<PAGE> 1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION. DATED JULY 18, 1997
APPLICATION INSIDE
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--Registered Trademark--
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
(SERIES PORTFOLIOS OF AIM ADVISOR FUNDS, INC.)
PROSPECTUS
AUGUST 4, 1997
This Prospectus contains information about the seven mutual funds listed above
(the "Funds") which are separate series portfolios of AIM Advisor Funds, Inc.
(the "Company"), a Maryland corporation. Each Fund's investment objective
(except AIM Advisor Cash Management Fund) is to achieve a high total return on
investment through capital appreciation and current income, without regard to
federal income tax considerations. The AIM Advisor Cash Management Fund'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. Each of the Funds has
separate investment policies.
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 Company 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 Company.
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 ADVISOR CASH MANAGEMENT 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> 2
<TABLE>
- --------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
SUMMARY.................................. 2 INVESTOR'S GUIDE TO THE AIM FAMILY OF
THE FUNDS................................ FUNDS--Registered Trademark--..........
Table of Fees and Expenses............. 5 Introduction to The AIM Family of
Financial Highlights................... 7 Funds............................... A-1
About the Funds........................ 11 How to Purchase Shares................. A-1
Investment Programs.................... 11 Terms and Conditions of Purchase of the
Additional Risk Factors and Policies AIM Funds........................... A-2
Relevant to the Funds............... 16 Special Plans.......................... A-9
Investment Restrictions................ 20 Exchange Privilege..................... A-11
Management............................. 21 How to Redeem Shares................... A-13
Capitalization......................... 25 Determination of Net Asset Value....... A-17
Shareholder Reports.................... 26 Dividends, Distributions and Tax
Performance Information................ 26 Matters............................. A-18
Miscellaneous.......................... 27 General Information.................... A-20
APPLICATION INSTRUCTIONS................. B-1
</TABLE>
SUMMARY
- --------------------------------------------------------------------------------
THE FUNDS. AIM Advisor Funds, Inc., is a Maryland corporation organized as an
open-end, diversified management investment company. Currently the Company
offers Class A and C shares of AIM ADVISOR CASH MANAGEMENT FUND ("Cash
Management Fund"), AIM ADVISOR FLEX FUND ("Flex Fund"), AIM ADVISOR INCOME FUND
("Income Fund"), AIM ADVISOR INTERNATIONAL VALUE FUND ("International Value
Fund"), AIM ADVISOR LARGE CAP VALUE FUND ("Large Cap Value Fund"), AIM ADVISOR
MULTIFLEX FUND ("MultiFlex Fund") and AIM ADVISOR REAL ESTATE FUND ("Real Estate
Fund"), (collectively, the "Funds"). This Prospectus relates to all of such
Funds.
INVESTMENT OBJECTIVES. The investment objective of each Fund (except the CASH
MANAGEMENT FUND) is to achieve a high total return on investment through capital
appreciation and current income, without regard to federal income tax
considerations. The investment objective of the CASH MANAGEMENT FUND 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. Each of the Funds has separate investment policies.
See "Investment Programs."
MANAGEMENT. A I M Advisors, Inc. ("AIM" or "Advisor") serves as each Fund's
investment advisor pursuant to the Investment Advisory Agreement (the "Advisory
Agreement").
AIM, together with its subsidiaries, manages or advises 55 investment company
portfolios. As of June 1, 1997, the total assets of the investment company
portfolios advised or managed by AIM or its subsidiaries were approximately $[ ]
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 an Operating Services Agreement, AIM will be
reimbursed by each Fund for its costs of performing, or arranging for the
performance of, certain accounting, shareholder servicing, legal (except
litigation), dividend disbursing, transfer agent, registrar, custodial,
shareholder reporting, recordkeeping, and other administrative services for the
Funds.
INVESCO Capital Management, Inc. ("ICM"), a Delaware corporation and the
sub-advisor for the LARGE CAP VALUE FUND, INCOME FUND and FLEX FUND, acts as
investment adviser to other investment companies and furnishes investment
counseling services to private and institutional clients.
INVESCO Management & Research, Inc. ("IMR"), a Massachusetts corporation and
the sub-advisor for the MULTIFLEX FUND, acts as investment adviser to other
investment companies and manages primarily pension and endowment accounts.
INVESCO Realty Advisors, Inc. ("IRAI"), a Texas corporation and the
sub-advisor for the REAL ESTATE FUND, acts as investment adviser to corporate
plans and public pension funds as well as endowment and foundation accounts. See
"Management."
INVESCO Global Asset Management Limited ("IGAM"), a Bermuda corporation and
the sub-advisor for INTERNATIONAL VALUE FUND, acts as global investment advisor
to AMVESCAP PLC affiliated companies.
MULTIPLE DISTRIBUTION SYSTEM. Each of the Funds offers two classes of shares,
Class A and Class C. For the CASH MANAGEMENT FUND, both Class A and Class C
shares are offered at net asset value with no initial sales charge. No
contingent deferred sales charge ("CDSC") is imposed upon redemption of shares
of either class of the CASH MANAGEMENT FUND, except in certain cases when the
Class C shares were purchased in an exchange. See "Redeeming Shares -- Class C
Shares." Its assets are not subject to any service or distribution fees. For the
other Funds, the two classes have the following features:
Class A Shares -- Class A shares are sold with an initial sales charge
of up to 5.50% of the offering price for all Funds (4.75% for INCOME FUND
and REAL ESTATE FUND) and are subject to an ongoing service fee of 0.25%
and an ongoing distribution fee of 0.10% calculated at an annual rate on
the average daily net assets of the Fund's Class A shares (except for the
INCOME FUND which has no ongoing distribution fee). The initial sales
charge may be waived or reduced in certain circumstances.
2
<PAGE> 3
Shares purchased pursuant to waiver of the initial sales charge are subject
to a contingent deferred sales charge ("CDSC") of 1.00% if redeemed prior
to the shares being invested in Class A shares of a Fund class subject to a
12b-1 fee ("12b-1 Fund") for a minimum of 18 months. See "How to Redeem
Shares -- Contingent Deferred Sales Charge Program for Large Purchases."
Class C Shares -- Class C shares do not incur an initial sales charge
when purchased but are subject to a CDSC of 1.00% if redeemed prior to
being invested in Class C shares of a 12b-1 Fund for a minimum of 12 full
months after purchase (any Fund other than the CASH MANAGEMENT FUND) and
are subject to an ongoing service fee of 0.25% and an ongoing distribution
fee calculated at an annual rate of 0.75% (0.35% distribution fee for
INCOME FUND) of the Fund's average daily net assets of Class C shares of
the Fund.
Certain minimum purchase requirements apply. The Funds reserve the right to
reduce or waive the minimum purchase requirements in certain cases. See "How to
Purchase Shares."
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. 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 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 C shares to the investor who
qualifies for reduced initial sales charges, as described below.
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 and Class C
shares of the Funds may be exchanged for shares [of the same class] 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. Shareholders can redeem their shares in a Fund any day the
New York Stock Exchange is open, either directly through the Fund's transfer
agent or through the shareholder's securities dealer of record. A Fund will only
redeem shares for which it has received payment. See "How to Redeem Shares."
Class A Shares -- Only shares purchased pursuant to a waiver of the
initial sales charge are subject to a contingent deferred sales charge
("CDSC") of 1.00% if redeemed prior to the shares being invested in one of
the Class A 12b-1 Funds for a minimum of 18 months. See "How to Redeem
Shares -- Contingent Deferred Sales Charge Program for Large Purchases."
Class C Shares -- A CDSC is applicable to shares redeemed prior to the
shares purchased being invested in a Class C shares of a 12b-1 Fund for a
minimum of 12 full months after purchase. For the INCOME FUND the CDSC is
0.60%, and for all other Funds it is 1.00%. Redemptions of shares of the
CASH MANAGEMENT FUND are generally not subject to a CDSC; however, a CDSC
may be applicable to redemptions of shares of the CASH MANAGEMENT FUND if
the redeemed shares were exchanged from another Fund and the one-year
holding period in Class C shares of a 12b-1 Fund (any Fund other than CASH
MANAGEMENT FUND) has not been completed. There is no CDSC applicable to
redemptions of additional purchases of shares in any of the Funds by
shareholders of record on April 30, 1995. Shareholders whose broker/dealers
maintain a single omnibus account with A I M Fund Services, Inc. (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.
The CDSC is assessed on an amount equal to the lesser of the original purchase
price or the redemption price of the shares redeemed. The amount paid upon
redemption will be the net asset value per share next determined after the
redemption request is received in proper form, less the amount of any applicable
CDSC. See "How to Redeem Shares."
DISTRIBUTIONS. It is the intention of the LARGE CAP VALUE FUND, INCOME FUND,
FLEX FUND, MULTIFLEX FUND, REAL ESTATE FUND and INTERNATIONAL VALUE FUND to
distribute to shareholders of each of these Funds net investment income and net
realized capital gains, if any. The per share dividends and distributions on
each class of shares of a Fund will be reduced by expenses allocated to and
borne by the class, including service and distribution fees applicable to that
class. It is intended that the LARGE CAP VALUE FUND, FLEX FUND, MULTIFLEX FUND
and REAL ESTATE FUND will make periodic distributions of net investment income
(including any net short-term capital gains) quarterly, and will make an annual
distribution of any net realized long-term capital gain annually. It is
contemplated that the INTERNATIONAL VALUE FUND will make semiannual
distributions of net investment income and an annual distribution of any net
realized long-term capital gain annually. It is intended that the INCOME FUND
will make monthly distributions of net investment income (including any net
short-term capital gains), and an annual distribution of any net realized
long-term capital gain. The net income of the CASH MANAGEMENT FUND is declared
daily and its dividends will be distributed monthly. Net realized capital
3
<PAGE> 4
gains, if any, will be distributed annually. All such distributions will be
reinvested automatically in additional shares (or fractions thereof) of each
applicable Fund pursuant to such Fund's Automatic Dividend Investment Plan
unless a shareholder has elected not to participate in this plan or has elected
to terminate his participation in the plan and to receive his distributions in
excess of ten dollars in cash. Shareholders of the CASH MANAGEMENT FUND will not
be entitled to dividends for the day on which the investment is made, and will
receive dividends through and including the day of redemption. Shareholders of
the CASH MANAGEMENT FUND who redeem all of their shares at any time during the
month will be paid all dividends accrued through the date of redemption.
Shareholders of the CASH MANAGEMENT FUND who redeem less than all of their
shares will be paid the proceeds of the redemption in cash, and dividends with
respect to the redeemed shares will be reinvested in additional shares (unless
the shareholder has elected not to participate in the Fund's Automatic Dividend
Investment Plan or has elected to terminate his participation in such plan). See
"Dividends, Distributions and Tax Matters" and "Special Plans -- Automatic
Dividend Investment Plan."
