35,900 919,937
Servico, Inc.*............................................ 35,200 523,600
TriNet Corporate Realty Trust, Inc........................ 17,100 565,369
-----------
5,782,325
-----------
MORTGAGE BACKED SECURITIES 1.38%
Capstead Mortgage Corp.................................... 18,200 449,312
-----------
OFFICE 18.46%
Arden Realty Group, Inc. ................................. 31,100 808,600
Beacon Properties Corp.................................... 42,050 1,403,419
Cali Realty Corp.......................................... 26,700 907,800
Highwoods Properties, Inc................................. 9,050 289,600
Kilroy Realty Corp........................................ 33,700 850,925
Koger Equity, Inc......................................... 39,100 713,575
Parkway Properties, Inc................................... 22,700 610,062
Spieker Properties, Inc................................... 11,600 408,175
-----------
5,992,156
-----------
RECREATION 15.31%
American General Hospitality Corp. ....................... 37,400 925,650
FelCor Suite Hotels, Inc.................................. 32,700 1,218,075
Patriot American Hospitality, Inc......................... 63,500 1,619,250
RFS Hotel Investors, Inc. ................................ 25,100 451,800
Starwood Lodging Trust.................................... 10,800 461,025
Sunstone Hotel Investors, Inc............................. 20,400 295,800
-----------
4,971,600
-----------
RESIDENTIAL 13.59%
Bay Apartment Communities, Inc............................ 19,500 721,500
Equity Residential Properties Trust....................... 20,800 988,000
</TABLE>
10
<PAGE> 370
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR REAL ESTATE FUND (CONTINUED)
Essex Property Trust, Inc. ............................... 31,600 $ 1,015,150
Gables Residential Trust ................................. 25,250 637,563
Merry Land & Investment Co., Inc. ........................ 25,800 559,537
Sun Communities, Inc. .................................... 14,600 490,013
-----------
4,411,763
-----------
RETAIL 13.68%
CBL & Associates Properties, Inc. ........................ 27,550 661,200
Chelsea GCA Realty, Inc. ................................. 6,200 235,600
Excel Realty Trust, Inc. ................................. 18,200 480,025
General Growth Properties, Inc. .......................... 22,000 737,000
JDN Realty Corp. ......................................... 13,600 425,000
Kimco Realty Corp. ....................................... 13,950 442,913
Price REIT, Inc. ......................................... 14,700 534,712
Simon DeBartolo Group, Inc. .............................. 28,900 924,800
-----------
4,441,250
-----------
SELF-STORAGE 4.21%
Public Storage, Inc. ..................................... 29,700 868,725
Shurgard Storage Centers, Inc. ........................... 17,750 497,000
-----------
1,365,725
-----------
TOTAL COMMON STOCKS
(Cost $25,930,593) ...................................... 30,731,500
-----------
SHORT TERM INVESTMENTS 5.34%
UMB Bank, N.A., Money Market
Fiduciary+, 4.290% ...................................... 1,733,324 1,733,324
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $1,733,324) ....................................... 1,733,324
-----------
TOTAL INVESTMENTS
(100.00%) (Cost $27,663,917#) ........................... $32,464,824
===========
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR INCOME FUND
FIXED INCOME SECURITIES 98.84%
U.S. GOVERNMENT OBLIGATIONS 69.93%
U.S. TREASURY NOTES
8.500%, 07/15/1997 ...................................... 2,000,000 $ 2,002,500
6.125%, 03/31/1998 ...................................... 1,600,000 1,605,000
8.000%, 08/15/1999 ...................................... 1,000,000 1,036,875
6.375%, 01/15/2000 ...................................... 2,000,000 2,010,626
7.500%, 11/15/2001 ...................................... 1,500,000 1,563,282
6.375%, 08/15/2002 ...................................... 1,500,000 1,499,063
6.250%, 02/15/2003 ...................................... 1,800,000 1,785,938
10.750%, 08/15/2005 ..................................... 1,250,000 1,576,172
9.375%, 02/15/2006 ...................................... 1,000,000 1,185,313
9.250%, 02/15/2016 ...................................... 1,200,000 1,501,500
7.250%, 08/15/2022 ...................................... 1,100,000 1,147,782
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $17,121,232)....................................... 16,914,051
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS 18.00%
FEDERAL HOME LOAN MORTGAGE CORP.
12.000%, 04/01/2000 Pool #20009 ......................... 5,161 5,511
6.500%, 07/01/2001 Gold
Pool #G50362 ........................................... 464,432 461,820
8.000%, 10/01/2010 Gold
Pool #G10518 ........................................... 662,560 680,987
-----------
1,148,318
-----------
FEDERAL NATIONAL MORTGAGE ASSN.
6.000%, 01/01/2009 Pool #50973 .......................... 67,421 64,956
6.000%, 04/01/2024 Pool #190723 ......................... 89,357 83,130
-----------
148,086
-----------
GOVERNMENT NATIONAL MORTGAGE ASSN.
6.000%, 10/15/2008 Pool #360191 ......................... 467,729 451,651
6.500%, 10/15/2008 Pool #354668 ......................... 739,277 727,726
7.000%, 10/15/2008 Pool #366622 ......................... 743,562 744,491
6.000%, 11/15/2008 Pool #370907 ......................... 337,290 325,695
7.500%, 03/15/2026 Pool #417287 ......................... 803,778 805,790
-----------
3,055,353
-----------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Cost $4,456,688) ....................................... 4,351,757
-----------
</TABLE>
11
<PAGE> 371
<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR INCOME FUND (CONTINUED)
CORPORATE BONDS 10.91%
FINANCE 4.07%
Commercial Credit Co.,
5.550%, 02/15/2001 ..................................... 500,000 $ 481,468
National City Corp.,
7.200%, 05/15/2005 ..................................... 500,000 504,478
-----------
985,946
-----------
INDUSTRIAL 6.84%
Waste Management, Inc.,
6.375%, 07/01/1997 ..................................... 500,000 500,000
Ford Motor Credit Co.,
9.250%, 06/15/1998 ..................................... 35,000 36,019
Ford Motor Credit Co.,
7.500%, 11/15/1999 ..................................... 500,000 510,849
Rockwell International, Inc.,
6.625%, 06/01/2005 ..................................... 500,000 492,171
GTE Corp.,
10.250%, 11/01/2020 .................................... 100,000 114,326
-----------
1,653,365
-----------
TOTAL CORPORATE BONDS
(Cost $2,678,668) ...................................... 2,639,311
-----------
TOTAL FIXED INCOME SECURITIES
(Cost $24,256,588) ..................................... 23,905,119
-----------
SHORT TERM INVESTMENTS 1.16%
UMB Bank, N.A., Money Market
Fiduciary+, 4.290% ..................................... 281,734 281,734
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $281,734)......................................... 281,734
-----------
TOTAL INVESTMENTS
(100.00%) (Cost $24,538,322#)........................... $24,186,853
===========
</TABLE>
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Effective Shares or
Interest Principal
Description Rate % Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESCO ADVISOR CASH MANAGEMENT FUND
SHORT-TERM INVESTMENTS 100.00%
COMMERCIAL PAPER 98.56%
Abbott Laboratories 07/01/1997 .................. 5.500 400,000 $ 400,000
Potomac Electric Power Co. 07/01/1997 ........... 5.630 400,000 400,000
General Electric Credit Corp. 07/03/1997 ........ 5.570 400,000 399,876
Cargill, Inc. 07/07/1997 ........................ 5.550 400,000 399,630
New York Times Co.
07/07/1997 ..................................... 5.620 245,000 244,771
PACCAR Financial Corp. 07/07/1997 ............... 5.500 400,000 399,634
Donnelley (R.R.) & Sons Co. 07/07/1997 .......... 5.520 327,000 326,699
U.S. Borax, Inc. 07/07/1997 ..................... 5.520 400,000 399,632
Pacific Bell Co. 07/09/1997 ..................... 5.500 400,000 399,511
Southern California Edison Co. 07/09/1997 ....... 5.510 400,000 399,510
Met Life Funding, Inc.
07/10/1997 ..................................... 5.570 400,000 399,443
BellSouth Telecommunications, Inc.
07/11/1997 ..................................... 5.480 400,000 399,391
Greenwich Funding Corp. 07/11/1997 .............. 5.560 450,000 449,305
Kellogg Co. 07/11/1997 .......................... 5.500 300,000 299,542
Monsanto Co. 07/11/1997 ......................... 5.600 400,000 399,378
Chubb Capital Corp. 07/14/1997 .................. 5.510 400,000 399,204
National Rural Utilities Cooperative
07/21/1997 ..................................... 5.520 400,000 398,773
Idaho Power Co. 07/24/1997 ...................... 5.530 400,000 398,587
DuPont (E.I.) de Nemours Co. 07/28/1997 ......... 5.520 400,000 398,344
Disney (Walt) Co. 07/28/1997 .................... 5.480 400,000 398,356
Pacific Gas & Electric Co. 08/11/1997 ........... 5.540 400,000 397,476
Alabama Power Co. 08/15/1997 .................... 5.540 400,000 397,230
----------
TOTAL COMMERCIAL PAPER
(Cost $8,504,292) .............................. 8,504,292
----------
</TABLE>
12
<PAGE> 372
<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESCO ADVISOR CASH MANAGEMENT FUND (CONTINUED)
OTHER SECURITIES 1.44%
UMB Bank, N.A., Money Market Fiduciary+ 4.290% (Cost
$124,295) ........................................... 124,295 $ 124,295
----------
TOTAL INVESTMENTS
(100.00%) (Cost $8,628,587#)......................... $8,628,587
==========
</TABLE>
* SECURITY IS NON-INCOME PRODUCING.
ADR REPRESENTS AMERICAN DEPOSITARY RECEIPTS.
+ PRINCIPAL AND INTEREST ARE PAYABLE ON DEMAND.