RISK FACTORS AND POLICIES. Certain of the Funds may engage in investment
techniques that involve risks described more fully under "Additional Risk
Factors and Policies Relevant to the Funds." For instance, all of the Funds,
except the CASH MANAGEMENT FUND, may invest in securities of foreign issuers,
which may be subject to additional risk factors, including foreign currency and
political risks, not applicable to securities of U.S. issuers. The INTERNATIONAL
VALUE FUND will invest primarily in foreign securities. The MULTIFLEX FUND may
invest in securities rated lower than Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's, a division of McGraw-Hill Companies,
Inc. ("S&P") but rated at least Ba by Moody's or BB by S&P at the time of
purchase. Such securities carry a high degree of credit risk and are considered
speculative by the major rating agencies. [Each Fund, except the LARGE CAP VALUE
FUND and CASH MANAGEMENT FUND, may write covered call options and cash secured
put options. The MULTIFLEX FUND may enter into commodity futures contracts and
options thereon; the MULTIFLEX FUND and INTERNATIONAL VALUE FUND may enter into
foreign currency futures contracts and options thereon; the MULTIFLEX FUND may
enter into stock index futures contracts and options thereon; and the MULTIFLEX
FUND and INTERNATIONAL VALUE FUND may enter into swap agreements.] Each of these
techniques involves risk, as discussed more fully in the description of the
techniques under "Additional Risk Factors and Policies Relevant to the Funds."
THE AIM FAMILY OF FUNDS, THE AIM FAMILY OF FUNDS AND DESIGN (I.E., THE AIM
LOGO), AIM AND DESIGN, AIM, AIM LINK AND AIM INSTITUTIONAL FUNDS ARE REGISTERED
SERVICE MARKS AND LA FAMILIA AIM DE FONDOS AND LA FAMILIA AIM DE FONDOS AND
DESIGN AND AIMFUNDS.COM ARE SERVICE MARKS OF A I M MANAGEMENT GROUP INC.
4
<PAGE> 5
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. The
fees and expenses set forth in the table for Class C shares are based on the
expenses of the Funds for the fiscal year 1996 as restated to reflect current
fee agreements. The fees and expenses for Class A shares set forth in the table
are based on the estimated expenses for the current fiscal year. 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 ADVISOR
AIM ADVISOR AIM ADVISOR AIM ADVISOR INTERNATIONAL AIM ADVISOR
CASH MANAGEMENT FLEX INCOME VALUE LARGE CAP VALUE
FUND FUND FUND(2) FUND FUND
--------------- -------------- ------------- -------------- ---------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A C A C A C A C A C
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum sales load imposed
on purchase of shares
(as a % of the offering
price).................. None None 5.50% None 4.75% None 5.50% None 5.50% None
Maximum sales load on
reinvested dividends.... None None None None None None None None None None
Deferred sales load (as a %
of
original purchase price
or
redemption proceeds,
whichever is lower)..... None None* None** 1.00% None** 0.60% None** 1.00% None** 1.00%
Redemption fees............ None None None None None None None None None None
Exchange fee............... None None None None None None None None None None
Annual Fund Operating
Expenses
(as a % of average net
assets)
Management fees............ 0.50% 0.50% 0.75% 0.75% 0.40% 0.40% 1.00% 1.00% 0.75% 0.75%
Rule 12b-1 distribution
plan payments........... 0.00% 0.00% 0.35%(3) 1.00% 0.25% 0.60% 0.35%(3) 1.00% 0.35%(3) 1.00%
All other expenses(1)...... 0.45% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total fund
operating
expenses......... 0.95% 0.95% 1.55% 2.20% 1.10% 1.45% 1.80% 2.45% 1.55% 2.20%
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
AIM ADVISOR AIM ADVISOR
MULTIFLEX REAL ESTATE
FUND FUND
------------- -------------
CLASS CLASS CLASS CLASS
A C A C
----- ----- ----- -----
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales load imposed on purchase of shares (as a %
of the offering price)................................. 5.50% None 4.75% None
Maximum sales load on reinvested dividends................ None None None None
Deferred sales load (as a % of original purchase price or
redemption proceeds, whichever is lower)............... None** 1.00% None** 1.00%
Redemption fees........................................... None None None None
Exchange fee.............................................. None None None None
Annual Fund Operating Expenses (as a % of average net
assets)
Management fees .......................................... 1.00% 1.00% 0.90% 0.90%
Rule 12b-1 distribution plan payments..................... 0.35%(3) 1.00% 0.35%(3) 1.00%
All other expenses(1)..................................... 0.45% 0.45% 0.45% 0.45%
---- ---- ---- ----
Total fund operating expenses..................... 1.80% 2.45% 1.70% 2.35%
==== ==== ==== ====
</TABLE>
- ------------------------
(1) AIM has voluntarily agreed to limit the Total Operating Expenses of the
Funds to assure that Fund expenses do not exceed the maximum amounts as
designated herein (See "Management"), subject to exceptions for brokerage
commissions, interest, taxes, litigation, directors fees and expenses and
other extraordinary expenses. The expense ceilings include reductions at
larger asset sizes to reflect anticipated economies of scale as the Funds
grow in size. See "Management."
(2) The previous advisor voluntarily agreed to limit certain of its fees with
respect to AIM ADVISOR INCOME FUND for the three-year period beginning
October 1, 1995. If these limitations were not in effect, the Fund's
advisory fees, 12b-1 fees, other expenses and total operating expenses would
be 0.65%, 0.25%, 0.45%, and 1.35% for Class A shares, and 0.65%, 0.60%,
0.45% and 1.70% for Class C shares, respectively, calculated on the basis of
average daily net assets of the respective class. AIM has voluntarily agreed
to assume the remaining term of the previous advisor's commitment.
(3) AIM has voluntarily agreed to limit the Class A shares Rule 12b-1
distribution plan payments to 0.25% for three years beginning August 2,
1997. See "Management" and "Management -- Distribution Plan."
* A CDSC may be assessed against redemptions of AIM ADVISOR CASH MANAGEMENT
FUND shares that were purchased by exchange of shares from another Fund held
less than one year. See "How to Redeem Shares."
** 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."
5
<PAGE> 6
- --------------------------------------------------------------------------------
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 ADVISOR AIM ADVISOR AIM ADVISOR AIM ADVISOR
CASH MANAGEMENT AIM ADVISOR AIM ADVISOR INTERNATIONAL LARGE CAP AIM ADVISOR REAL ESTATE
FUND FLEX FUND INCOME FUND VALUE FUND VALUE FUND MULTIFLEX FUND FUND
--------------- ----------- ----------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year............... $10 $70 $58 $72 $70 $72 $64
3 years.............. 30 101 81 109 101 109 99
5 years.............. 53 135 105 147 135 147 135
10 years............. 117 229 175 255 229 255 239
</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 C shares
of the Funds, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
AIM ADVISOR AIM ADVISOR AIM ADVISOR AIM ADVISOR
CASH MANAGEMENT AIM ADVISOR AIM ADVISOR INTERNATIONAL LARGE CAP AIM ADVISOR REAL ESTATE
FUND FLEX FUND INCOME FUND VALUE FUND VALUE FUND MULTIFLEX FUND FUND
--------------- ----------- ----------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year............... $10 $32 $21 $35 $32 $35 $34
3 years.............. 30 69 46 76 69 76 73
5 years.............. 53 118 79 131 118 131 126
10 years............. 117 253 174 279 253 279 269
</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 ADVISOR AIM ADVISOR AIM ADVISOR AIM ADVISOR
CASH MANAGEMENT AIM ADVISOR AIM ADVISOR INTERNATIONAL LARGE CAP AIM ADVISOR REAL ESTATE
FUND FLEX FUND INCOME FUND VALUE FUND VALUE FUND MULTIFLEX FUND FUND
--------------- ----------- ----------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 year............... $10 $22 $15 $25 $22 $25 $24
3 years.............. 31 69 46 76 69 76 73
5 years.............. 53 118 79 131 118 131 126
79
10 years............. 118 253 174 279 253 279 269
</TABLE>
As a result of 12b-1 distribution plan payments, a long-term shareholder of
the Funds may pay more than the economic equivalent of the maximum front-end
sales charges permitted by rules of the National Association of Securities
Dealers, Inc. Given the maximum front-end and contingent deferred sales charges
and the 12b-1 distribution plan payments applicable to Class A shares and Class
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> 7
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial information for Class C shares for each of the Funds
for the five years ended December 31, 1996, 1995, 1994, 1993, and 1992, has been
audited by Price Waterhouse LLP, independent accountants. This information
should be read in conjunction with the audited financial statements and the
Report of Independent Accountants thereon appearing in the Fund's 1996 Annual
Report to Shareholders and the Statement of Additional Information. All of these
materials are available without charge by contacting A I M Distributors, Inc. at
the address or telephone number shown on the cover page of this Prospectus. All
per share data for the LARGE CAP VALUE FUND, INCOME FUND and FLEX FUND, formerly
Equity Portfolio, Income Portfolio and Flex Portfolio, respectively, has been
adjusted to reflect a 25 share for 1 share stock split which was effected on
December 31, 1991. Financial information is not presented for Class A as no
Class A shares were publicly issued as of December 31, 1996.
(FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR LARGE CAP VALUE FUND (FORMERLY, INVESCO ADVISOR EQUITY FUND)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value -- beginning of
period................... $ 70.41 $ 55.83 $ 59.61 $ 63.27 $ 63.38 $ 54.70 $ 62.01 $ 56.89 $ 54.16 $ 56.05
-------- -------- ------- ------- ------- ------- ------- ------- ------- --------
Investment Operations:
Net investment income.... 0.18 0.41 0.36 0.41 0.60 0.66 1.04 1.20 1.21 1.04
Net gains or losses on
securities (both
realized and
unrealized)............ 11.90 16.44 1.26 5.40 2.44 17.63 (3.40) 11.12 6.23 2.91
-------- -------- ------- ------- ------- ------- ------- ------- ------- --------
Total from investment
operations............. 12.08 16.85 1.62 5.81 3.04 18.29 (2.36) 12.32 7.44 3.95
-------- -------- ------- ------- ------- ------- ------- ------- ------- --------
Distributions:
Dividends (from net
investment income)..... (0.20) (0.41) (0.36) (0.41) (0.57) (0.69) (1.21) (1.26) (1.24) (1.24)
Distributions (from
capital gains)......... 0.00 (1.86) (5.04) (9.06) (2.58) (8.92) (3.74) (5.94) (3.47) (4.60)
-------- -------- ------- ------- ------- ------- ------- ------- ------- --------
Total Distributions...... (0.20) (2.27) (5.40) (9.47) (3.15) (9.61) (4.95) (7.20) (4.71) (5.84)
-------- -------- ------- ------- ------- ------- ------- ------- ------- --------
Net asset value -- end of
period................... $ 82.29 $ 70.41 $ 55.83 $ 59.61 $ 63.27 $ 63.38 $ 54.70 $ 62.01 $ 56.89 $ 54.16
======== ======== ======= ======= ======= ======= ======= ======= ======= ========
Total return(a)........... 17.17% 30.28% 2.69% 9.16% 4.84% 33.59% (3.75)% 21.81% 14.02% 7.20%
======== ======== ======= ======= ======= ======= ======= ======= ======= ========
Ratios/Supplemental Data:
Net assets -- end of
period (000 Omitted)... $137,416 $113,573 $77,929 $86,659 $91,146 $81,732 $69,279 $87,968 $92,983 $119,312
======== ======== ======= ======= ======= ======= ======= ======= ======= ========
Ratio of expenses to
average net
assets(b).............. 2.26% 2.28% 2.25% 2.25% 2.18% 2.22% 2.25% 2.24% 2.21% 2.01%
======== ======== ======= ======= ======= ======= ======= ======= ======= ========
Ratio of net investment
income to average net
assets(b).............. 0.24% 0.64% 0.61% 0.62% 0.90% 1.04% 1.71% 1.84% 1.81% 1.79%
======== ======== ======= ======= ======= ======= ======= ======= ======= ========
Portfolio turnover
rate................... 19% 17% 21% 47% 41% 47% 12% 21% 10% 20%
======== ======== ======= ======= ======= ======= ======= ======= ======= ========
Average commission rate
paid(c)................ $ 0.0590 -- -- -- -- -- -- -- -- --
======== ======== ======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
- ---------------
(a) Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(b) The sub-advisor prior to August 2, 1997 voluntarily absorbed certain
expenses of the Fund aggregating $3,227 and $23,818 for 1993 and 1990,
respectively. If such expenses had not been absorbed, the ratio of expenses
to average net assets for 1993 and 1990 would have been 2.25% and 2.28%,
respectively and the ratio of net investment income to average net assets
for 1993 and 1990 would have been 0.62% and 1.68%, respectively.
(c) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased or sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
7
<PAGE> 8
(FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR INCOME FUND (FORMERLY, INVESCO ADVISOR INCOME FUND)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 52.22 $ 45.33 $ 48.60 $ 47.41 $ 47.77 $ 45.42 $ 45.48 $ 44.45 $ 45.45 $ 50.42
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment Operations:
Net investment income........ 2.61 2.44 2.40 2.28 2.57 3.03 3.43 3.32 3.32 2.71
Net gains or losses on
securities (both realized
and unrealized)............ (3.31) 6.91 (3.27) 1.20 (0.37) 2.43 (0.03) 0.88 (0.92) (3.18)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations................. (0.70) 9.35 (0.87) 3.48 2.20 5.46 (3.40) 4.20 2.40 (0.47)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions:
Dividends (from net
investment income)......... (2.65) (2.46) (2.40) (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 0.00 0.00 0.00 (1.15)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions.......... (2.65) (2.46) (2.40) (2.29) (2.56) (3.11) (3.46) (3.27) (3.30) (4.50)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset value, end of
period....................... $ 48.87 $ 52.22 $ 45.33 $ 48.60 $ 47.41 $ 47.77 $ 45.42 $ 45.48 $ 44.55 $ 45.45
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return(a)............... (1.23)% 21.12% (1.80)% 7.39% 4.74% 12.46% 7.81% 9.12% 5.59% (0.90)%
Ratios/Supplemental data:
Net assets, end of period
(000 omitted).............. $26,162 $31,986 $25,467 $42,872 $47,096 $39,104 $41,004 $58,774 $74,309 $81,882
Ratio of expenses to average
net assets(b).............. 1.51% 2.19% 2.25% 2.25% 2.25% 2.29% 2.30% 2.35% 2.16% 1.99%
Ratio of net investment
income to average net
assets(b).................. 5.30% 4.94% 5.09% 4.56% 5.48% 6.48% 7.08% 6.98% 6.89% 6.29%
Portfolio turnover rate...... 34% 24% 59% 92% 16% 37% 25% 33% 49% 64%
</TABLE>
- ---------------
(a) Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(b) The sub-advisor prior to August 2, 1997 voluntarily absorbed certain
expenses of the Fund aggregating $72,341, $17,720 and $17,632 for 1996, 1995
and 1993, respectively. If such expenses had not been absorbed, the ratio of
expenses to average net assets for 1996, 1995 and 1993 would have been
1.76%, 2.25% and 2.29%, respectively and the ratio of net investment income
to average net assets for 1996, 1995 and 1993 would have been 5.05%, 4.88%
and 4.52%, respectively.
(FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR FLEX FUND (FORMERLY, INVESCO ADVISOR FLEX FUND)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD
------------------------------------------------------------------------------------ ENDED
1996 1995 1994 1993 1992 1991 1990 1989 1988(a)
-------- -------- -------- -------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................ $ 62.64 $ 50.50 $ 54.16 $ 51.04 $ 49.35 $ 42.26 $ 45.32 $ 40.40 $ 40.00
-------- -------- -------- -------- -------- -------- ------- -------- -------
Investment operations:
Net investment income........... 1.18 1.29 1.26 1.10 1.39 1.47 1.64 1.70 0.88
Net gains or losses on
securities (both realized and
unrealized)................... 7.25 12.38 (0.91) 4.22 2.37 8.90 (2.42) 5.18 0.40
-------- -------- -------- -------- -------- -------- ------- -------- -------
Total from investment
operations.................... 8.43 13.67 0.35 5.32 3.76 10.37 (0.78) 6.88 1.28
-------- -------- -------- -------- -------- -------- ------- -------- -------
Distributions:
Dividends (from net investment
income)....................... (1.17) (1.29) (1.25) (1.09) (1.35) (1.49) (1.75) (1.65) (0.88)
Distributions (from capital
gains)........................ (3.39) (0.24) (2.76) (1.11) (0.72) (1.79) (0.53) (0.31) --
-------- -------- -------- -------- -------- -------- ------- -------- -------
Total Distributions............. (4.56) (1.53) (4.01) (2.20) (2.07) (3.28) (2.28) (1.96) (0.88)
-------- -------- -------- -------- -------- -------- ------- -------- -------
Net Asset value, end of year..... $ 66.51 $ 62.64 $ 50.50 $ 54.16 $ 51.04 $ 49.35 $ 42.26 $ 45.32 $ 40.40
======== ======== ======== ======== ======== ======== ======= ======== =======
Total return(b).................. 13.61% 27.30% 0.64% 10.48% 7.72% 24.80% (1.68)% 17.26% 4.45%(c)
Ratios/Supplemental data:
Net assets, end of period (000
omitted)...................... $489,918 $399,162 $243,848 $274,349 $165,727 $104,204 $96,772 $101,260 $54,941
Ratio of expenses to average net
assets(d)..................... 2.26% 2.28% 2.25% 2.25% 2.17% 2.21% 2.25% 2.33% 2.31%(e)
Ratio of net investment income
to average net assets(d)...... 1.81% 2.28% 2.32% 2.10% 2.81% 3.12% 3.77% 4.08% 4.06%(e)
Portfolio turnover rate......... 26% 5% 36% 27% 15% 24% 31% 20% 2%
Average commission rate
paid(f)....................... $ 0.0549 -- -- -- -- -- -- -- --
</TABLE>
- ---------------
(a) From February 24, 1988, commencement of operations, to December 31, 1988.
(b) Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(c) Not Annualized.
(d) The sub-advisor prior to August 2, 1997 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%.
(e) Annualized.
(f) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased or sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
8
<PAGE> 9
(FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR MULTIFLEX FUND (FORMERLY, INVESCO ADVISOR MULTIFLEX FUND)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED DECEMBER 31, NOVEMBER 17,
------------------------------ 1993(a) TO
1996 1995 1994 DECEMBER 31, 1993
-------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year........................ $ 46.71 $ 39.13 $ 40.16 $ 40.00
-------- -------- -------- --------
Investment operations:
Net investment income................................... 0.55 0.64 0.62 0.02
Net gains or losses on securities (both realized and
unrealized)........................................... 7.31 7.75 (1.03) 0.16
-------- -------- -------- --------
Total from investment operations........................ 7.86 8.39 (0.41) 0.18
-------- -------- -------- --------
Distributions:
Dividends (from net investment income).................. (0.53) (0.64) (0.62) (0.02)
Distributions (from capital gains)...................... (1.50) (0.17) 0.00 0.00
-------- -------- -------- --------
Total Distributions..................................... (2.03) (0.81) (0.62) (0.02)
-------- -------- -------- --------
Net asset value, end of year.............................. $ 52.54 $ 46.71 $ 39.13 $ 40.16
======== ======== ======== ========
Total return(b)........................................... 17.03% 21.58% (1.02)% (0.46)%(c)
======== ======== ======== ========
Ratios/Supplemental Data:
Net assets, end of year (000 omitted)................... $266,843 $174,592 $120,220 $ 12,241
======== ======== ======== ========
Ratio of expenses to average net assets................. 2.45% 2.50% 2.49% 2.50%(d)
======== ======== ======== ========
Ratio of net investment income to average net assets.... 1.16% 1.53% 2.01% 1.09%(d)
======== ======== ======== ========
Portfolio turnover rate................................. 62% 50% 81% 0.53%
======== ======== ======== ========
Average commission rate paid(e)......................... $ 0.0577 - - -
======== ======== ======== ========
</TABLE>
- ---------------
(a) Commencement of Operations.
(b) Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(c) Not Annualized.
(d) Annualized.
(e) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased or sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
(FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR REAL ESTATE FUND (FORMERLY INVESCO ADVISOR REAL ESTATE FUND)
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED MAY 1, 1995(a) TO
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of year.......................... $ 43.02 $ 40.00
-------- --------
Investment operations:
Net investment income..................................... 1.30 0.64
Net gain on securities (both realized and unrealized)..... 14.06 3.00
-------- --------
Total from investment operations.......................... 15.36 3.64
-------- --------
Distributions:
Dividends (from net investment income).................... (1.23) (0.62)
Distributions (from capital gains)........................ (0.38) 0.00
-------- --------
Total Distributions....................................... (1.61) (0.62)
-------- --------
Net asset value, end of year................................ $ 56.77 $ 43.02
======== ========
Total return(c)............................................. 36.43% 9.12%(b)
======== ========
Ratios/Supplemental Data:
Net assets, end of period (000's omitted)................. $20,566 $ 5,565
======== ========
Ratio of expenses to average net assets................... 2.40% 2.40%(d)
======== ========
Ratio of net investment income to average net assets...... 3.21% 4.68%(d)
======== ========
Portfolio turnover rate................................... 25% 7%
======== ========
Average commission rate paid(e)........................... $0.0601 -
======== ========
</TABLE>
- ---------------
(a) Commencement of Operations.
(b) Not Annualized.
(c) Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(d) Annualized.