# ALSO REPRESENTS COST FOR FEDERAL INCOME TAX PURPOSES.
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 373
INVESCO Advisor Funds, Inc.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
INTERNATIONAL CASH
FLEX EQUITY MULTIFLEX VALUE REAL ESTATE INCOME MANAGEMENT
FUND FUND FUND FUND FUND FUND FUND
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment securities:
At cost................ $410,224,755 $ 99,215,703 $273,267,551 $68,363,099 $27,663,917 $24,538,322 $8,628,587
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
At value............... $568,231,496 $159,879,045 $337,642,413 $84,219,418 $32,464,824 $24,186,853 $8,628,587
Cash.................... 0 0 37,433 51,467 0 0 3,714
Receivables:
Investment securities
sold.................. 0 0 8,180,631 0 343,801 0 0
Fund shares sold....... 1,261,753 762,544 711,519 1,098,748 180,662 7,985 0
Dividends and interest. 3,957,404 303,819 1,907,050 281,502 276,684 508,017 812
Other assets............ 9,740 3,647 3,851 0 748 2,152 273
-------------------------------------------------------------------------------------------
TOTAL ASSETS............ 573,460,393 160,949,055 348,482,897 85,651,135 33,266,719 24,705,007 8,633,386
-------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Distributions to
shareholders.......... 0 0 0 0 0 0 9,215
Investment securities
purchased............. 0 0 13,827,355 684,580 510,400 0 0
Fund shares
repurchased........... 381,329 110,405 138,441 186,484 20,080 67,969 0
Other.................. 1,074,818 300,860 676,106 167,624 60,613 32,873 6,704
-------------------------------------------------------------------------------------------
TOTAL LIABILITIES....... 1,456,147 411,265 14,641,902 1,038,688 591,093 100,842 15,919
-------------------------------------------------------------------------------------------
NET ASSETS.............. $572,004,246 $160,537,790 $333,840,995 $84,612,447 $32,675,626 $24,604,165 $8,617,467
===========================================================================================
NET ASSETS
Paid-in capital......... $402,935,567 $ 92,067,459 $257,169,297 $67,579,267 $27,202,696 $25,946,358 $8,618,777
Accumulated
undistributed
(overdistributed) net
investment income...... (22,863) (45,693) 107,269 (48,015) 19,325 (47,011) 0
Accumulated net realized
gain (loss) on
investments............ 11,084,801 7,852,682 12,189,567 1,224,876 652,698 (943,713) (1,310)
Unrealized net
appreciation
(depreciation) of
investments............ 158,006,741 60,663,342 64,374,862 15,856,319 4,800,907 (351,469) 0
-------------------------------------------------------------------------------------------
NET ASSETS.............. $572,004,246 $160,537,790 $333,840,995 $84,612,447 $32,675,626 $24,604,165 $8,617,467
===========================================================================================
CLASS A SHARES:
Net assets.............. $ 6,303,612 $ 1,458,220 $ 2,615,782 $ 2,059,015 $ 1,430,622 $ 29,581 $ 135,774
===========================================================================================
Shares outstanding...... 84,618 15,430 45,713 33,623 24,486 611 135,777
===========================================================================================
NET ASSET VALUE PER
SHARE.................. $ 74.50 $ 94.51 $ 57.22 $ 61.24 $ 58.43 $ 48.43 $ 1.00
===========================================================================================
Offering price per share
(net asset value plus
sales charge)*......... $ 78.84 $ 100.01 $ 60.55 $ 64.80 $ 61.34 $ 50.85 $ 1.00
===========================================================================================
CLASS C SHARES:
Net assets.............. $565,700,634 $159,079,570 $331,225,213 $82,553,432 $31,245,004 $24,574,584 $8,481,693
===========================================================================================
Shares outstanding...... 7,575,046 1,678,737 5,771,985 1,348,100 533,780 506,313 8,482,329
===========================================================================================
NET ASSET VALUE PER
SHARE.................. $ 74.68 $ 94.76 $ 57.38 $ 61.24 $ 58.54 $ 48.54 $ 1.00
===========================================================================================
</TABLE>
*Sales charge of 5.50% of offering price for all funds except Real Estate and
Income which is 4.75% of offering price.
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 374
INVESCO Advisor Funds, Inc.
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
INTERNATIONAL CASH
FLEX EQUITY MULTIFLEX VALUE REAL ESTATE INCOME MANAGEMENT
FUND FUND FUND FUND FUND FUND FUND
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends............... $ 4,135,865 $ 1,439,020 $ 3,351,201 $ 1,056,237 $ 606,330 $ 0 $ 0
Interest................ 5,929,497 169,584 1,892,570 61,342 30,636 870,766 257,910
-----------------------------------------------------------------------------------
TOTAL INCOME........... 10,065,362 1,608,604 5,243,771 1,117,579 636,966 870,766 257,910
-----------------------------------------------------------------------------------
EXPENSES
Investment advisory fees
(Note 2)............... 1,950,595 546,565 1,455,688 330,700 119,030 80,946 23,624
Distribution fees--Class
A (Note 2)............. 3,239 471 1,367 750 809 50 0
Distribution fees--Class
C (Note 2)............. 2,587,837 726,872 1,450,221 327,699 129,019 74,599 0
Directors fees &
expenses (Note 2)...... 44,410 12,446 24,456 5,506 1,995 2,182 642
Operating services fees
(Note 2)............... 1,164,099 327,939 607,070 148,815 59,515 56,040 21,261
-----------------------------------------------------------------------------------
TOTAL EXPENSES......... 5,750,180 1,614,293 3,538,802 813,470 310,368 213,817 45,527
Less: Advisory fee
waiver................. 0 0 0 0 0 (31,132) 0
-----------------------------------------------------------------------------------
NET EXPENSES............ 5,750,180 1,614,293 3,538,802 813,470 310,368 182,685 45,527
-----------------------------------------------------------------------------------
NET INVESTMENT INCOME
(LOSS)................. 4,315,182 (5,689) 1,704,969 304,109 326,598 688,081 212,383
-----------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENT SECURITIES
Net realized gain (loss)
on investments......... 11,358,539 7,800,748 12,348,346 1,177,374 657,371 (13,575) (144)
Change in unrealized net
appreciation
(depreciation) of
investments............ 50,116,008 17,151,168 18,136,057 8,740,095 426,913 (163,074) 0
-----------------------------------------------------------------------------------
NET GAIN (LOSS) ON
INVESTMENTS............ 61,474,547 24,951,916 30,484,403 9,917,469 1,084,284 (176,649) (144)
-----------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS........ $65,789,729 $24,946,227 $32,189,372 $10,221,578 $1,410,882 $ 511,432 $212,239
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 375
INVESCO Advisor Funds, Inc.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FLEX FUND EQUITY FUND MULTIFLEX FUND
-------------------------- -------------------------- --------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR
JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED
1997 DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss)................. $ 4,315,182 $ 8,108,449 $ (5,689) $ 302,211 $ 1,704,969 $ 2,502,127
Net realized gain on
investments............ 11,358,539 23,531,236 7,800,748 5,485,198 12,348,346 10,629,068
Change in unrealized net
appreciation of
investments............ 50,116,008 26,214,708 17,151,168 14,241,394 18,136,057 23,172,870
-----------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS. 65,789,729 57,854,393 24,946,227 20,028,803 32,189,372 36,304,065
-----------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income
Class A................ (70,342) 0 (6,926) 0 (23,908) 0
Class C................ (4,337,512) (8,041,627) (10,863) (326,780) (1,697,930) (2,400,549)
Net realized gain on
investments
Class A................ (957) 0 (38,949) 0 (26,082) 0
Class C................ (89,685) (23,712,747) (4,215,007) 0 (3,332,462) (7,382,073)
-----------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS..... (4,498,496) (31,754,374) (4,271,745) (326,780) (5,080,382) (9,782,622)
-----------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Net (Note 5)........... 20,795,075 64,656,241 2,447,562 4,140,414 39,888,873 65,729,841
-----------------------------------------------------------------------------------
TOTAL INCREASE IN NET
ASSETS................. 82,086,308 90,756,260 23,122,044 23,842,437 66,997,863 92,251,284
NET ASSETS
Beginning of period..... 489,917,938 399,161,678 137,415,746 113,573,309 266,843,132 174,591,848
-----------------------------------------------------------------------------------
End of period........... $572,004,246 $489,917,938 $160,537,790 $137,415,746 $333,840,995 $266,843,132
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Accumulated
undistributed
(overdistributed) net
investment income
included in net assets
at end of period....... $ (22,863) $ 69,809 $ (45,693) $ (22,215) $ 107,269 $ 124,138
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 376
INVESCO Advisor Funds, Inc.
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
CASH
INTERNATIONAL VALUE FUND REAL ESTATE FUND INCOME FUND MANAGEMENT FUND
------------------------ ------------------------- ------------------------- -------------------------
SIX MONTHS SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR
JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED
1997 DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment
income (loss)..... $ 304,109 $ (49,154) $ 326,598 $ 364,733 $ 688,081 $ 1,532,326 $ 212,383 $ 836,628
Net realized gain
(loss) on
investments....... 1,177,374 226,482 657,371 177,126 (13,575) 893,589 (144) (22)
Change in
unrealized net
appreciation
(depreciation) of
investments....... 8,740,095 6,597,676 426,913 4,153,030 (163,074) (2,884,993) 0 0
--------------------------------------------------------------------------------------------------------
NET INCREASE
(DECREASE) IN NET
ASSETS FROM
OPERATIONS........ 10,221,578 6,775,004 1,410,882 4,694,889 511,432 (459,078) 212,239 836,606
--------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment
income
Class A........... (13,230) 0 (18,905) 0 (919) 0 (2,537) 0
Class C........... (290,381) 0 (323,252) (332,659) (694,669) (1,549,005) (210,000) (836,527)
Net realized gain
on investments
Class A........... (1,644) 0 (1,887) 0 0 0 0 0
Class C........... (72,695) (102,718) (43,208) (134,173) 0 0 0 0
--------------------------------------------------------------------------------------------------------
TOTAL
DISTRIBUTIONS..... (377,950) (102,718) (387,252) (466,832) (695,588) (1,549,005) (212,537) (836,527)
--------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Net (Note 5)...... 22,852,843 35,777,007 11,085,515 10,773,564 (1,373,989) (3,815,146) (7,328,540) (4,492,544)
--------------------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS............ 32,696,471 42,449,293 12,109,145 15,001,621 (1,558,145) (5,823,229) (7,328,838) (4,492,465)
NET ASSETS
Beginning of
period............ 51,915,976 9,466,683 20,566,481 5,564,860 26,162,310 31,985,539 15,946,305 20,438,770
--------------------------------------------------------------------------------------------------------
End of period...... $84,612,447 $51,915,976 $32,675,626 $20,566,481 $24,604,165 $26,162,310 $ 8,617,467 $15,946,305
========================================================================================================
Accumulated
undistributed
(overdistributed)
net investment
income included in
net assets at end
of period......... $(48,015) $ (48,513) $ 19,325 $ 34,884 $ (47,011) $ (39,504) $ 0 $ 101
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 377
INVESCO Advisor Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. The INVESCO
Advisor Funds, Inc. (which had been known as The EBI Funds, Inc., prior to
January 15, 1996 and, hereafter, is referred to as the "Fund") is registered
under the Investment Company Act of 1940 (the "Act") as a diversified, open-
end management investment company. The Fund consists of seven separate
investment portfolios, INVESCO Advisor Flex Fund ("Flex"), INVESCO Advisor
Equity Fund ("Equity"), INVESCO Advisor MultiFlex Fund ("MultiFlex"), INVESCO
Advisor International Value Fund ("International Value"), INVESCO Advisor Real
Estate Fund ("Real Estate"), INVESCO Advisor Income Fund ("Income") and
INVESCO Advisor Cash Management Fund ("Cash Management"). Real Estate and
International Value commenced operations on May 1, 1995. The Relative Return
Bond Fund merged into the Income Fund on December 15, 1995. See Note 8.
A 25 for 1 split of Equity, Flex and Income capital shares was effected on
January 2, 1992, which resulted in a corresponding reduction in the net asset
value per share. All per share information presented in the financial state-
ments and financial highlights for Equity, Flex and Income has been restated
to reflect the stock split.