(e) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased or sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
9
<PAGE> 10
(FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR INTERNATIONAL VALUE FUND (FORMERLY, INVESCO ADVISOR INTERNATIONAL
VALUE FUND)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 1, 1995(a)
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1996 1995
------------ -----------------
<S> <C> <C>
Net asset value, beginning of year.......................... $ 44.51 $ 40.00
------- --------
Investment operations:
Net investment income (loss).............................. (0.05) 0.00
Net gain on securities (both realized and unrealized)..... 9.37 4.51
------- --------
Total from investment operations.......................... 9.32 4.51
------- --------
Distributions:
Dividends (from net investment income).................... 0.00 0.00
Distributions (from capital gains)........................ (0.15) 0.00
------- --------
Total Distributions....................................... (0.15) 0.00
------- --------
Net asset value, end of year................................ $ 53.68 $ 44.51
======= ========
Total return(b)............................................. 20.99% 11.28%(c)
======= ========
Ratios/Supplemental Data:
Net assets, end of period (000's omitted)................. $51,916 $ 9,467
======= ========
Ratio of expenses to average net assets................... 2.50% 2.50%(d)
======= ========
Ratio of net investment income (loss) to average net
assets................................................. (0.16)% 0.03%(d)
======= ========
Portfolio turnover rate................................... 5% 2%
======= ========
Average commission rate paid(e)........................... $0.0602 -
======= ========
</TABLE>
- ---------------
(a) Commencement of Operations.
(b) Total return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(c) Not annualized.
(d) Annualized.
(e) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased or sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
(FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR CASH MANAGEMENT FUND (FORMERLY, INVESCO ADVISOR CASH MANAGEMENT
FUND)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Investment operations:
Net investment income........ 0.04 0.05 0.03 0.02 0.03 0.05 0.07 0.08 0.07 0.06
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Distributions:
Dividends (from net
investment income)......... (0.04) (0.05) (0.03) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07) (0.06)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return(a)............... 4.48% 5.04% 3.30% 2.20% 3.04% 5.08% 7.35% 8.63% 6.90% 5.67%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net assets, end of year (000
omitted)................... $15,946 $20,439 $15,212 $13,827 $20,431 $17,730 $20,701 $19,902 $32,309 $27,683
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to average
net assets(b).............. 1.04% 1.00% 1.00% 0.95% 0.73% 1.00% 1.09% 1.00% 0.88% 1.25%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets..................... 4.36% 4.91% 3.23% 2.17% 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) The sub-advisor prior to August 2, 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.
10
<PAGE> 11
- --------------------------------------------------------------------------------
ABOUT THE FUNDS
The Funds are separate series of AIM Advisor Funds, Inc., an open-end,
diversified management investment company, incorporated under the laws of the
State of Maryland on September 19, 1989. Prior to August 2, 1997 and January 16,
1996 the Company was known as INVESCO Advisor Funds, Inc. and The EBI Funds,
Inc., respectively.
The address of each Fund is 11 Greenway Plaza, Suite 100, Houston, Texas
77046, and the telephone number of each Fund is (713) 626-1919. The address of
the Distributor, A I M Distributors, Inc., is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046.
- --------------------------------------------------------------------------------
INVESTMENT PROGRAMS
The investment objective of each of the Funds (except the CASH MANAGEMENT
FUND) is to achieve a high total return on investment through capital
appreciation and current income, without regard to federal income tax
considerations. The investment objective of the CASH MANAGEMENT FUND 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. The investment objective of each Fund is a fundamental
policy which may not be changed without the approval of a vote of a majority of
the outstanding shares of that Fund. Investments of the LARGE CAP VALUE FUND,
INCOME FUND, FLEX FUND, MULTIFLEX FUND, REAL ESTATE FUND and INTERNATIONAL VALUE
FUND will be managed without regard to whether their distributions to
shareholders will be characterized as ordinary income or long-term capital gains
(i.e., will not be managed so as to minimize or avoid taxable capital gain
distributions), and therefore may be of particular interest to investors who are
tax-exempt. The CASH MANAGEMENT FUND is designed for investment by corporations,
partnerships, individuals and pension and profit sharing plans. A more detailed
discussion of each Fund's investment objective and policies follows. No
assurance is or can be given that any Fund will accomplish its investment
objectives, as there is some degree of uncertainty in every investment.
LARGE CAP VALUE FUND. The investment objective of the LARGE CAP VALUE FUND is
to achieve a high total return on investment through capital appreciation and
current income, without regard to federal income tax considerations.
Substantially all of the Fund's assets will be invested in common stocks and, to
a lesser extent, securities convertible into common stocks. Such securities will
generally be issued by companies which are listed on a national securities
exchange (e.g., the New York Stock Exchange), or traded in the over-the-counter
market, and which usually pay regular dividends. At least 65% of the LARGE CAP
VALUE FUND'S investments will consist of equity securities. The LARGE CAP VALUE
FUND has established minimum investment standards with respect to its
investments in common stocks which are identical to those established by ICM,
the Fund's sub-advisor, with respect to the management of large capitalization
value portfolios for its private advisory clients. These standards include
utilization of a proprietary database consisting of 800 of the largest companies
in the United States, each of which is required to have 10 years of financial
history in order to be included in the database. The database relates the
current price of each stock to each company's historical record and ranks the
800 stocks based on the best relative value. The top 250 stocks are then
subjected to fundamental investment analysis, based on which a purchase list of
100 stocks is created, from which investments are selected. When market,
business or economic conditions warrant, in the judgment of the Advisor and ICM,
that temporary defensive measures should be employed, all or part of the assets
of the Fund may be invested temporarily in other securities, including high
quality corporate preferred stocks, bonds, debentures or other evidences of
indebtedness, and in obligations issued or guaranteed by the United States or
any instrumentality thereof, or held in cash.
INCOME FUND. The investment objective of the 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 the INCOME FUND'S investments will consist of
income-producing securities. The INCOME FUND hopes to achieve its goal of
capital appreciation by selecting fixed income obligations which ICM, the Fund's
sub-advisor, believes are of a higher quality than has been generally recognized
by the marketplace. 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 underrated (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 requirements, 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 the 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. The INCOME FUND invests
only in those corporate obligations which in ICM's opinion have the investment
characteristics described by Moody's in rating corporate obligations within its
four highest ratings of Aaa, Aa, A and Baa and by 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. For a description of these ratings, see Appendix A to the
Statement of Additional Infor-
11
<PAGE> 12
mation. 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 Government National Mortgage
Association obligations, and obligations of U.S. government authorities,
agencies and instrumentalities, such as Fannie Mae (formerly, the Federal
National Mortgage Association), Federal Home Loan Bank, Federal Financing Bank
and Federal Farm Credit Bank obligations.
The INCOME FUND may invest up to 35% of its assets in mortgage-backed
securities, including mortgage pass-through securities and collateralized
mortgage obligations ("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. For a description of the risks
associated with these securities, see "Additional Risk Factors and Policies
Relevant to the Funds - Mortgage-Related Securities" below and "Mortgage-Related
Securities" in the Statement of Additional Information.
The 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 be more reliant on ICM's judgment and experience than would be the
case if the INCOME FUND invested 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 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. 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. For a more
detailed description of these ratings, see Appendix A to the Statement of
Additional Information.
ICM will attempt to limit fluctuations in the market value of the INCOME FUND
by adopting a more defensive posture during periods of economic difficulty.
During such periods the INCOME FUND may acquire 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. Short-term money market
instruments will include, among others, Treasury Bills, bankers' acceptances,
certificates of deposit, time deposits, and commercial paper. For a description
of these instruments, see Appendix A to the Statement of Additional Information.
FLEX FUND. The investment objective of the FLEX FUND is to achieve a high
total return on investment through capital appreciation and current income,
without regard to federal income tax considerations. The FLEX FUND invests in a
combination of equity securities and fixed and variable income securities. The
equity securities acquired by the FLEX FUND are subject to the same standards as
those equity securities acquired by the LARGE CAP VALUE FUND. The income
securities acquired by the FLEX FUND are subject to the same investment
standards applicable to income securities acquired by the INCOME FUND. 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 in the income securities portion of its portfolio.
Typically, a minimum of 20% of the total assets of the FLEX FUND will be
invested in equity securities and a minimum of 20% of total assets will be
invested in fixed and variable income securities. The remaining 60% of its
portfolio will vary in asset allocation according to ICM's assessment of
business, economic, and market conditions. ICM's analytical processes associated
with making allocation decisions are based upon a combination of historical
financial results and current prices for stocks and the current yield to
maturity available in the market for bonds. The premium return available from
one category relative to the other determines the actual asset deployment. ICM's
asset allocation processes are systematic and are based on current information
rather than forecasted change. The FLEX FUND seeks reasonably consistent returns
over a variety of market cycles.
MULTIFLEX FUND. The investment objective of the MULTIFLEX FUND is to achieve a
high total return on investment through capital appreciation and current income,
without regard to federal income tax considerations. The Fund seeks to achieve
its objective by investing in a combination of equity securities (consisting of
common stocks and, to a lesser degree, preferred stocks and securities
convertible into common stock) and fixed-income securities, through allocation
of its assets among the following five asset classes: stocks of large
capitalization companies ("large cap stocks"), stocks of small capitalization
companies ("small cap stocks"), fixed-income securities, real estate securities
(primarily securities of real estate investment trusts ("REITs"), and
international stocks (primarily American Depositary Receipts ("ADRs")).
Allocating assets among different types of securities allows the Fund to take
advantage of performance opportunities in various sectors of the capital market,
while simultaneously providing diversification to reduce the risks of each
investment.
The Fund may invest up to 40% of its assets in each asset class; however, the
Fund will normally invest approximately 20% of its assets in each of the five
asset classes, which represents the expected allocation when projected returns
for the five classes are all normal relative to one another. If the anticipated
return for a particular asset class is higher than normal relative to the others
on an historical basis, it will be weighted more heavily than it would under
"normal" conditions. Conversely, if the anticipated return for a
12
<PAGE> 13
particular asset class is lower than normal relative to the other classes on an
historical basis, a smaller percentage of assets (i.e., less than 20%) would be
invested in that class. Each asset class is briefly described below:
Large Cap Stocks. The MULTIFLEX FUND may invest in equity securities of large
companies, defined as companies with market capitalizations among the largest
800 publicly traded U.S. corporations at the time of initial purchase. These
securities are traded principally on national securities exchanges in the United
States, but also may be traded on regional stock exchanges or in the over-
the-counter market. Such stocks are more likely to pay regular dividends than
the stocks of smaller companies.
Small Cap Stocks. The MULTIFLEX FUND may invest in small cap securities (i.e.,
those issued by companies having smaller market capitalizations than the largest
1,000 publicly traded U.S. corporations). These securities typically pay no or
minimal dividends, possess higher rates of return on invested capital, and are
subject to greater risk than securities of larger companies, such as large price
fluctuations which could increase the potential for shortterm gains and losses.
Fixed Income Securities. The fixed income securities in which the MULTIFLEX
FUND may invest consist of securities issued by the U.S. government, its
agencies and instrumentalities, corporate securities, mortgage- and asset-backed
securities, zero coupon bonds, municipal obligations and foreign currency
denominated securities. The MULTIFLEX FUND may invest up to 5% of its assets in
corporate bonds rated below Baa by Moody's or BBB by S&P but rated at least Ba
by Moody's or BB by S&P at the time of purchase. Investments in corporate bonds
rated below "investment grade," i.e., rated below Baa by Moody's or BBB by S&P,
are described as "speculative" by both Moody's and S&P. Such securities are
sometimes referred to as "junk bonds," and may be subject to greater market
fluctuations, less liquidity, and greater risk. For a further discussion of the
special risks associated with investments in lower rated securities, see
"Additional Risk Factors and Policies Relevant to the Funds -- High Yield/High
Risk Securities." The average maturity of the MULTIFLEX FUND'S investments in
fixed income securities will vary depending upon economic and market conditions.
During normal market conditions, the MULTIFLEX FUND'S overall maturity will be
in the 3.5 to 6.5 year range and is expected to average approximately 5 years
over a market cycle. The sub-advisor will seek to adjust the portfolio of fixed
income securities held by the Fund to maximize current income consistent with
liquidity and the preservation of principal.
Real Estate Securities. The MULTIFLEX FUND may invest in common stocks of real
estate companies, real estate investment trusts ("REITs"), and other real estate
related securities. REITs are trusts which sell shares to investors and use the
proceeds to invest in real estate or interests therein. A REIT may focus on
particular projects, such as apartment complexes, or geographic regions, such as
the Southeastern United States, or both. Health care REITs invest primarily in
hospitals, nursing homes, and similar facilities, and are usually nationwide in
scope. By investing in REITs indirectly through the Fund, a shareholder will
bear not only his proportionate share of the expenses of the Fund, but also,
indirectly, similar expenses of the REIT.
International Stocks. The MULTIFLEX FUND may invest in international
securities directly or by means of sponsored or unsponsored ADRs. Up to 40% of
total assets, measured at the time of purchase, may be invested directly in
foreign securities; securities of Canadian issuers and securities purchased by
means of sponsored ADRs are not subject to this 40% limitation. See "Additional
Risk Factors and Policies Relevant to the Funds -- Foreign Securities."
IMR, the Fund's sub-advisor, regularly monitors the Fund's investment
allocations, and may vary the amount invested in each class depending upon its
assessment of business, economic and market conditions. The investment results
of the Fund depend upon the sub-advisor's ability to determine correctly the
relative attractiveness of various asset classes on a consistent basis. However,
market valuations change not only in response to economic factors but to
psychological and emotional factors as well. These factors are difficult to
interpret and quantify. It is therefore possible that the Fund may have a
minimum allocation in stocks during a significant advance in overall stock
prices. Similarly, it is possible that the Fund may have a minimum allocation in
bonds during a significant advance in overall bond prices.
There may be temporary periods during which the allocation of assets to each
asset class deviates from the specified percentage allocation because of inflows
or outflows of cash from the Fund. This is most likely to occur when the
sub-advisor has positioned the portfolio assets close to a minimum or maximum
constraint for one or more asset classes and the Fund's cash position is altered
as a result of purchases and/or redemptions of the Fund's shares. In such cases,
IMR will deploy cash or reallocate portfolio assets in a timely fashion (not to
exceed seven days) to bring portfolio composition within the specified asset
allocation.
In periods of uncertain economic and market conditions, as determined by the
sub-advisor, the Fund may depart from its basic investment objective and assume
a temporary defensive position, with a portion of its assets invested in cash or
cash equivalents and, within the fixed income asset class, U.S. government and
agency securities and investment grade corporate bonds. Cash may be held for
defensive purposes up to a maximum of 30% of the Fund's total assets. While the
Fund is in a defensive position, the opportunity to achieve capital growth will
be limited; however, the ability to maintain a defensive position enables the
Fund to seek to minimize capital losses during market downturns. Under normal
market conditions, the Fund does not intend to invest a significant portion of
its assets in cash or cash equivalents.
In managing the equity portion of the portfolio, IMR will apply a combination
of quantitative strategies and traditional stock selection methods to a very
broad universe of stocks in order to uncover the best possible values.
Typically, stocks will be examined quantitatively for their exposure to certain
factors which the sub-advisor has identified as helpful in selecting equities
which can be expected to have superior future performance. These factors may
include earnings-to-price and book value-to-price ratios, earnings estimate
revision momentum, relative market strength compared to competitors,
inventory/sales trend, and financial leverage. A
13
<PAGE> 14
stock's expected return is estimated based upon its exposure to these and other
factors, and when combined with proprietary estimates of trading costs, a
risk-controlled optimal portfolio is generated. Once an initial suggested
portfolio has been generated through the computer optimization process,
traditional fundamental analysis is utilized to provide a final review before
stocks are selected for purchase by the Fund.
REAL ESTATE FUND. The investment objective of the REAL ESTATE FUND is to
achieve a high total return on investment through capital appreciation and
current income, without regard to federal income tax considerations. The Fund
seeks to achieve its objective by investing primarily in publicly traded
securities of companies related to the real estate industry. The Fund will not
invest directly in private real estate assets.
Under normal circumstances, the Fund will invest at least 65% of its total
assets in equity securities of companies which are principally engaged in the
real estate industry and are listed on U.S. securities exchanges or the National
Association of Securities Dealers Automated Quotation System ("NASDAQ").
Companies listed on NASDAQ are generally smaller-capitalization companies whose
securities may be subject to large price fluctuations which could increase the
potential for short-term gains or losses. A company is "principally engaged in
the real estate industry" if at least 50% of its assets, gross income or net
profits are attributable to ownership, construction, management, or sale of
residential, commercial or industrial real estate, including listed equity REITs
which own properties, and listed mortgage REITs which make short-term
construction and development mortgage loans or which invest in long-term
mortgages or mortgage pools. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his proportionate share of the expenses of the
Fund, but also, indirectly, similar expenses of the REIT. See "Additional Risk
Factors and Policies Relevant to the Funds -- Real Estate Industry Securities."
The Fund may also invest up to 35% of its total assets in equity, debt, or
convertible securities of companies whose products and services are related to
the real estate industry, such as manufacturers and distributors of building
supplies and financial institutions which issue or service mortgages. The Fund
also may invest up to 35% of its total assets in securities of companies
unrelated to the real estate industry which are believed by the sub-advisor to
be undervalued and to have capital appreciation potential. Moreover, consistent
with its objective of current income, the Fund may invest all or part of its
assets in debt securities of companies related to the real estate industry. Debt
securities purchased by the Fund will be limited to those rated at the time of
the investment as investment grade by Moody's or S&P or, if unrated, determined
by the sub-advisor to be of comparable quality. For a description of these
ratings and a discussion of factors relevant to a determination that an unrated
security is of comparable quality, see Appendix A to the Statement of Additional
Information.
IRAI, the Fund's sub-advisor, utilizes both fundamental real estate analysis
and quantitative securities analysis to select investments for the Fund. The
fundamental real estate characteristics of securities included in the qualifying
universe are determined by analysis of a company's management and strategic
focus and an evaluation of the location, physical attributes and cash flow
generating capacity of a company's properties. Each component of the analysis is
assigned a weight and each company is systematically ranked to determine which
company's securities are to be emphasized in the selection of Fund investments.
IRAI's quantitative analysis applies a proprietary database and multi-factor
regression model to rank individual securities in the qualifying universe from
highest to lowest expected returns. Investment consideration is limited to those
actively traded securities which are expected to outperform the NAREIT Equity
Index over the subsequent three-month period. The NAREIT Equity Index is
composed of common stocks of all tax-qualified equity REITs listed on the New
York Stock Exchange, American Stock Exchange and the NASDAQ National Market
System.
After ranking each security fundamentally and quantitatively, a diversified
portfolio is created through a statistical optimization process. This technique
incorporates such factors as expected return, volatility, correlation to other
stocks already held in the portfolio, and turnover costs.
If, in the opinion of the sub-advisor, market conditions warrant a temporary
defensive investment strategy, the Fund's assets may be invested in money market
instruments and U.S. government securities, or held in cash or equivalents. The
Fund may purchase and write put and call options on securities and securities
indices. See "Additional Risk Factors and Policies Relevant to the Funds."
For taxable clients, a portion of the dividends paid by a REIT may be
considered return on capital and would not currently be regarded as taxable
income. Therefore, depending upon an individual's tax bracket, the dividend
yield may have a higher tax effective yield.
INTERNATIONAL VALUE FUND. The investment objective of the INTERNATIONAL VALUE
FUND is to achieve a high total return on investment through capital
appreciation and current income, without regard to U.S. or foreign tax
considerations. The Fund seeks to achieve its objective by investing at least
65% of its total assets in a diversified portfolio of foreign equity securities,
consisting of common stocks, preferred stocks, warrants, and securities
convertible into common stock. Equity securities may include foreign securities
registered and traded in U.S. markets, foreign securities traded in foreign
markets and ADRs issued as evidence of ownership of foreign securities. The
sub-advisor intends to hold securities in its portfolio of companies domiciled
in at least four countries. Moreover, consistent with its objective of current
income, the Fund may invest up to 35% of its total assets in debt securities
rated at the time of investment as investment grade or, if unrated, determined
by the sub-advisor to be of comparable quality. For a description of these
ratings and a discussion of factors relevant to a determination that an unrated
security is of comparable quality, see Appendix A to the Statement of Additional
Information.
14
<PAGE> 15
Although the Fund intends to invest principally in securities of companies in
developed nations, including Europe and the Pacific Rim, it may also invest up
to 20% of its total assets in equity securities of companies domiciled in
emerging market countries. See "Additional Risk Factors and Policies Relevant to
the Funds -- Foreign Securities, Emerging Markets" below for a discussion of the
risks associated with such investments.
IGAM has access to the data and research of the Global Asset Allocation
Committee of its parent company, AMVESCAP PLC (formerly INVESCO PLC). See
"Management". This worldwide data and research from the parent company, together
with the sub-advisor's proprietary database consisting primarily of large and
medium capitalization non-U.S. companies, provide investment research and
information which aid IGAM in determining which stocks are selected for the
Fund.
Stocks within the sub-advisor's database are subjected to proprietary computer
analytical systems designed to compare the price of each stock to various
factors which include shareholders' equity per share, historic return on equity,
and the company's ability to reinvest earnings for future growth or to pay
earnings in the form of dividends. The results of this analysis are then used to
assist IGAM in determining the relative value of each stock. Each stock's final
selection is based primarily upon IGAM's opinion of the relative value of the
stock and takes into account the company's historic and current operating
results combined with an analysis of the likelihood of favorable operating
results being extended into future years. The final selection of a stock for the
Fund may also take into account the sub-advisor's opinion of the attractiveness
of the stock to the Fund as a whole based on diversification and risk
considerations.