The following significant accounting policies are in conformity with gener-
ally accepted accounting principles for investment companies. Such policies
are consistently followed by the Fund in the preparation of financial state-
ments. The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and as-
sumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. SECURITY VALUATION -- Securities held by Cash Management are valued using
the amortized cost method of valuation, which approximates market value. If
such valuation does not reflect a security's fair value, it is valued at
fair value as determined in good faith by the Fund's board of directors.
For Equity, Flex, MultiFlex, Income, Real Estate and the International
Value, securities traded on national securities exchanges are valued at the
last sale price on the exchange where such securities are primarily traded.
Securities traded in the over-the-counter market and listed securities for
which no sale was reported on the valuation date are valued at bid price (or
yield equivalent thereof) obtained from one or more dealers making a market
for such securities or by a pricing service approved by the Fund's board of
directors. If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith by
the Fund's board of directors. Securities which are considered short-term
investments when purchased are stated at amortized cost (which approximates
market value) if maturity of the investment is 60 days or less, or at market
value if maturity is greater than 60 days.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transac-
tions are accounted for on trade date and dividend income is recorded on
ex-dividend date. Interest income is recorded on the accrual basis. Dis-
counts on debt securities purchased are accreted over the life of the re-
spective security as adjustments to interest income. Costs used in deter-
mining realized gains and losses on the sale of investment securities are
those of specific securities sold.
C. FEDERAL INCOME TAXES -- Each investment portfolio intends to comply with
the provisions of the Internal Revenue Code applicable to regulated invest-
ment companies and, accordingly, distributes net investment income and net
realized capital gains, if any, to relieve it from federal income taxes. At
December 31, 1996, Equity had net capital loss carryforwards aggregating
$190,964. These carryforwards expire in 2004. At December 31, 1996, Income
had net capital loss carryforwards of $851,788 of which $29,229 was re-
ceived from the merger with Relative Return Fund (see Note 8). These
carryforwards expire in 2002. At December 31, 1996, Cash Management had net
capital loss carryforwards aggregating $600. These carryforwards expire in
2000. To the extent future capital gains are offset by capital loss
carryforwards, such gains will generally not be distributed to sharehold-
ers.
18
<PAGE> 378
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- For Equity, Flex, MultiFlex,
Income, Real Estate and International Value Funds, dividends and distribu-
tions are recorded on the ex-dividend date. All of Cash Management's net
investment income is distributed to shareholders by dividends declared
daily and paid monthly.
E. NEW SHARE CLASS -- Effective December 31, 1996, INVESCO commenced offering
two classes of shares. Class A shares are sold with a front-end sales
charge of 5.50% of offering price for all funds except Real Estate and In-
come which is 4.75% of offering price. Class C shares are sold with a con-
tingent deferred sales charge of 1% for redemptions during the first 18
months. Both classes have identical voting, dividend, liquidation and other
rights, except that each class bears different distribution expenses. In-
come, other expenses and accumulated realized gains and losses of each Fund
are allocated to the respective class on the basis of relative net asset
value each day.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Services, Inc.
("ISI"), serves as each investment portfolio's investment adviser. As
compensation for its services to each investment portfolio, ISI receives an
investment advisory fee which is accrued daily and paid monthly. These fees
are based on the annual rate of 0.75% of the respective average daily net
assets of Equity and Flex, 0.40% of the respective average daily net assets of
Income, 0.90% of the respective average daily net assets of Real Estate, 0.50%
of the respective average daily net assets of Cash Management and 1.00% of the
average daily net assets of MultiFlex and International Value. ISI has entered
into a sub-advisory agreement with INVESCO Capital Management, Inc. ("ICM"),
with respect to Equity, Flex, Income, Cash Management and International Value
whereby investment decisions for these investment portfolios are made by ICM.
Fees for these sub-advisory services are paid by ISI to ICM at an annual rate
of 0.20% of the average daily net assets of Equity and Flex and 0.10% of the
average daily net assets of Income and Cash Management and for International
Value, 0.35% of average net assets on the first $50 million of assets, 0.30%
of average net assets on the next $50 million of assets, and 0.25% of average
net assets on assets in excess of $100 million. ISI has also entered into a
sub-advisory agreement with INVESCO Management & Research, Inc. ("IMR"), with
respect to MultiFlex, whereby investment decisions for this investment
portfolio are made by IMR. Fees for these sub-advisory services are paid by
ISI to IMR based on annual rates equal to 0.35% of the average daily net
assets of MultiFlex Fund on the first $500 million of assets and 0.25% of
assets in excess of $500 million. In addition, ISI has entered into a sub-
advisory agreement with INVESCO Realty Advisors, Inc. ("IRA"), with respect to
Real Estate, whereby investment decisions for this investment portfolio are
made by IRA. Fees for this sub-advisory service are paid by ISI to IRA based
on annual rates equal to 0.35% of average net assets of Real Estate on the
first $100 million of assets and 0.25% of average net assets on assets in
excess of $100 million.
ISI is the principal underwriter for the Fund. All of the portfolios (except
Cash Management) have entered into distribution plans (the "Plans") with ISI
in accordance with Rule 12b-1 of the Act. Under the Plans, for Class A, ISI
receives annual fees of 0.35% of the average daily net assets for Equity,
Flex, MultiFlex, Real Estate, International Value and 0.25% for Income. For
Class C, ISI receives annual fees of 1.00% of average daily net assets for Eq-
uity, Flex, MultiFlex, Real Estate, International Value and 0.60% of average
daily net assets for Income. ISI advised the Fund that for the six months
ended June 30, 1997, it received approximately $6,996, $15,087, $770, $3,541,
$10,705, $7,485 and $1,276 in contingent deferred sales charges ("CDSC") from
certain shareholder redemptions of Equity, Flex, Income, Cash Management,
MultiFlex, International Value and Real Estate Funds, respectively. Certain
officers or directors of the Fund are officers or directors of ISI.
Each investment portfolio has also entered into an operating services agree-
ment with ISI. Under the respective operating services agreements, each in-
vestment portfolio pays ISI an annual fee of 0.50% (effective December 31,
1996 the annual fee became 0.45%) of daily average net assets for providing or
arranging to provide accounting, legal (except litigation), dividend disburs-
ing, transfer agent, registrar, custodial, shareholder reporting, sub-account-
ing and recordkeeping services and functions. These agreements provide that
ISI will pay all fees and expenses associated with these and other functions,
including, but not limited to, registration fees, shareholder meeting fees,
and proxy statement and shareholder report expenses. The combined effect of
the advisory agreements, distribution plans and operating services agreements
of each investment portfolio
19
<PAGE> 379
is to place a cap or ceiling on the total expenses of each investment portfo-
lio, other than brokerage commissions, interest, taxes, litigation, directors'
fees and expenses, and other extraordinary expenses.
If, in any calendar year, the average net assets of each of the Equity or
Flex Portfolios are less than $500 million, each Portfolio's expenses shall
not exceed 1.55% for Class A and 2.20% for Class C; on the next $500 million
of net assets, expenses shall not exceed 1.50% for Class A and 2.15% for Class
C; on the next $1 billion of net assets, expenses shall not exceed 1.45% for
Class A and 2.10% for Class C; and on all assets over $2 billion, expenses
shall not exceed 1.40% for Class A and 2.05% for Class C. If, in any calendar
year, the average net assets of the MultiFlex or International Value Portfo-
lios are less than $100 million, expenses shall not exceed 1.80% for Class A
and 2.45% for Class C; on the next $400 million of net assets, expenses shall
not exceed 1.75% for Class A and 2.40% for Class C; on the next $500 million,
expenses shall not exceed 1.70% for Class A and 2.35% for Class C; on the next
$1 billion of net assets, expenses shall not exceed 1.65% for Class A and
2.30% for Class C; and on all assets over $2 billion, expenses shall not ex-
ceed 1.60% for Class A and 2.25% for Class C. If, in any calendar year, the
average net assets of the Real Estate Portfolio are less than $500 million,
expenses shall not exceed 1.70% for Class A and 2.35% for Class C; on the next
$500 million, expenses shall not exceed 1.65% for Class A and 2.30% for Class
C; and on all assets over $1 billion, expenses shall not exceed 1.60% for
Class A and 2.25% for Class C. In any calendar year, the expenses of the In-
come Portfolio may not exceed 1.35% for Class A and 1.70% for Class C, and the
expenses of the Cash Management Portfolio may not exceed 0.95% of average net
assets. The Adviser has agreed to reimburse the Income Portfolio for a three-
year period beginning October 1, 1995, so that the expenses shall not exceed
1.10% for Class A and 1.45% for Class C of average net assets per annum.
At June 30, 1997, 1.31% of the outstanding capital shares of Cash Management
were owned by affiliated parties.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the six months
ended June 30, 1997, the aggregate cost of purchases and proceeds from sales
of U.S. Government Securities were:
<TABLE>
<CAPTION>
PURCHASES SALES
-----------------------
<S> <C> <C>
Flex.................................................... $28,888,206 $ 5,401,563
MultiFlex............................................... 23,167,767 8,797,396
Income.................................................. 0 958,270
The aggregate cost of purchases and proceeds from sales of all other securi-
ties (excluding all short-term securities) were:
<CAPTION>
PURCHASES SALES
-----------------------
<S> <C> <C>
Flex.................................................... $14,042,849 $30,236,886
Equity.................................................. 13,583,695 17,853,242
MultiFlex............................................... 93,829,413 63,314,918
International Value..................................... 25,840,378 4,581,647
Real Estate............................................. 16,599,108 6,251,353
</TABLE>
NOTE 4 -- UNREALIZED APPRECIATION AND DEPRECIATION. At June 30, 1997, the
gross unrealized appreciation and depreciation of securities for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------------------------------------
<S> <C> <C> <C>
Flex................................. $163,344,223 $(5,337,482) $158,006,741
Equity............................... 61,475,456 (812,114) 60,663,342
MultiFlex............................ 66,023,882 (1,649,020) 64,374,862
International Value.................. 16,170,213 (313,894) 15,856,319
Real Estate.......................... 4,813,031 (12,124) 4,800,907
Income............................... 253,247 (604,716) (351,469)
</TABLE>
20
<PAGE> 380
NOTE 5 -- CAPITAL SHARES. The authorized capital stock of the Fund consists of
10,075,000,000 shares of common stock having a par value of $0.001 per share.
The authorized capital stock of the Fund has been classified as 10,000,000
shares of each of the Equity, Income, Real Estate and International Value
Portfolios; 15,000,000 shares of MultiFlex Portfolio; 20,000,000 shares of
Flex Portfolio; and 10,000,000,000 shares of the Cash Management Portfolio.