IGAM does not make country or industry allocation decisions based on worldwide
market or industry forecasts. Consequently, the industry and country weightings
in the Fund tend to be a by-product of the stock selection process and Fund
construction. Given the difficulty of profitably applying aggressive currency
management over long periods of time, IGAM tends to incorporate currency hedging
strategies only at the extremes of relative valuation ranges.
When, in the judgment of the sub-advisor, market, business or economic
conditions warrant employing temporary defensive measures, the sub-advisor may
invest all or part of the assets of the Fund temporarily in securities of U.S.
issuers and may, for temporary defensive purposes, invest without limit in (i)
money market securities denominated in dollars or in the currency of any foreign
country and issued by entities organized in the U.S. or any foreign country,
such as short-term (less than 12 months to maturity) and medium-term (not
greater than five years to maturity) obligations issued or guaranteed by the
U.S. government or the government of a foreign country, their agencies or
instrumentalities, (ii) finance company and corporate commercial paper and other
short-term corporate obligations, in each case rated Prime-1 by Moody's or A or
better by S&P or, if unrated, of comparable quality as determined by the
sub-advisor, and (iii) repurchase agreements with banks and broker-dealers with
respect to such securities.
Although the Fund invests principally in common stocks, it may also enter into
transactions in options on securities, securities indices and currencies,
forward currency contracts, futures contracts and related options, and swap
agreements. See "Additional Risk Factors and Policies Relevant to the Funds."
CASH MANAGEMENT FUND. The CASH MANAGEMENT FUND'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. The Fund seeks to achieve its objective through
investment in a diversified portfolio of high-quality, short-term "money market"
instruments. These instruments consist of obligations issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities, and U.S.
dollar-denominated certificates of deposit, time deposits, bankers' acceptances,
commercial paper, repurchase agreements, and corporate obligations. For a
description of these instruments, see Appendix A to the Statement of Additional
Information. The Fund may also place a portion of its assets in interest-bearing
accounts with qualifying banks provided the Fund is free to withdraw its assets
at any time without suffering any interest reduction or other penalty. Because
the Fund 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.
The Fund intends to operate in accordance with the investment restrictions and
requirements imposed by federal rules and regulatory interpretations applicable
to money market funds, as they may be amended from time to time. These rules,
generally, restrict the Fund's investments to high-quality short-term, liquid
securities which are determined to present minimal credit risk, and set specific
limits on the Fund's dollar-weighted average portfolio maturity.
- --------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND POLICIES RELEVANT TO THE FUNDS
REPURCHASE AGREEMENTS. Each of the Funds, except the LARGE CAP VALUE FUND, may
engage in repurchase agreements. A repurchase agreement, which may be considered
a "loan" under the Investment Company Act of 1940 (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 defaults,
the underlying security constitutes collateral for the seller's obligations to
pay. This collateral, equal to or in excess of 100% of the repurchase agreement,
will be held by the custodian for the particular Fund's assets. Repurchase
agreements carry certain risks
15
<PAGE> 16
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 Funds 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 (but not required) that at no time will the market value
of any of the Fund's securities subject to repurchase agreements exceed 50% (75%
as to the CASH MANAGEMENT FUND) of the total assets of such Fund entering into
such agreements. It is intended for these Funds to enter into repurchase
agreements with commercial banks and securities dealers. The Board of Directors
will monitor the creditworthiness of such entities.
FOREIGN SECURITIES. The MULTIFLEX FUND and INTERNATIONAL VALUE FUND may invest
directly in foreign equity securities and the LARGE CAP VALUE FUND, FLEX FUND,
MULTIFLEX FUND and INTERNATIONAL VALUE FUND may invest in foreign securities
represented by ADRs, as described below. The MULTIFLEX FUND and INTERNATIONAL
VALUE FUND may also invest in foreign currency-denominated fixed income
securities. Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject to
the disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitations on the removal of cash or
other assets of a Fund, political or financial instability, or diplomatic and
other developments which could affect such investments. Further, economies of
particular countries or areas of the world may differ favorably or unfavorably
from the economy of the United States. Foreign securities often trade with less
frequency and volume than domestic securities and therefore may exhibit greater
price volatility. Additional costs associated with an investment in foreign
securities may include higher custodial fees than apply to domestic custodial
arrangements, and transaction costs of foreign currency conversions.
ADRs provide a method whereby the LARGE CAP VALUE FUND, FLEX FUND, MULTIFLEX
FUND and INTERNATIONAL VALUE FUND may invest in securities issued by companies
whose principal business activities are outside the United States. These
securities will not be denominated in the same currency as the securities into
which they may be converted. Generally, ADRs, in registered form, are designed
for use in U.S. securities markets.
ADRs are receipts typically issued by a U.S. bank or trust company evidencing
ownership of the underlying securities, and may be issued as sponsored or
unsponsored programs. In sponsored programs, an issuer has made arrangements to
have its securities trade in the form of ADRs. In unsponsored programs, the
issuer may not be directly involved in the creation of the program. Although
regulatory requirements with respect to sponsored and unsponsored programs are
generally similar, in some cases it may be easier to obtain financial
information from an issuer that has participated in the creation of a sponsored
program. The LARGE CAP VALUE FUND and FLEX FUND intend to invest only in
sponsored ADRs. The MULTIFLEX FUND and INTERNATIONAL VALUE FUND may invest in
both sponsored and unsponsored ADRs.
Since certain Funds are authorized to invest in securities denominated or
quoted in currencies other than the U.S. dollar, as well as ADRs with respect to
such securities, changes in foreign currency exchange rates relative to the U.S.
dollar will affect the value of such ADRs and securities in the Funds and the
unrealized appreciation or depreciation of such investments. Changes in foreign
currency exchange rates relative to the U.S. dollar will also affect a Fund's
yield on assets denominated in currencies other than the U.S. dollar and ADRs.
EMERGING MARKETS. The INTERNATIONAL VALUE FUND may invest in securities of
companies domiciled in emerging market countries. Investment in emerging market
countries presents risks greater in degree than, and in addition to, those
presented by investment in foreign issuers in general. A number of emerging
market countries restrict, to varying degrees, foreign investment in stocks.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some emerging
market countries. A number of the currencies of developing countries have
experienced significant declines against the U.S. dollar in recent years, and
devaluation may occur subsequent to investments in these currencies by the
INTERNATIONAL VALUE FUND. Inflation and rapid fluctuations in inflation rates
have had and may continue to have negative effects on the economies and
securities markets of certain emerging market countries. Many of the emerging
securities markets are relatively small, have low trading volumes, suffer
periods of relative illiquidity, and are characterized by significant price
volatility. There is a risk in emerging market countries that a future economic
or political crisis could lead to price controls, forced mergers of companies,
expropriation or confiscatory taxation, seizure, nationalization, or creation of
government monopolies, any of which may have a detrimental effect on the Fund's
investments.
OPTIONS. Each Fund, except the CASH MANAGEMENT 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. The
Fund will not engage in such transactions for speculative purposes.
A 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
16
<PAGE> 17
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 on a particular security is purchased
to hedge against price movements in a related security, the price of the 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.
Each Fund, except the CASH MANAGEMENT FUND, may also buy or sell put and call
options on foreign securities and foreign currencies. Currency options traded on
U.S. or other exchanges may be subject to position limits which may limit the
ability of the Funds to reduce foreign currency risk using such options.
Over-the-counter options differ from traded options in that they are two-party
contracts with price and other terms negotiated between buyer and seller and
generally do not have as much market liquidity as exchange-traded options.
FUTURES CONTRACTS and OPTIONS on FUTURES CONTRACTS. Each Fund, other than the
CASH MANAGEMENT FUND, may enter into contracts for the future delivery of fixed
income securities commonly referred to as "interest rate futures contracts."
These futures contracts will not be used for speculation but only as a hedge
against anticipated interest rate changes. A Fund also may use options to
purchase or sell covered interest rate futures contracts or debt securities and
may write covered call options and cash secured puts. Covered call options and
cash secured puts will not exceed 25% of total assets. Each Fund, except the
CASH MANAGEMENT FUND, may invest in commodity futures contracts and options,
foreign currency futures contracts and options, and stock index futures
contracts and options thereon. Such contracts may not be entered into for
speculative purposes. When a Fund purchases a futures contract, an amount of
cash or liquid securities equal to the fair market value less initial and
variation margin of the futures contract will be deposited in a segregated
account with an approved custodian to collateralize the position and thereby
ensure that such futures contract is "covered."
The Funds are subject to certain restrictions on their use of financial
futures contracts and options. A Fund will not enter into financial futures
contracts or purchase options on financial futures contracts if, after such a
transaction, the sum of initial margin deposits on the open financial futures
contracts and of premiums paid on open options on financial futures contracts
would exceed 5% of the Fund's total assets. Subject to the provisions of the
Company's fundamental investment policies, a Fund will not enter into financial
futures contracts or write options (except to close out open positions) if,
after such a transaction, the aggregate principal amount of all open financial
futures contracts and all options under which the Fund is obligated would exceed
100% of the Fund's total assets. A Fund will not purchase put and call options
on debt securities if, after such a transaction, the sum invested for premiums
in such options exceeds 2% of the Fund's total assets.
There are several risks associated with the use of futures and futures
options. The value of a futures contract may decline. With respect to
transactions for hedging, there can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the portfolio
securities being hedged. An incorrect correlation could result in a loss on both
the hedged securities in a Fund and the hedging vehicle so that the portfolio
return might have been greater had hedging not been attempted. There can be no
assurance that a liquid market will exist at a time when a Fund seeks to close
out a futures contract or a futures option position. Most futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain of these instruments are relatively new and without
a significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent a Fund from liquidating an unfavorable position and the
Fund would remain obligated to meet margin requirements until the position is
closed.
The Funds will only enter into futures contracts or futures options which are
standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. A Fund will use
financial futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission, or, with respect to positions in financial futures
and related options that do not qualify as "bona fide hedging" positions, will
enter into such non-hedging positions only to the extent that aggregate initial
margin deposits plus premiums paid by it for open futures option positions, less
the amount by which any such positions are "in-the-money," would not exceed 5%
of the Fund's total assets.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The MULTIFLEX FUND and
INTERNATIONAL VALUE FUND may enter into forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the Fund from
adverse changes in the relationship between the U.S. dollar and foreign
currencies. A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. Such contracts may
not be entered into for speculative purposes. A Fund will not enter into forward
contracts if, as a result, more
17
<PAGE> 18
than 10% of the value of its total assets would be committed to the consummation
of such contracts, and will segregate assets or "cover" its positions consistent
with requirements under the 1940 Act to avoid any potential leveraging of the
Fund.
SWAP AGREEMENTS. Each Fund, except the CASH MANAGEMENT FUND, may enter into
interest rate, index and currency exchange rate swap agreements for purposes of
attempting to obtain a particular desired return at a lower cost to the Fund
than if it had invested directly in an instrument that yielded that desired
return. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a few weeks to more than one
year. In a standard "swap" transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or
"swapped" between the parties are calculated with respect to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency, or in
a "basket" of securities representing a particular index. Commonly used swap
agreements include interest rate caps, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
exceed a specified rate, or "cap"; interest rate floors, under which, in return
for a premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
collars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
The "notional amount" of the swap agreement is only a fictive basis on which
to calculate the obligations which the parties to a swap agreement have agreed
to exchange. Most swap agreements entered into by a Fund would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). Obligations under a swap agreement will be accrued daily (offset
against amounts owing to the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash, U.S. Government securities, or high grade debt
obligations, to avoid any potential leveraging of the Fund. A Portfolio will not
enter into a swap agreement with any single party if the net amount owed or to
be received under existing contracts with that party would exceed 5% of the
Fund's total assets. For a discussion of the tax considerations relating to swap
agreements, see Appendix A to this Prospectus and the Statement of Additional
Information under "Distributions and Tax Information."
MORTGAGE-RELATED SECURITIES. As described under "Investment Objectives and
Policies," the INCOME FUND may invest in mortgage pass-through securities and
CMOs, and the MULTIFLEX FUND may invest in mortgage-related securities,
including CMOs and mortgage-backed bonds, and asset-backed securities.
Mortgage pass-through securities are securities representing interests in
"pools" of mortgage loans in which payments 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 Fannie Mae 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 obligations). For more information on GNMA
certificates and FNMA and FHLMC mortgage-backed obligations, see
"Mortgage-Related Securities" in the Statement of Additional Information.
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 the Portfolios, 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 a Portfolio's
diversification tests.
Mortgage-backed bonds -- are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and Fannie Mae and FHLMC pass-through
securities) or on a modified basis (as with CMOs). Accordingly, a change in the
rate of prepayments on the pool of mortgages could change the effective maturity
of a CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
Asset-backed securities -- are securities representing interests in other
types of financial assets, such as automobile-finance receivables or credit-card
receivables. Such securities are subject to many of the same risks as are
mortgage-backed securities, including prepayment risks and risks of foreclosure.
They may or may not be secured by the receivables themselves or may be unsecured
obligations of their issuers. For further information on these securities, see
the Statement of Additional Information.
18
<PAGE> 19
RISKS OF MORTGAGE-RELATED SECURITIES. Investment in mortgage-backed securities
poses several risks, including prepayment, market, and credit risk. Prepayment
risk reflects the risk that borrowers may prepay their mortgages faster than
expected, thereby affecting the investment's average life and perhaps its yield.
Whether or not a mortgage loan is prepaid is almost entirely controlled by the
borrower. Borrowers are most likely to exercise prepayment options at the time
when it is least advantageous to investors, generally prepaying mortgages as
interest rates fall, and slowing payments as interest rates rise. Besides the
effect of prevailing interest rates, the rate of prepayment and refinancing of
mortgages may also be affected by home value appreciation, ease of the
refinancing process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and a Portfolio invested in such securities wishing to sell them may
find it difficult to find a buyer, which may in turn decrease the price at which
they may be sold.
Credit risk reflects the risk that a Fund may not receive all or part of its
principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions. With respect to GNMA certificates,
although GNMA guarantees timely payment even if homeowners delay or default,
tracking the "pass-through" payments may, at times, be difficult.
For further information, see the Statement of Additional Information.
ZERO COUPON OBLIGATIONS. The MULTIFLEX FUND may invest in zero coupon
obligations, which are fixed-income securities that do not make regular interest
payments. Instead, zero coupon obligations are sold at substantial discounts
from their face value. The Fund accrues income on these investments for tax and
accounting purposes, which is distributable to shareholders and which, because
no cash is received at the time of accrual, may require the liquidation of other
portfolio securities to satisfy distribution obligations, in which case the Fund
will forego the purchase of additional income-producing assets with these funds.
The difference between a zero coupon obligation's issue or purchase price and
its face value represents the imputed interest an investor will earn if the
obligation is held until maturity. Zero coupon obligations may offer investors
the opportunity to earn higher yields than those available on ordinary
interest-paying obligations of similar credit quality and maturity. However,
zero coupon obligation prices may also exhibit greater price volatility than
ordinary fixed-income securities because of the manner in which their principal
and interest are returned to the investor.
REAL ESTATE INDUSTRY SECURITIES. Because each of the MULTIFLEX FUND and REAL
ESTATE FUND invests in securities of companies engaged in the real estate
industry, it could conceivably own real estate directly as a result of a default
on debt securities it owns. The Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate, including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic conditions, adverse changes in the climate
for real estate, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, limitations on rents, changes in
neighborhood values, the appeal of properties to tenants, and increases in
interest rates.
In addition to the risks described above, equity REITs may be affected by any
changes in the value of the underlying property owned by the trusts, while
mortgage REITs may be affected by the quality of any credit extended. Equity and
mortgage REITs are dependent upon management skill, are not diversified, and are
therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self-liquidation, and the possibility of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code and of failing
to maintain exemption from the 1940 Act. Changes in interest rates may also
affect the value of debt securities held by the Fund. By investing in REITs
indirectly through the Fund, a shareholder will bear not only his proportionate
share of the expenses of the Fund, but also, indirectly, similar expenses of the
REITs.
HIGH YIELD/HIGH RISK SECURITIES. The MULTIFLEX FUND may invest up to 5% of
assets in securities rated lower than Baa by Moody's or BBB by S&P, but rated at
least Ba by Moody's or BB by S&P or, if unrated, determined by the Fund's
sub-advisor to be of comparable quality. Securities rated lower than Baa by
Moody's or lower than BBB by S&P are sometimes referred to as "high yield,"
"high risk," or "junk" bonds. In addition, securities rated Baa are considered
by Moody's to have some speculative characteristics.
Investing in high yield securities involves special risks in addition to the
risks associated with investments in higher rated debt securities. High yield
securities may be regarded as predominately speculative with respect to the
issuer's continuing ability to meet principal and interest payments. Analysis of
the creditworthiness of issuers of high yield securities may be more complex
than for issuers of higher quality debt securities, and the ability of a Fund to
achieve its investment objective may, to the extent of its investments in high
yield securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to interest
rate changes than more highly rated investments, but more sensitive to economic
downturns or individual corporate developments. A projection of an economic
downturn or of a period of rising interest rates, for example, could cause a
decline in high yield security prices because the
19
<PAGE> 20
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
high yield securities defaults, a Fund may incur additional expenses to seek
recovery. In the case of high yield securities structured as zero coupon
securities or payment-in-kind securities (which pay interest in the form of
additional securities), the market prices of such securities are affected to a
greater extent by interest rate changes, and therefore tend to be more volatile
than securities which pay interest periodically and in cash. Moreover, a Fund
records the interest on these securities as income even though it receives no
cash interest until the security's maturity or payment date. A Fund will be
required to distribute all or substantially all such amounts annually and may
have to obtain the cash to do so by selling securities which otherwise would
continue to be held. Shareholders will be taxed on these distributions.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of a Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a thinly traded
market.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit ratings
in a timely fashion to reflect events since the security was last rated. The
sub-advisor does not rely solely on credit ratings when selecting securities for
the Funds, and develops its own independent analysis of issuer credit quality.
If a credit rating agency changes the rating of a portfolio security held by the
Fund, the Fund may retain the security if the sub-advisor deems it in the best
interest of the shareholders.
DELAYED DELIVERY TRANSACTIONS ("FORWARD COMMITMENTS"). The MULTIFLEX FUND,
REAL ESTATE FUND and INTERNATIONAL VALUE FUND may purchase or sell securities on
a when-issued or delayed delivery basis. These transactions involve a commitment
by the Fund to purchase or sell securities for a predetermined price or yield,
with payment and delivery taking place more than three days in the future, or
after a period longer than the customary settlement period for that type of
security. When delayed delivery purchases are outstanding, the Fund will set
aside, and maintain until the settlement date in a segregated account, cash or
liquid securities in an amount sufficient to meet the purchase price. Typically,
no income accrues on securities purchased on a delayed delivery basis prior to
the time delivery of the securities is made, although a Fund may earn income on
securities it has deposited in a segregated account. When purchasing a security
on a delayed delivery basis, a Fund assumes the rights and risks of ownership of
the security, including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because a Fund
is not required to pay for the security until the delivery date, these risks are
in addition to the risks associated with the Fund's other investments. If a Fund
remains substantially fully invested at a time when delayed delivery purchases
are outstanding, the delayed delivery purchases may result in a form of
leverage. When a Fund has sold a security on a delayed delivery basis, the Fund
does not participate in future gains or losses with respect to the security. If
the other party to a delayed delivery transaction fails to deliver or pay for
the securities, the Fund could miss a favorable price or yield opportunity or
could suffer a loss. A Fund may dispose of or renegotiate a delayed delivery
transaction after it is entered into, and may sell when-issued securities before
they are delivered, which may result in a capital gain or loss.
FUND SECURITIES LOANS. Each of the Funds, except the CASH MANAGEMENT FUND, may
lend limited amounts of portfolio securities (not to exceed 10% of total assets)
to broker-dealers or other institutional investors. (See the Statement of
Additional Information.)
PORTFOLIO TURNOVER. Generally, the rate of portfolio turnover will not be a
limiting factor when the Funds deem changes appropriate; however, it is
anticipated that no Fund's annual portfolio turnover rate generally will exceed
100%. In any particular year, however, market conditions could result in
portfolio activity at a greater rate than anticipated. Fund turnover rate, along
with the Company's brokerage allocation policies, are discussed in the Statement
of Additional Information.
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
The Directors of the Company, on behalf of the Funds, have adopted certain
investment restrictions which are fundamental policies and may not be changed as
to any Fund without the approval of the holders of a majority of such Fund's
outstanding voting securities (which in this Prospectus means, as to each Fund,
the vote of the lesser of (i) 67% or more of the voting securities present at a
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy, or (ii) more than 50% of the outstanding
voting securities). The Statement of Additional Information contains, under the
heading "Investment Restrictions," specific enumerated investment restrictions
which govern the investments of each Fund. The Company's investment restrictions
include, among others, limitations with respect to the percentage of the value
of any Fund's total assets that may be invested in any one company or any one
industry.