Authorized shares of each Portfolio are divided between Class A and Class C
shares, as follows:
<TABLE>
<CAPTION>
PORTFOLIO NAME CLASS A SHARES CLASS C SHARES
- - --------------------------------------------------------------------------------
<S> <C> <C>
Flex.............................................. 7,500,000 12,500,000
Equity............................................ 5,000,000 5,000,000
MultiFlex......................................... 5,000,000 10,000,000
International Value............................... 5,000,000 5,000,000
Real Estate....................................... 5,000,000 5,000,000
Income............................................ 5,000,000 5,000,000
Cash Management................................... 5,000,000,000 5,000,000,000
</TABLE>
CAPITAL SHARE TRANSACTIONS WERE AS FOLLOWS:
<TABLE>
<CAPTION>
FLEX FUND EQUITY FUND
------------------------------------------------ ----------------------------------------------
SIX MONTHS SIX MONTHS
ENDED JUNE 30, 1997 YEAR ENDED ENDED JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996 (UNAUDITED) DECEMBER 31, 1996
---------------------- ------------------------ ---------------------- ----------------------
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A
Shares sold............ 83,766 $ 5,977,763 -- -- 15,116 $ 1,392,818 -- --
Shares issued from
reinvestment of
distributions......... 871 64,028 -- -- 314 29,932 -- --
--------------------------------------------------------------------------------------------
84,637 6,041,791 15,430 1,422,750
Shares repurchased..... (19) (5,204) -- -- 0 0 -- --
--------------------------------------------------------------------------------------------
NET INCREASE........... 84,618 $ 6,036,587 -- -- 15,430 $ 1,422,750 -- --
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
CLASS C
Shares sold............ 681,732 $ 47,557,337 1,649,247 $107,726,947 115,881 $ 10,284,146 263,161 $ 19,738,118
Shares issued from
reinvestment of
distributions......... 51,839 3,761,280 414,833 27,317,233 34,997 3,349,140 3,271 248,270
--------------------------------------------------------------------------------------------
733,571 51,318,617 2,064,080 135,044,180 150,878 13,633,286 266,432 19,986,388
Shares repurchased..... (524,268) (36,560,129) (1,070,366) (70,387,939) (142,099) (12,608,474) (209,472) (15,845,974)
--------------------------------------------------------------------------------------------
NET INCREASE........... 209,303 $ 14,758,488 993,714 $ 64,656,241 8,779 $ 1,024,812 56,960 $ 4,140,414
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 381
<TABLE>
<CAPTION>
MULTIFLEX FUND INTERNATIONAL VALUE FUND
---------------------------------------------- -------------------------------------------
SIX MONTHS SIX MONTHS
ENDED JUNE 30, 1997 YEAR ENDED ENDED JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996 (UNAUDITED) DECEMBER 31, 1996
---------------------- ---------------------- -------------------- ---------------------
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A
Shares sold............. 44,879 $ 2,428,734 -- -- 34,336 $ 1,972,994 -- --
Shares issued from
reinvestment of
distributions.......... 838 47,484 -- -- 154 9,419 -- --
-------------------------------------------------------------------------------------------
45,717 2,476,218 34,490 1,982,413
Shares repurchased...... (4) (3,391) -- -- (867) (50,657) -- --
-------------------------------------------------------------------------------------------
NET INCREASE............ 45,713 $ 2,472,827 -- -- 33,623 $ 1,931,756 -- --
===========================================================================================
CLASS C
Shares sold............. 960,464 $51,579,183 1,650,164 $80,727,974 461,455 $25,478,741 793,073 $37,650,713
Shares issued from
reinvestment of
distributions.......... 79,194 4,496,208 173,184 8,779,155 2,753 168,348 1,093 52,532
-------------------------------------------------------------------------------------------
1,039,658 56,075,391 1,823,348 89,507,129 464,208 25,647,089 794,166 37,703,245
Shares repurchased...... (346,373) (18,659,345) (482,083) (23,777,288) (83,226) (4,726,002) (39,722) (1,926,238)
-------------------------------------------------------------------------------------------
NET INCREASE............ 693,285 $37,416,046 1,341,265 $65,729,841 380,982 $20,921,087 754,444 $35,777,007
===========================================================================================
<CAPTION>
REAL ESTATE FUND INCOME FUND
---------------------------------------------- -------------------------------------------
SIX MONTHS SIX MONTHS
ENDED JUNE 30, 1997 YEAR ENDED ENDED JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996 (UNAUDITED) DECEMBER 31, 1996
---------------------- ---------------------- -------------------- ---------------------
SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A
Shares sold............. 24,187 $ 1,372,917 -- -- 592 $ 29,848 -- --
Shares issued from
reinvestment of
distributions.......... 317 18,059 -- -- 19 919 -- --
-------------------------------------------------------------------------------------------
24,504 1,390,976 611 30,767
Shares repurchased...... (18) (981) -- -- 0 0 -- --
-------------------------------------------------------------------------------------------
NET INCREASE............ 24,486 $ 1,389,995 -- -- 611 $ 30,767 -- --
===========================================================================================
CLASS C
Shares sold............. 184,443 $10,424,045 235,928 $10,888,988 42,558 $ 2,068,504 92,901 $ 4,592,854
Shares issued from
reinvestment of
distributions.......... 5,616 320,698 8,603 421,963 11,737 567,354 26,073 1,278,365
-------------------------------------------------------------------------------------------
190,059 10,744,743 244,531 11,310,951 54,295 2,635,858 118,974 5,871,219
Shares repurchased...... (18,553) (1,049,223) (11,611) (537,387) (83,272) (4,040,614) (196,204) (9,686,365)
-------------------------------------------------------------------------------------------
NET INCREASE (DECREASE). 171,506 $ 9,695,520 232,920 $10,773,564 (28,977) ($1,404,756) (77,230) ($3,815,146)
===========================================================================================
</TABLE>
22
<PAGE> 382
<TABLE>
<CAPTION>
CASH MANAGEMENT FUND
--------------------------------------------------
SIX MONTHS
ENDED JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------------ ------------------------
SHARES VALUE SHARES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
CAPITAL SHARE
TRANSACTIONS
CLASS A
Shares sold..... 148,177 $ 148,177 -- --
Shares issued
from
reinvestment of
distributions.. 2,400 2,400 -- --
--------------------------------------------------
150,577 150,577
Shares
repurchased.... (14,800) (14,800) -- --
--------------------------------------------------
NET INCREASE.... 135,777 $ 135,777 -- --
==================================================
CLASS C
Shares sold..... 11,078,374 $11,078,374 35,844,336 $35,844,336
Shares issued
from
reinvestment of
distributions.. 199,174 199,174 487,618 487,618
--------------------------------------------------
11,277,548 11,277,548 36,331,954 36,331,954
Shares
repurchased.... (18,741,865) (18,741,865) (40,824,498) (40,824,498)
--------------------------------------------------
NET DECREASE.... (7,464,317) ($7,464,317) (4,492,544) ($4,492,544)
==================================================
</TABLE>
NOTE 6 -- FOREIGN SECURITIES. Certain Portfolios invest in American Depositary
Receipts of foreign companies. Underlying the American Depositary Receipts are
investments in foreign securities. Foreign securities investments involve
special risks and considerations not typically associated with those of U.S.
origin. These risks include, but are not limited to, re-evaluation of
currencies, adverse political, social and economic developments and less
reliable information about issuers. Moreover, securities of many foreign
companies and markets may be less liquid and their prices more volatile than
those of U. S. companies and markets.
NOTE 7 -- TRANSACTIONS WITH AFFILIATES. The Fund has adopted an unfunded
noncontributory defined benefit pension plan covering all independent
directors of the Fund who will have served as an independent director for at
least five years at the time of retirement. Benefits under this plan are based
on an annual rate equal to 25% of the retainer fee at the time of retirement
(effective July 1, 1996, benefits are based on an annual rate of 40% of the
retainer fee at the time of retirement).
Pension expenses for Flex, Equity, MultiFlex, International, Real Estate and
Income for the six months ended June 30, 1997 of $1,978, $568, $981, $140, $50
and $134, respectively, are included in Directors' Fees and Expenses in the
Statement of Operations. Unfunded accrued pension costs for Flex, Equity,
MultiFlex, Income and Cash Management Funds of $14,718, $4,387, $7,091, $1,194
and $273, respectively, and pension liabilities for Flex, Equity, MultiFlex,
International, Real Estate, Income and Cash Management of $27,793, $8,319,
$13,014, $140, $50, $2,354 and $824, respectively, are included in other as-
sets and liabilities in the Statement of Assets and Liabilities.
NOTE 8 -- In accordance with the terms of an agreement approved by Relative
Return Bond Fund shareholders on December 15, 1995, the Income Fund issued
64,390 of its capital shares in exchange for the net assets of Relative Return
Bond Fund of $3,327,189, including $147,389 of unrealized appreciation;
combined net assets were $31,571,199 as of the merger date. Shareholders of
Relative Return Bond Fund received .788 shares of Income Fund for each share
of Relative Return Bond Fund. The transaction, which was a tax-free exchange,
has been accounted for by combining the assets and liabilities of each Fund at
their value on the date of the merger. The identified cost of investments were
similarly combined.
NOTE 9 -- SUBSEQUENT EVENT. AIM Advisors, Inc. became the investment adviser
to the Fund effective August 4, 1997, as approved by the shareholders of the
Fund at the meeting held July 9, 1997 (see page 25 for further information).
23
<PAGE> 383
INVESCO Advisor Funds, Inc.
SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
A Special Meeting of Shareholders was held on January 31, 1997. At the meet-
ing, shareholders of the Funds were asked to consider the following:
1. A new Investment Advisory Agreement with Invesco Services, Inc. ("ISI")
(shareholders of all portfolios)
2. A new Sub-Advisory Agreement between ISI and INVESCO Capital Management,
Inc. ("ICM") (for shareholders of Equity Fund, Flex Fund, International
Value Fund and Income Fund only).
A new Sub-Advisory Agreement between ISI and INVESCO Management & Research,
Inc. ("IMR") (for shareholders of Multiflex Fund only).
A new Sub-Advisory Agreement between ISI and INVESCO Realty Advisors, Inc.
("IRA") (for shareholders of Real Estate Fund only).
3. Election of a new Board of Trustees (shareholders of all Funds).
4. Ratify the selection of Price Waterhouse LLP as independent auditors.
The result of all matters voted on by shareholders of the Funds at the Special
Meeting held on January 31, 1997 were as follows:
1. Approval of Investment Advisory Agreement
<TABLE>
<S> <C>
INVESCO Advi-
sor Equity
Portfolio 1,143,589 (95.4% of votes cast)
INVESCO Advi-
sor Flex
Portfolio 4,311,558 (95.0% of votes cast)
INVESCO Advi-
sor Income
Portfolio 321,599 (89.6% of votes cast)
INVESCO Advi-
sor Interna-
tional Value
Portfolio 678,381 (92.5% of votes cast)
INVESCO Advi-
sor
MultiFlex
Portfolio 2,763,987 (94.2% of votes cast)
INVESCO Advi-
sor Real Es-
tate Portfo-
lio 217,987 (97.0% of votes cast)
INVESCO Advi-
sor Cash
Management
Portfolio 16,004,582 (99.3% of votes cast)
</TABLE>
2. Approval of new Sub-Advisory Agreement
<TABLE>
<S> <C>
INVESCO Advi-
sor Equity
Portfolio 1,127,774 (94.1% of votes cast)
INVESCO Advi-
sor Flex
Portfolio 4,297,439 (94.7% of votes cast)
INVESCO Advi-
sor Income
Portfolio 320,517 (89.3% of votes cast)
INVESCO Advi-
sor Interna-
tional Value
Portfolio 678,622 (92.5% of votes cast)
INVESCO Advi-
sor
MultiFlex
Portfolio 2,756,543 (94.0% of votes cast)
INVESCO Advi-
sor Real Es-
tate Portfo-
lio 218,291 (97.1% of votes cast)
INVESCO Advi-
sor Cash
Management 15,977,357 (99.1% of votes cast)
</TABLE>
3. Election of Trustees
<TABLE>
<S> <C>
Charles W. Brady 25,893,697 (99.2% of votes cast)
Dan J. Hesser 25,893,435 (99.2% of votes cast)
Fred A. Deering 25,894,230 (99.2% of votes cast)
Victor L. Andrews 25,894,925 (99.2% of votes cast)
Bob R. Baker 25,846,802 (99.0% of votes cast)
Lawrence H. Budner 25,845,204 (99.0% of votes cast)
Daniel D. Chabris 25,851,164 (99.0% of votes cast)
A.D. Frazier, Jr. 25,867,574 (99.1% of votes cast)
Hubert L. Harris, Jr. 25,893,674 (99.2% of votes cast)
Kenneth T. King 25,881,471 (99.2% of votes cast)
John W. McIntyre 25,893,746 (99.2% of votes cast)
</TABLE>
24
<PAGE> 384
4.Ratify selection of Independent Auditors
<TABLE>
<S> <C>
INVESCO Advi-
sor Equity
Portfolio 1,144,512 (95.5% of votes cast)
INVESCO Advi-
sor Flex
Portfolio 4,393,989 (96.8% of votes cast)
INVESCO Advi-
sor Income
Portfolio 331,749 (92.4% of votes cast)
INVESCO Advi-
sor Interna-
tional Value
Portfolio 685,211 (93.4% of votes cast)
INVESCO Advi-
sor
MultiFlex
Portfolio 2,818,060 (96.1% of votes cast)
INVESCO Advi-
sor Real Es-
tate Portfo-
lio 220,980 (98.3% of votes cast)
INVESCO Advi-
sor Cash
Management
Portfolio 15,862,537 (98.4% of votes cast)
</TABLE>
INVESCO Advisor Funds, Inc.
SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
A Special Meeting of Shareholders was held on July 9, 1997. At the meeting,
shareholders of the Funds were asked to consider the following:
1. A new Investment Advisory Agreement with AIM Advisors, Inc. ("AIM")
(shareholders of all portfolios)
2. A new Sub-Advisory Agreement between AIM and INVESCO Capital Management,
Inc. ("ICM") (for shareholders of Equity Fund, Flex Fund and Income Fund
only).
A new Sub-Advisory Agreement between AIM and INVESCO Management & Research,
Inc. ("IMR") (for shareholders of Multiflex Fund only).
A new Sub-Advisory Agreement between AIM and INVESCO Realty Advisors, Inc.
("IRA") (for shareholders of Real Estate Fund only).
3. A new Sub-Advisory Agreement with INVESCO Global Asset Management, Limited
(for shareholders of International Value Fund only).
4. Election of a new Board of Trustees (shareholders of all Funds).
5. Approve amended investment restrictions (shareholders of all Funds).
The result of all matters voted on by shareholders of the Funds at the Special
Meeting held on July 9, 1997 were as follows:
1. Approval of Investment Advisory Agreement
<TABLE>
<S> <C>
INVESCO Advisor Equity Portfolio 930,214 (94.4% of votes cast)
INVESCO Advisor Flex Portfolio 4,100,359 (94.0% of votes cast)
INVESCO Advisor Income Portfolio 267,288 (93.6% of votes cast)
INVESCO Advisor International Value Portfolio 600,807 (91.1% of votes cast)
INVESCO Advisor MultiFlex Portfolio 2,742,182 (93.0% of votes cast)
INVESCO Advisor Real Estate Portfolio 317,988 (93.8% of votes cast)
INVESCO Advisor Cash Management Portfolio 4,593,432 (94.5% of votes cast)
</TABLE>
2 and 3. Approval of new Sub-Advisory Agreement
<TABLE>
<S> <C>
INVESCO Advisor Equity Portfolio 927,232 (94.1% of votes cast)
INVESCO Advisor Flex Portfolio 4,100,359 (93.8% of votes cast)
INVESCO Advisor Income Portfolio 267,288 (94.4% of votes cast)
INVESCO Advisor MultiFlex Portfolio 2,742,182 (92.8% of votes cast)
INVESCO Advisor Real Estate Portfolio 317,988 (93.8% of votes cast)
INVESCO Advisor International Value Portfolio 601,427 (91.2% of votes cast)
</TABLE>
25
<PAGE> 385
INVESCO Advisor Funds, Inc.
SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)--(CONTINUED)
4. Election of Trustees
<TABLE>
<S> <C>
Charles T. Bauer 14,301,663 (96.7% of votes cast)
Bruce L. Crockett 14,333,450 (96.9% of votes cast)
Owen Daly II 14,315,469 (96.8% of votes cast)
Jack Fields 14,309,241 (96.8% of votes cast)
Carl Frischling 14,325,211 (96.9% of votes cast)
Robert H. Graham 14,328,888 (96.9% of votes cast)
John F. Kroeger 14,279,060 (96.6% of votes cast)
Lewis F. Pennock 14,325,898 (96.9% of votes cast)
Ian W. Robinson 14,284,791 (96.6% of votes cast)
Louis S. Sklar 14,331,039 (96.9% of votes cast)
</TABLE>
5.Approval of Amended Investment Restrictions
<TABLE>
<S> <C>
INVESCO Advisor Equity Portfolio 805,409 (91.0% of votes cast)
INVESCO Advisor Flex Portfolio 3,589,811 (90.3% of votes cast)
INVESCO Advisor Income Portfolio 239,437 (89.6% of votes cast)
INVESCO Advisor International Value Portfolio 540,220 (87.8% of votes cast)
INVESCO Advisor MultiFlex Portfolio 2,386,175 (89.2% of votes cast)
INVESCO Advisor Real Estate Portfolio 252,240 (89.4% of votes cast)
INVESCO Advisor Cash Management Portfolio 4,602,408 (95.4% of votes cast)
</TABLE>
26
<PAGE> 386
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a capital share outstanding
throughout each period presented.
<TABLE>
<CAPTION>
FLEX FUND
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------------------------------------------------------------
(UNAUDITED)
CLASS A CLASS C
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 66.51 $ 66.51 $ 62.64 $ 50.50 $ 54.16 $ 51.04 $ 49.35
---------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income... 1.07 0.57 1.18 1.29 1.26 1.10 1.39
Net gain (loss) on
securities (both
realized and
unrealized)............ 7.97 8.19 7.25 12.38 (0.91) 4.22 2.37
---------------------------------------------------------------------
Total from investment
operations............. 9.04 8.76 8.43 13.67 0.35 5.32 3.76
---------------------------------------------------------------------
DISTRIBUTIONS
Dividends (from net
investment income)..... (1.04) (0.58) (1.17) (1.29) (1.25) (1.09) (1.35)
Distributions (from
capital gains)......... (0.01) (0.01) (3.39) (0.24) (2.76) (1.11) (0.72)
---------------------------------------------------------------------
Total distributions..... (1.05) (0.59) (4.56) (1.53) (4.01) (2.20) (2.07)
---------------------------------------------------------------------
Net asset value, end of
period................. $ 74.50 $ 74.68 $ 66.51 $ 62.64 $ 50.50 $ 54.16 $ 51.04
---------------------------------------------------------------------
---------------------------------------------------------------------
TOTAL RETURN/1/......... 13.63%# 13.20%# 13.61% 27.30% 0.64% 10.48% 7.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's)...... $ 6,303 $565,701 $489,918 $399,162 $243,848 $274,349 $165,727
Ratio of expenses to
average net assets*.... 0.73%# 1.10%# 2.26% 2.28% 2.25% 2.25% 2.17%
Ratio of net investment
income to average
net assets*............ 1.19%# 0.82%# 1.81% 2.28% 2.32% 2.10% 2.81%
Portfolio turnover rate. 7%# 7%# 26% 5% 36% 27% 15%
Average commission rate
paid................... $0.0518 $ 0.0518 $ 0.0549 -- -- -- --
</TABLE>
/1Total/return assumes dividend reinvestment and does not reflect the effect
of sales charges.
* INVESCO Capital Management, Inc. voluntarily absorbed certain expenses of
the Fund aggregating $18,993 for 1993. If such expenses had not been
absorbed, the ratio of expenses to average net assets would have been 2.26%
and the ratio of net investment income to average net assets would have been
2.09%.
# Not annualized.
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 387
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
The table below sets forth financial data for a capital share outstanding
throughout each period presented.
<TABLE>
<CAPTION>
EQUITY FUND
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-----------------------------------------------------------------
(UNAUDITED)
CLASS A CLASS C
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 82.29 $ 82.29 $ 70.41 $ 55.83 $ 59.61 $ 63.27 $ 63.38
-----------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income
(loss)................. 0.55 (0.01) 0.18 0.41 0.36 0.41 0.60
Net gain on securities
(both realized
and unrealized)........ 14.85 15.06 11.90 16.44 1.26 5.40 2.44
-----------------------------------------------------------------
Total from investment
operations............. 15.40 15.05 12.08 16.85 1.62 5.81 3.04
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends (from net
investment income)..... (0.61) (0.01) (0.20) (0.41) (0.36) (0.41) (0.57)
Distributions (from
capital gains)......... (2.57) (2.57) 0.00 (1.86) (5.04) (9.06) (2.58)
-----------------------------------------------------------------
Total distributions..... (3.18) (2.58) (0.20) (2.27) (5.40) (9.47) (3.15)
-----------------------------------------------------------------
Net asset value, end of
period................. $ 94.51 $ 94.76 $ 82.29 $ 70.41 $ 55.83 $ 59.61 $ 63.27
-----------------------------------------------------------------
-----------------------------------------------------------------
TOTAL RETURN/1/......... 18.70%# 18.26%# 17.17% 30.28% 2.69% 9.16% 4.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's)...... $ 1,458 $159,080 $137,416 $113,573 $77,929 $86,659 $91,146
Ratio of expenses to
average net assets*.... 0.73%# 1.10%# 2.26% 2.28% 2.25% 2.25% 2.18%
Ratio of net investment
income to average
net assets*............ 0.37%# 0.00%# 0.24% 0.64% 0.61% 0.62% 0.90%
Portfolio turnover rate. 10%# 10%# 19% 17% 21% 47% 41%
Average commission rate
paid................... $0.0478 $ 0.0478 $ 0.0590 -- -- -- --
</TABLE>
/1Total/return assumes dividend reinvestment and does not reflect the effect
of sales charges.
* INVESCO Capital Management, Inc. voluntarily absorbed certain expenses of
the Fund aggregating $3,227 for 1993. If such expenses had not been
absorbed, the ratio of expenses to average net assets for 1993 would have
been 2.25% and the ratio of net investment income to average net assets for
1993 would have been 0.62%.
# Not annualized.
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 388
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
The table below sets forth financial data for a capital share outstanding
throughout each period presented.
<TABLE>
<CAPTION>
MULTIFLEX FUND
SIX MONTHS FOR THE PERIOD
ENDED JUNE 30, YEAR ENDED DECEMBER 31, NOV. 17, 1993/2/ TO
------------------ ---------------------------- DEC. 31, 1993
1997 1996 1995 1994
--------------------------------------------------------------
(UNAUDITED)
CLASS A CLASS C
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 52.54 $ 52.54 $ 46.71 $ 39.13 $ 40.16 $ 40.00
--------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income... 0.63 0.30 0.55 0.64 0.62 0.02
Net gain (loss) on
securities (both
realized and
unrealized)............ 5.28 5.43 7.31 7.75 (1.03) 0.16
--------------------------------------------------------------
Total from investment
operations............. 5.91 5.73 7.86 8.39 (0.41) 0.18
--------------------------------------------------------------
DISTRIBUTIONS
Dividends (from net
investment income)..... (0.64) (0.30) (0.53) (0.64) (0.62) (0.02)
Distributions (from
capital gains)......... (0.59) (0.59) (1.50) (0.17) 0.00 0.00
--------------------------------------------------------------
Total distributions..... (1.23) (0.89) (2.03) (0.81) (0.62) (0.02)
--------------------------------------------------------------
Net asset value, end of
period................. $ 57.22 $ 57.38 $ 52.54 $ 46.71 $ 39.13 $ 40.16
--------------------------------------------------------------
--------------------------------------------------------------
TOTAL RETURN/1/......... 11.29%# 10.92%# 17.03% 21.58% (1.02%) 0.46%#
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's)...... $ 2,616 $331,225 $266,843 $174,592 $120,220 $12,241
Ratio of expenses to
average net assets..... 0.84%# 1.21%# 2.45% 2.50% 2.49% 2.50%*
Ratio of net investment
income to average net
assets................. 0.95%# 0.58%# 1.16% 1.53% 2.01% 1.09%*
Portfolio turnover rate. 25%# 25%# 62% 50% 81% 0.53%#
Average commission rate
paid................... $0.0586 $ 0.0586 $ 0.0577 -- -- --
</TABLE>
/1/Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
/2/Commencement of operations.
*Annualized.
#Not annualized.
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 389
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
The table below sets forth financial data for a capital share outstanding
throughout each period presented.
<TABLE>
<S> <C> <C> <C> <C>
INTERNATIONAL VALUE FUND
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, JUNE 30, FOR THE PERIOD
----------------- ------------ MAY 1, 1995/2/ TO
1997 1996 DEC. 31, 1995
--------------------------------------------------
(UNAUDITED)
CLASS A CLASS C
--------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 53.68 $ 53.68 $ 44.51 $40.00
--------------------------------------------------
INVESTMENT OPERATIONS
Net investment income
(loss)..................... 0.50 0.23 (0.05) 0.00
Net gain on securities (both
realized and unrealized)... 7.55 7.60 9.37 4.51
--------------------------------------------------
Total from investment
operations................. 8.05 7.83 9.32 4.51
--------------------------------------------------
DISTRIBUTIONS
Dividends (from net
investment income)......... (0.44) (0.22) 0.00 0.00
Distributions (from capital
gains)..................... (0.05) (0.05) (0.15) 0.00
--------------------------------------------------
Total distributions......... (0.49) (0.27) (0.15) 0.00
--------------------------------------------------
Net asset value, end of
period..................... $ 61.24 $ 61.24 $ 53.68 $44.51
==================================================
TOTAL RETURN/1/............. 15.01%# 14.59%# 20.99% 11.28%#
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's)................. $ 2,059 $82,553 $51,916 $9,467
Ratio of expenses to average
net assets................. 0.85%# 1.22%# 2.50% 2.50%*
Ratio of net investment
income to average net
assets..................... 0.82%# 0.45%# (0.16%) 0.03%*
Portfolio turnover rate..... 7%# 7%# 5% 2%#
Average commission rate
paid....................... $0.0575 $0.0575 $0.0602 --
</TABLE>
/1/Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
/2/Commencement of operations.
*Annualized.
#Not annualized.
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 390
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
The table below sets forth financial data for a capital share outstanding
throughout each period presented.
<TABLE>
<S> <C> <C> <C> <C>
REAL ESTATE FUND
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31, FOR THE PERIOD
----------------- ------------- MAY 1, 1995/2/ TO
1997 1996 DEC. 31, 1995
---------------------------------------------------
(UNAUDITED)
CLASS A CLASS C
---------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 56.77 $ 56.77 $ 43.02 $40.00
---------------------------------------------------
INVESTMENT OPERATIONS
Net investment income...... 0.93 0.57 1.30 0.64
Net gain on securities
(both realized and
unrealized)............... 1.76 1.91 14.06 3.00
---------------------------------------------------
Total from investment
operations................ 2.69 2.48 15.36 3.64
---------------------------------------------------
DISTRIBUTIONS
Dividends (from net
investment income)........ (0.95) (0.63) (1.23) (0.62)
Distributions (from capital
gains).................... (0.08) (0.08) (0.38) 0.00
---------------------------------------------------
Total distributions........ (1.03) (0.71) (1.61) (0.62)
---------------------------------------------------
Net asset value, end of
period.................... $ 58.43 $ 58.54 $ 56.77 $43.02
===================================================
TOTAL RETURN/1/............ 4.79%# 4.41%# 36.43% 9.12%#
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's)................ $ 1,431 $31,245 $20,566 $5,565
Ratio of expenses to
average net assets........ 0.80%# 1.17%# 2.40% 2.40%*
Ratio of net investment
income to average net
assets.................... 1.59%# 1.22%# 3.21% 4.68%*
Portfolio turnover rate.... 25%# 25%# 25% 7%#
Average commission rate
paid...................... $0.0599 $0.0599 $0.0601 --
</TABLE>
/1/Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
/2/Commencement of operations.
*Annualized.
#Not annualized.
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 391
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
The table below sets forth financial data for a capital share outstanding
throughout each period presented.
<TABLE>
<CAPTION>
INCOME FUND
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-----------------------------------------------------------------
(UNAUDITED)
CLASS A CLASS C
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $48.87 $ 48.87 $ 52.22 $ 45.33 $ 48.60 $ 47.41 $ 47.77
-----------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income... 1.45 1.33 2.61 2.44 2.40 2.28 2.57
Net gain (loss) on
securities (both
realized
and unrealized)........ (0.36) (0.31) (3.31) 6.91 (3.27) 1.20 (0.37)
-----------------------------------------------------------------
Total from investment
operations............. 1.09 1.02 (0.70) 9.35 (0.87) 3.48 2.20
-----------------------------------------------------------------
DISTRIBUTIONS
Dividends (from net
investment income)..... (1.53) (1.35) (2.65) (2.46) (2.40) (2.29) (2.56)
-----------------------------------------------------------------
Total distributions..... (1.53) (1.35) (2.65) (2.46) (2.40) (2.29) (2.56)
-----------------------------------------------------------------
Net asset value, end of
period................. $48.43 $ 48.54 $ 48.87 $ 52.22 $ 45.33 $ 48.60 $ 47.41
=================================================================
TOTAL RETURN/1/......... 2.26%# 2.13%# (1.23%) 21.12% (1.80%) 7.39% 4.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's)...... $ 29 $24,575 $26,162 $31,986 $25,467 $42,872 $47,096
Ratio of expenses to
average net assets*.... 0.55%# 0.72%# 1.51% 2.19% 2.25% 2.25% 2.25%
Ratio of net investment
income to average net
assets*................ 2.91%# 2.74%# 5.30% 4.94% 5.09% 4.56% 5.48%
Portfolio turnover rate. 0%# 0%# 34% 24% 59% 92% 16%
</TABLE>
/1/Total return assumes dividend reinvestment and does not reflect the effect of
sales charges.
* INVESCO Capital Management, Inc. voluntarily absorbed certain expenses of the
Fund aggregating $31,132, $72,341, $17,720 and $17,632, for the six months
ended June 30, 1997 and the years ended 1996, 1995 and 1993, respectively. If
such expenses had not been absorbed, the ratio of expenses to average net
assets would have been 0.68%, 0.85%, 1.76%, 2.25% and 2.29%, for Class A and
Class C for the six months ended June 30, 1997 and the years ended 1996,
1995, and 1993, respectively.
The ratio of net investment income to average net assets would have been
2.79%, 2.62%, 5.05%, 4.88% and 4.52%, for Class A and Class C for the six
months ended June 30, 1997 and the years ended 1996, 1995 and 1993,
respectively.
# Not annualized.
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 392
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
The table below sets forth financial data for a capital share outstanding
throughout each period presented.
<TABLE>
<CAPTION>
CASH MANAGEMENT FUND
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------------------------------------------------------
(UNAUDITED)
CLASS A CLASS C
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income... 0.02 0.02 0.04 0.05 0.03 0.02 0.03
---------------------------------------------------------------
DISTRIBUTIONS
Dividends (from net
investment income)..... (0.02) (0.02) (0.04) (0.05) (0.03) (0.02) (0.03)
---------------------------------------------------------------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===============================================================
TOTAL RETURN/1/......... 2.23%# 2.23%# 4.48% 5.04% 3.30% 2.20% 3.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's)...... $ 136 $8,481 $15,946 $20,439 $15,212 $13,827 $20,431
Ratio of expenses to
average net assets*.... 0.48%# 0.48%# 1.04% 1.00% 1.00% 0.95% 0.73%
Ratio of net investment
income to average net
assets*................ 2.23%# 2.23%# 4.36% 4.91% 3.23% 2.17% 2.94%
</TABLE>
/1/Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
* INVESCO Capital Management, Inc. voluntarily absorbed certain expenses of
the Fund aggregating $15,099 and $38,925 for 1993 and 1992, respectively. If
such expenses had not been absorbed the ratio of expenses to average net
assets would have been 1.03% and 0.92% for 1993 and 1992, respectively, and
the ratio of net investment income to average net assets would have been
2.09% and 2.75% for 1993 and 1992, respectively.
# Not annualized.
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 393
INVESCO SERVICES, INC.
Investment Advisor
Manager
Distributor
INVESCO CAPITAL MANAGEMENT, INC.
Sub-Advisor:
INVESCO Advisor Flex Fund
INVESCO Advisor Equity Fund
INVESCO Advisor International Value Fund
INVESCO Advisor Income Fund
INVESCO Advisor Cash Management Fund
INVESCO MANAGEMENT & RESEARCH, INC.
Sub-Advisor:
INVESCO Advisor MultiFlex Fund
INVESCO REALTY ADVISORS, INC.
Sub-Advisor:
INVESCO Advisor Real Estate Fund
FUND/PLAN SERVICES, INC.
Transfer Agent and Administrator
UMB BANK, N.A.
Custodian
PRICE WATERHOUSE LLP
Independent Accountants
LOGO
OF INVESCO SERVICES, INC. APPEARS HERE
Invesco Services, Inc.
1355 Peachtree Street, N.E.
Atlanta, Georgia 30309
(404) 892-0666
(800) 972-9030
This information must be preceded or
accompanied by a current prospectus
ADV-SAR-1
SEMIANNUAL REPORT
---------------------------------------
June 30, 1997
LOGO
OF INVESCO SERVICES, INC. APPEARS HERE
<PAGE> 394
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 By-Laws 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 an Exhibit 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 an Exhibit 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 an Exhibit 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 an Exhibit to
Post-Effective Amendment No. 70 to Registrant's Registration
Statement on November 17, 1995, and is hereby incorporated
by reference.
C-1
<PAGE> 395
- (e) Fourth Amendment to Agreement and Declaration of Trust of
the Registrant was filed electronically as an Exhibit to
Post-Effective Amendment No. 72 to Registrant's Registration
Statement on April 28, 1997, and is hereby incorporated by
reference.
- (f) Fifth Amendment to Agreement and Declaration of Trust of the
Registrant was filed as an Exhibit to Post-Effective
Amendment No. 73 to Registrant's Registration statement on
July 25, 1997, and is hereby incorporated by reference.
(2) - Amended and Restated By-Laws of the Registrant were filed
electronically as an Exhibit to Post-Effective Amendment No. 72 to
Registrant's Registration Statement on April 28, 1997, and are
hereby incorporated by reference.
(3) - Voting Trust Agreements - None.
(4) (a) Agreement and Plan of Reorganization between Registrant and
AIM Advisor Funds, Inc. on behalf of AIM Advisor Cash
Management Fund is included in this Registration Statement
as Appendix I to the Combined Proxy Statement and
Prospectus.
(b) Agreement and Plan of Reorganization between Registrant and
AIM Advisor Funds, Inc. on behalf of AIM Advisor Income Fund
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
Intermediate Government Fund was filed as an Exhibit to
Post-Effective Amendment No. 71 to Registrant's Registration
Statement on April 26, 1996, and is hereby incorporated by
reference.
(6) - Master Investment Advisory Agreement, dated February 28, 1997,
between Registrant and A I M Advisors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment No. 72 to
Registrant's Registration Statement on April 28, 1997, and is
hereby incorporated by reference.
(7) - (a) Master Distribution Agreement, dated February 28, 1997,
between Registrant, on behalf of its Class B and its AIM
Cash Reserve Shares, and A I M Distributors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment No.
72 to Registrant's Registration Statement on April 28, 1997,
and is hereby incorporated by reference.
- (b) Form of Master Distribution Agreement between the Registrant
(on behalf of its Class A Shares, Class C Shares and AIM
Cash Reserve Shares) and A I M Distributors, Inc. was filed
electronically as an Exhibit to Post-Effective Amendment No.
73 to Registrant's Registration Statement on July 25, 1997,
and is hereby incorporated by reference.
- (c) Form of Selected Dealer Agreement between A I M
Distributors, Inc. and selected dealers was filed
electronically as an Exhibit to Post-Effective Amendment No.
73
C-2
<PAGE> 396
to Registrant's Registration Statement on July 25, 1997, and
is hereby incorporated by reference.
(8) - (a) AIM Funds Retirement Plan for Eligible Directors/Trustees
effective as of March 8, 1994, as restated September 18,
1995 was filed electronically as an Exhibit to
Post-Effective Amendment No. 71 to Registrant's Registration
Statement on April 26, 1996, and is hereby incorporated by
reference.
- (b) Form of Deferred Compensation Plan as approved on December
5, 1995, was filed electronically as an Exhibit to
Post-Effective Amendment No. 71 to Registrant's Registration
Statement on April 26, 1996, and is hereby incorporated by
reference.
(9) - (a) Custodian Contract, dated October 15, 1993, between
Registrant and State Street Bank and Trust Company was filed
electronically as an Exhibit to Post-Effective Amendment No.
71 to Registrant's Registration Statement on April 26, 1996,
and is hereby incorporated by reference.
- (b) Amendment No. 1, dated as of September 19, 1995, to the
Custodian Contract between the Registrant and State Street
Bank and Trust Company was filed electronically as an
Exhibit to Post-Effective Amendment No. 71 to Registrant's
Registration Statement on April 26, 1996, and is hereby
incorporated by reference.
- (c) 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 electronically as an Exhibit to Post-Effective
Amendment No. 71 to Registrant's Registration Statement on
April 26, 1996, and is hereby incorporated by reference.
- (d) Custody Agreement, dated October 19, 1995, between
Registrant and The Bank of New York was filed electronically
as an Exhibit to Post-Effective Amendment No. 70 to
Registrant's Registration Statement on November 17, 1995,
and is hereby incorporated by reference.
(10) - (a) Amended and Restated Master Distribution Plan for
Registrant's Class A Shares and AIM Cash Reserve Shares was
filed electronically as an Exhibit to Post-Effective
Amendment No. 73 to Registrant's Registration Statement on
July 25, 1997, and is hereby incorporated by reference.
(b) Form of Second Amended and Restated Master Distribution Plan
for Registrant's Class A Shares, Class C Shares and AIM Cash
Reserve Shares was filed electronically as an Exhibit to
Post-Effective Amendment No. 73 to Registrant's Registration
Statement on July 25, 1997, and is hereby incorporated by
reference.
(c) Second Amended and Restated Master Distribution Plan for
Registrant's Class B Shares was filed electronically as an
Exhibit to Post-Effective Amendment No. 73 to Registrant's
Registration Statement on July 25, 1997, and is hereby
incorporated by reference.
C-3
<PAGE> 397
(11) - Opinion of Ballard Spahr Andrews & Ingersoll and consent to its use
is filed herewith as Exhibit 11.
(12) - Tax opinion of Ballard Spahr Andrews & Ingersoll and consent to its
use is filed herewith as Exhibit 12.
(13) - (a) (1) 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 an Exhibit to
Post-Effective Amendment No. 70 to Registrant's Registration
Statement on November 17, 1995, and is hereby incorporated
by reference.
(2) Form of Amendment No. 1 to the 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 an Exhibit to Post-Effective Amendment No.
73 to Registrant's Registration Statement on July 25, 1997,
and is hereby incorporated by reference.
- (b) (1) Remote Access and Related Service Agreement dated as of
December 23, 1994, between the Registrant and First Data
Investor Services Group (formerly, The Shareholder Services
Group, Inc.) was filed electronically as an Exhibit to
Post-Effective Amendment No. 71 to Registrant's Registration
Statement on April 26, 1996, and is hereby incorporated by
reference.
- (2) Amendment No. 1, effective October 4, 1995, to the
Remote Access and Related Services Agreement, dated as of
December 23, 1994, between the Registrant and First Data
Investor Services Group (formerly, The Shareholder Services
Group, Inc.) was filed electronically as an Exhibit to Post-
Effective Amendment No. 71 to Registrant's Registration
Statement on April 26, 1996, and is hereby incorporated by
reference.
- (3) Addendum No. 2, effective October 12, 1995, to the
Remote Access and Related Services Agreement dated as of
December 23, 1994, between the Registrant and First Data
Investor Services Group (formerly, The Shareholder Services
Group, Inc.) was filed electronically as an Exhibit to Post-
Effective Amendment No. 71 to Registrant's Registration
Statement on April 26, 1996, and is hereby incorporated by
reference.
- (4) Amendment No. 3, effective February 1, 1997, to the
Remote Access and Related Services Agreement, dated as of
December 23, 1994, between the Registrant and First Data
Investor Services Group, Inc. (formerly, The Shareholder
Services Group, Inc.) was filed electronically as an Exhibit
to Post-Effective Amendment No. 73 to Registrant's
Registration Statement on July 25, 1997, and is hereby
incorporated by reference.
- (5) Shareholder Sub-Accounting Services Agreement, dated as
of October 1, 1993, between the Registrant and First Data
Investor Services Group, Inc. (formerly, The Shareholder
Services Group, Inc.), Financial Data Services, Inc. and
C-4
<PAGE> 398
Merrill, Lynch, Pierce, Fenner & Smith Incorporated was
filed electronically as an Exhibit to Post- Effective
Amendment No. 71 to Registrant's Registration Statement on
April 26, 1996, and is hereby incorporated by reference.
- (c) Master Administrative Services Agreement, dated February 28,
1997, between the Registrant and A I M Advisors, Inc. was
filed electronically as an Exhibit to Post-Effective
Amendment No. 72 to Registrant's Registration Statement on
April 28, 1997, and is hereby incorporated by reference.
(14) - (a) Consent of KPMG Peat Marwick LLP is filed herewith as
Exhibit 14(a).
- (b) Consent of Price Waterhouse LLP is filed herewith as Exhibit
14(b).
- (c) Consent of Ballard Spahr Andrews & Ingersoll is included in
its opinions filed herewith as Exhibit 11 and Exhibit 12.
(15) - Financial Statements - None.
(16) - Powers of attorney are included on the signature page hereof.
(17) - Form of Proxy is filed herewith as Exhibit 17.
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,
as amended (the "Securities Act"), 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.
(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,
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 Money Market's,
Intermediate Government's, Cash Management's and Income Fund's latest annual
report to shareholders, upon request and without charge.
C-5
<PAGE> 399
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of Houston and State of
Texas, on the 24th day of November, 1997.
AIM FUNDS GROUP
By: /s/ ROBERT H. GRAHAM
----------------------------
Robert H. Graham,
President and Trustee
As required by the Securities Act of 1933, 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.
Signature Title Date
--------- ----- ----
/s/ CHARLES T. BAUER Chairman and Trustee November 24, 1997
- -------------------------------
Charles T. Bauer
/s/ ROBERT H. GRAHAM President and Trustee November 24, 1997
- ------------------------------- (Principal Executive
Robert H. Graham Officer)
/s/ BRUCE L. CROCKETT Trustee November 24, 1997
- -------------------------------
Bruce L. Crockett
/s/ OWEN DALY II Trustee November 24, 1997
- -------------------------------
Owen Daly II
/s/ JACK M. FIELDS Trustee November 24, 1997
- -------------------------------
Jack M. Fields
C-6
<PAGE> 400
Signature Title Date
--------- ----- ----
/s/ CARL FRISCHLING Trustee November 24, 1997
- -------------------------------
Carl Frischling
/s/ JOHN F. KROEGER Trustee November 24, 1997
- -------------------------------
John F. Kroeger
/s/ LEWIS F. PENNOCK Trustee November 24, 1997
- -------------------------------
Lewis F. Pennock
/s/ IAN W. ROBINSON Trustee November 24, 1997
- -------------------------------
Ian W. Robinson
/s/ LOUIS S. SKLAR Trustee November 24, 1997
- -------------------------------
Louis S. Sklar
/s/ JOHN J. ARTHUR Senior Vice President and November 24, 1997
- ------------------------------- Treasurer (Principal
John J. Arthur Financial and Accounting
Officer)
C-7
<PAGE> 401
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------
<S> <C>
11 Opinion of Ballard Spahr Andrews & Ingersoll and consent to its use
12 Tax 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 Form of Proxy
</TABLE>
C-8
<PAGE> 1
EXHIBIT 11
[BALLARD SPAHR ANDREWS & INGERSOLL LETTERHEAD]
November 24, 1997
AIM Funds Group
11 Greenway Plaza
Suite 100
Houston, Texas 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 (i) the Agreement and Plan of Reorganization
dated September 25, 1997, between the Trust and AIM Advisor Funds, Inc., a
Maryland corporation ("AAF"), acting on behalf of its portfolio AIM Advisor
Cash Management Fund (the "Cash Management Agreement") and (ii) the Agreement
and Plan of Reorganization dated September 25, 1997 between the Trust and AAF,
acting on behalf of its portfolio AIM Advisor Income Fund (the "Income Fund
Agreement"), and the consummation of the transactions contemplated therein.
The Cash Management Agreement contemplates the acquisition of
substantially all of the assets of AIM Advisor Cash Management Fund by the
Trust, acting on behalf of AIM Money Market Fund, one of its investment
portfolios, in exchange for AIM Cash Reserve Shares of beneficial interest of
AIM Money Market Fund, which shares will be issued directly by the Trust to the
shareholders of AIM Advisor Cash Management Fund (the "Cash Management
Transaction"). Each shareholder of AIM Advisor Cash Management Fund will
receive that number of AIM Cash Reserve Shares of beneficial interest of AIM
Money Market Fund (the "Money Market Shares") representing interests with an
aggregate net asset value equal to the aggregate net asset value of his or her
shares of AIM Advisor Cash Management Fund as of the close of business on the
business day next preceding the closing of the Cash Management Transaction.
The Income Fund Agreement contemplates the acquisition of
substantially all of the assets of AIM Advisor Income Fund by the Trust, acting
on behalf of AIM Intermediate Government Fund,
<PAGE> 2
AIM Funds Group
December 29, 1995
Page 2
one of its investment portfolios, in exchange for Class A shares and Class C
shares of beneficial interest of AIM Intermediate Government Fund, which shares
will be issued directly by the Trust to the holders of Class A shares and Class
C shares of AIM Advisor Income Fund, respectively (the "Income Fund
Transaction"). Each shareholder of AIM Advisor Income Fund will receive that
number of Class A shares or Class C shares of beneficial interest of AIM
Intermediate Government Fund (the "Intermediate Government Shares")
representing interests with an aggregate net asset value equal to the aggregate
net asset value of his or her Class A shares or Class C shares of AIM Advisor
Income Fund as of the close of business on the business day next preceding the
closing of the Income Fund Transaction.
The opinion expressed below is based on the assumption that a
Registration Statement on Form N-14 with respect to the Money Market Shares and
the Intermediate Government 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 Money Market
Shares and the Intermediate Government Shares, when issued by the Trust
directly to the shareholders of AIM Cash Reserve Fund and AIM Advisor Income
Fund, respectively, in accordance with the terms and conditions of the Cash
Management Agreement and the Income Fund Agreement, will be legally issued,
fully paid and nonassessable.
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 Cash Management Agreement and the
Income Fund 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
<PAGE> 3
AIM Funds Group
December 29, 1995
Page 3
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 Trust's
Registration Statement on Form N- 14 and to the references to this firm in such
Registration Statement.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
<PAGE> 1
EXHIBIT 12
[BALLARD SPAHR ANDREWS & INGERSOLL LETTERHEAD]
November 24, 1997
AIM Advisor Funds, Inc.
AIM Funds Group
Eleven Greenway Plaza, Suite 100
Houston, TX 77046
RE: PROPOSED FUND REORGANIZATIONS -
FEDERAL INCOME TAX CONSEQUENCES
Gentlemen:
With reference to the Registration Statement on Form N-14 (the
"Registration Statement") to be filed by AIM Funds Group ("AFG"), a Delaware
business trust, with the Securities and Exchange Commission in connection with
the transactions contemplated by the Agreement and Plan of Reorganization (the
"Cash Management Agreement") dated as of September 25, 1997, by and between AFG
acting on behalf of AIM Money Market Fund ("Money Market Fund"), and AIM
Advisor Funds, Inc. ("AAFI"), a Maryland corporation, acting on behalf of AIM
Advisor Cash Management Fund ("Cash Management Fund") and by the Agreement and
Plan of Reorganization (the "Income Fund Agreement") dated as of September 25,
1997, by and between AFG, acting on behalf of AIM Intermediate Government Fund
(the "Intermediate Government Portfolio") and AAFI, acting on behalf of AIM
Advisor Income Fund ("Income Fund") (collectively, the Cash Management
Agreement and the Income Fund Agreement being hereinafter referred to as the
"Agreements") which Agreements are described in the Registration Statement and
filed as Exhibits thereto, we hereby confirm that the discussion set forth
under the caption "Additional Information about the Agreements -- Federal Tax
Consequences" in the Registration Statement provides an accurate summary of the
material federal income tax consequences that would be generally relevant to
the shareholders of Cash Management Fund receiving shares of Money Market Fund
in the proposed transaction contemplated by the Cash Management Agreement and
to the shareholders of Income Fund receiving shares of Intermediate Government
Portfolio in the proposed transaction contemplated by the Income Fund
Agreement.
<PAGE> 2
AIM Advisor Funds, Inc.
November 24, 1997
Page 2
We hereby consent to the filing of this opinion as Exhibit 12 to the
Registration Statement and to the use of our name in the Registration Statement
and in the Combined Proxy Statement and Prospectus included therein. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
<PAGE> 1
EXHIBIT 14(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees and Shareholders of
AIM Funds Group:
We consent to the use of our reports on the 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,
and AIM Value Fund (portfolios of AIM Funds Group) dated February 7, 1997
included herein.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Houston, Texas
November 24, 1997
<PAGE> 1
EXHIBIT 14(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Combined Proxy
Statement and Prospectus constituting part of this registration on Form N-14
(the "Registration Statement") of our report dated February 16, 1993, relating
to the financial statements and financial highlights appearing in the December
31, 1992 Annual Report to Shareholders of the AIM Funds Group which is included
in the Prospectus and Statement of Additional Information of AIM Funds Group,
dated August 4, 1997, which is also incorporated by reference into the
Registration Statement.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Houston, Texas
November 21, 1997
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Combined Proxy
Statement and Prospectus constituting part of this registration statement on
Form N-14 (the "Registration Statement") of our report dated January 30, 1997,
relating to the financial statements and financial highlights appearing in the
December 31, 1996 Annual Report to Shareholders of the INVESCO Advisor Funds,
Inc. which is included in the Prospectus and Statement of Additional
Information of AIM Advisor Funds, Inc., dated August 4, 1997, which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Accountants" in the Agreement and Plan
of Reorganization for AIM Advisor Cash Management Fund and in the Agreement and
Plan of Reorganization for AIM Advisor Income Fund included in the Registration
Statement.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Denver, Colorado
November 21, 1997
<PAGE> 1
Exhibit 17
PROXY SOLICITED BY THE BOARD OF DIRECTORS
OF AIM ADVISOR CASH MANAGEMENT FUND
(A PORTFOLIO OF AIM ADVISOR FUNDS, INC.)
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- FEBRUARY 17, 1998
The undersigned hereby appoints Charles T. Bauer and Gary T. Crum, and each of
them separately, proxies with the power of substitution to each, and hereby
authorizes them to represent and to vote, as designated below, at the Special
Meeting of Shareholders of the AIM Advisor Cash Management Fund, a portfolio of
AIM Advisor Funds, Inc., on February 17, 1998 at 3:00 p.m. Central time, and at
any adjournment thereof, all of the shares of the Fund which the undersigned
would be entitled to vote if personally present. IF THIS PROXY IS SIGNED AND
RETURNED WITH NO CHOICES INDICATED, THE SHARES WILL BE VOTED FOR THE APPROVAL
OF THE PROPOSAL.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD.
All joint owners should sign.
When signing as executor,
administrator, attorney,
trustee or guardian or as
custodian for a minor, please
give full title as such. If
a corporation, please sign in
full corporate name and
indicate the signer's office.
If a partner, sign in the
partnership name.
-----------------------------
Signature
-----------------------------
Signature (if held jointly)
-----------------------------
Date
<PAGE> 2
THIS PROXY IS SOLICITED ON BEHALF OF THE DIRECTORS. THE DIRECTORS RECOMMEND
VOTING "FOR" THE PROPOSAL.
TO VOTE FILL IN BOX COMPLETELY
FOR AGAINST ABSTAIN
1. Proposal to approve an Agreement and [ ] [ ] [ ]
Plan of Reorganization between AIM Advisor
Funds, Inc., on behalf of AIM Advisor Cash
Management Fund, and AIM Funds Group, on
behalf of AIM Money Market Fund - AIM Cash
Reserve Shares, and the consummation of the
transactions contemplated therein.
2. IN THE DISCRETION OF SUCH PROXIES, UPON
SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF.
<PAGE> 3
PROXY SOLICITED BY THE BOARD OF DIRECTORS
OF AIM ADVISOR INCOME FUND
(A PORTFOLIO OF AIM ADVISOR FUNDS, INC.)
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- FEBRUARY 17, 1998
The undersigned hereby appoints Charles T. Bauer and Gary T. Crum, and each of
them separately, proxies with the power of substitution to each, and hereby
authorizes them to represent and to vote, as designated below, at the Special
Meeting of Shareholders of the AIM Advisor Cash Management Fund, a portfolio of
AIM Advisor Funds, Inc., on February 17, 1998 at 3:00 p.m. Central time, and at
any adjournment thereof, all of the shares of the Fund which the undersigned
would be entitled to vote if personally present. IF THIS PROXY IS SIGNED AND
RETURNED WITH NO CHOICES INDICATED, THE SHARES WILL BE VOTED FOR THE APPROVAL
OF THE PROPOSAL.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS ON THIS PROXY CARD. All joint
owners should sign. When signing as
executor, administrator, attorney,
trustee or guardian or as custodian for
a minor, please give full title as
such. If a corporation, please sign in
full corporate name and indicate the
signer's office. If a partner, sign in
the partnership name.
----------------------------------------
Signature
----------------------------------------
Signature (if held jointly)
----------------------------------------
Date
<PAGE> 4
THIS PROXY IS SOLICITED ON BEHALF OF THE DIRECTORS. THE DIRECTORS RECOMMEND
VOTING "FOR" THE PROPOSAL.
TO VOTE FILL IN BOX COMPLETELY
FOR AGAINST ABSTAIN
1. Proposal to approve an Agreement and [ ] [ ] [ ]
Plan of Reorganization between AIM
Advisor Funds, Inc., on behalf of AIM
Advisor Income Fund, and AIM Funds
Group, on behalf of AIM Intermediate
Government Fund, and the consummation
of the transactions contemplated
therein.
2. IN THE DISCRETION OF SUCH PROXIES, UPON
SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF.