All of the Funds are "diversified" for purposes of the 1940 Act. It is a
fundamental restriction applicable to the MULTIFLEX FUND, REAL ESTATE FUND and
INTERNATIONAL VALUE FUND that, with respect to 75% of each Fund's assets, the
Fund will not purchase a security (other than a security issued or guaranteed by
the U.S. government, its agencies or instrumentalities) if, as a result, more
than 5% of the assets of the Fund would be invested in the securities of the
issuer. With respect to the LARGE CAP VALUE FUND, INCOME FUND, FLEX FUND and
CASH MANAGEMENT FUND, these diversification requirements are applied to 100% of
the Fund's total assets.
20
<PAGE> 21
Except for the Funds' investment objectives and those investment policies of a
Fund specifically identified as fundamental, all investment policies and
practices described in this Prospectus and in the Statement of Additional
Information are not fundamental and, therefore, may be changed by the Board of
Directors without shareholder approval. Such changes may result in a Fund having
investment objectives different from the investment objectives which the
shareholder considered appropriate at the time of investment in the Fund. For a
description of each Fund's fundamental and non-fundamental investment policies,
see "Investment Restrictions" in the Statement of Additional Information.
- --------------------------------------------------------------------------------
MANAGEMENT
The overall management of the business and affairs of the Funds is vested in
the Company's Board of Directors. The Board of Directors approves all
significant agreements between the Company, on behalf of one or more of the
Funds, and persons or companies furnishing services to the Funds, including the
investment advisory agreement with AIM, the agreements with AIM Distributors
regarding distribution of each Fund's shares, the agreements with State Street
Bank and Trust Company as the custodian. The day-to-day operations of each Fund
are delegated to the officers of the Company and to AIM, subject always to the
objective and policies of the applicable Fund and to the general supervision of
the Board of Directors. Certain directors and officers of the Company 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, which with its subsidiaries is 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 Directors may be found in the Statement of
Additional Information.
INVESTMENT ADVISOR. A I M Advisors, Inc., 11 Greenway Plaza, Suite 100,
Houston, Texas 77046, serves as investment advisor to each of the Funds. AIM has
been engaged in the investment advisory business since 1976, and is an indirect
wholly owned subsidiary of AMVESCAP PLC, which with its subsidiaries is an
independent management investment group engaged in institutional investment
management and retail market fund businesses in the United States, Europe and
the Pacific region.
SUB-ADVISORS. The sub-advisor to the LARGE CAP VALUE FUND, INCOME FUND, and
FLEX FUND is INVESCO Capital Management, Inc., a Delaware corporation having its
principal office at 1315 Peachtree Street, N.E., Atlanta, Georgia 30309. ICM
also has an advisory office in Coral Gables, Florida, and a marketing office in
San Francisco, California and has been engaged in the investment advisory
business since 1979. ICM currently manages in excess of $40 billion of assets
for its customers, and it believes it has one of the nation's largest
discretionary portfolios of tax-exempt accounts (such as pension and profit
sharing funds for corporations and state and local governments). ICM currently
sponsors one investment company, INVESCO Treasurer's Series Trust, which
currently offers two portfolios. In addition, ICM furnishes investment advice to
the following other investment companies: The Large Cap Value Fund of the
Prudential Target Portfolio Trust, the Sentinel World Fund, the Frank Russell
Canada Fund, the Russell Large Cap Fund, certain portfolios of the INVESCO
Variable Investment Funds, Inc., and certain portfolios of INVESCO Value Trust.
Funds are supervised by investment managers who utilize ICM's facilities for
investment research and analysis, review of current economic conditions and
trends, and consideration of long-range investment policy matters.
The sub-advisor to the MULTIFLEX FUND is INVESCO Management & Research, Inc.,
a Massachusetts corporation having its principal office at 101 Federal Street,
Boston, Massachusetts 02110. IMR has been engaged in the investment advisory
business since 1969. IMR currently manages $2.1 billion of assets for its
customers, predominately in pension and endowment accounts. IMR currently
sponsors one investment company, The Commonwealth Investment Trust, which
consists of one portfolio.
The sub-advisor to the REAL ESTATE FUND is INVESCO Realty Advisors, Inc., a
Texas corporation having its principal office at One Lincoln Centre, Suite 1200,
5400 LBJ Freeway/LB-2, Dallas, Texas 75240. IRAI has been a registered
investment advisor and qualified professional asset manager since 1983. IRAI
currently manages $2.7 billion of assets for its customers. As of December 31,
1996, IRAI's portfolio contained 98 properties totalling over 26.5 million
square feet of commercial real estate and 13,651 apartment units. IRAI currently
advises one other mutual fund; INVESCO Realty Fund.
The sub-advisor to INTERNATIONAL VALUE FUND is INVESCO Global Asset
Management, a Bermuda corporation having its principal office at Cedar House, 41
Cedar Avenue, Hamilton, HM 12 Bermuda. IGAM is registered as an investment
advisor under the Investment Advisors Act of 1940. IGAM's responsibilities
include analyzing global economic trends and establishing AMVESCAP PLC's global
investment asset allocations for AMVESCAP PLC affiliates in addition to managing
$11 million in assets, as of December 31, 1996.
AIM and ICM provide general investment advice and portfolio management to the
LARGE CAP VALUE FUND, INCOME FUND and FLEX FUND. AIM and IMR provide general
investment advice and portfolio management to the MULTIFLEX FUND. AIM and IGAM
provide general investment advice and portfolio management to INTERNATIONAL
VALUE FUND. AIM and IRAI provide general investment advice and portfolio
management to the REAL ESTATE FUND. AIM, ICM, IGAM, IRAI and IMR are indirect
wholly owned subsidiaries of AMVESCAP PLC, formerly AMVESCO PLC. AMVESCAP PLC is
a publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. INVESCO PLC changed
its name to AMVESCO PLC on March 3, 1997, as part of a merger between a direct
subsidiary of INVESCO PLC and A I M Management Group Inc., thus creating one of
the largest independent investment management businesses in the world.
Shareholders approved a name change for AMVESCO PLC to
21
<PAGE> 22
AMVESCAP PLC effective May 8, 1997. ICM, IGAM, IRAI and IMR will continue to
operate under their existing names. AMVESCAP PLC has approximately $165 billion
in assets under management.
The former directors of the Company, at a meeting held on March 26, 1997,
voted to approve a consolidation of the Company's services with those of The
AIM Family of Funds--Registered Trademark--. A I M Management Group Inc., a
financial services holding company located in Houston, Texas, is the parent
corporation of AIM. On July 9, 1997, shareholders of the Company approved (1) a
new investment advisory contract with AIM with terms substantially identical to
those of the Company's prior investment advisory contract with INVESCO
Services, Inc. ("ISI"), (2) five sub-advisory arrangements reflecting this
change and that ICM will no longer be sub-advisor to INTERNATIONAL VALUE FUND
and CASH MANAGEMENT FUND, (3) a new sub-advisory contract between AIM and IGAM
with respect to INTERNATIONAL VALUE FUND and (4) a new board of directors
consisting of persons who are currently directors of The AIM Family of Funds.
There will be no change in the identities of the current sub-advisors, except
that CASH MANAGEMENT FUND will no longer have a sub-advisor, and will instead,
be directly advised by AIM and IGAM will act as sub-advisor to INTERNATIONAL
VALUE FUND. As a result of these changes, A I M Distributors, Inc. is the
Company's principal underwriter and certain other affiliated and unaffiliated
service providers to the AIM Funds provide services to the Company. The changes
are not expected to increase fees payable by the Company or any Fund for
services.
Under the respective Investment Advisory and Sub-Advisory Agreements (the
"Advisory Agreements") with the Company, AIM, subject to the supervision of the
Directors, and the sub-advisors, subject to the supervision of AIM and the
Directors (see the Statement of Additional Information under "Officers and
Directors"), and in conformance with each Fund's stated policies, manage the
Funds' investment operations. In this regard, it will be the responsibility of
the respective sub-advisor (subject to the supervision of the Advisor) not only
to make investment decisions for the Funds, but also to place purchase and sale
orders for the portfolio transactions of the Funds. The Advisor and sub-advisors
may follow a policy of considering sales of shares of the Company as a factor in
the selection of broker-dealers to execute portfolio transactions. See the
Statement of Additional Information under "Brokerage and Portfolio
Transactions." In fulfilling its responsibilities, the Advisor may engage the
services of other investment managers with respect to one or more of the Funds,
subject to approval of the Board of Directors.
PORTFOLIO MANAGERS. Information about the individual portfolio managers
responsible for management of the Funds, including their business experience for
the past five years, is provided below.
LARGE CAP VALUE FUND
<TABLE>
<S> <C>
Michael C. Harhai, C.F.A. Portfolio Manager, ICM (March 1993 to present);
Portfolio Manager Senior Vice President and Manager, Sovran Capital
Management Corp. (Jan. 1992 to March 1993); Senior
Vice President and Portfolio Manager, C&S/Sovran
Capital Management (July 1991 to Jan. 1992); Senior
Vice President and Portfolio Manager, Citizens &
Southern Investment Advisors, Inc. (Jan. 1984 to July
1991). Chartered Financial Analyst. Trustee, Atlanta
Society of Financial Analysts. Mr. Harhai has managed
the Equity Portfolio since July 1993.
R. Terrence Irrgang, C.F.A. Portfolio Manager, ICM (April 1992 to present);
Assistant Portfolio Consultant, Towers, Perrin, Forster & Crosby (Oct.
Manager 1988 to April 1992). Chartered Financial Analyst.
Atlanta Society of Financial Analysts. Mr. Irrgang
has assisted in managing the LARGE CAP VALUE FUND
since July 1993.
INCOME FUND
James O. Baker, C.F.A. Portfolio Manager, ICM (Oct. 1992 to present);
Portfolio Manager Portfolio Manager, Willis Investment Counsel (Dec.
1990 to Oct. 1992); Broker, Morgan Keegan (Dec. 1989
to Dec. 1990); Broker, Drexel Burnham Lambert (April
1985 to Dec. 1990). Chartered Financial Analyst. Mr.
Baker has managed the INCOME FUND since July 1993.
Ralph H. Jenkins, Jr., Vice President, ICM (Dec. 1991 to present); Portfolio
C.F.A. Manager, ICM (Jan. 1988 to present). Chartered
Assistant Portfolio Financial Analyst. Chartered Investment Counselor.
Manager Atlanta Society of Financial Analysts. Mr. Jenkins
has assisted in managing the INCOME FUND since 1989.
FLEX FUND
Edward C. Mitchell, Jr., Chairman and Director, ICM (March 1997 to present)
C.F.A. President and Director, ICM (Jan. 1992 to March
Portfolio Manager 1997); Vice President and Director, ICM (Jan. 1979 to
Dec. 1991). Chartered Financial Analyst. Chartered
Investment Counselor. Past President, Atlanta Society
of Financial Analysts. Mr. Mitchell has managed the
FLEX FUND since its commencement of operations in
February 1988.
Margaret (Peg) W. Durkes, Portfolio Manager, ICM (July 1993-Present); Vice
C.F.A. President and Portfolio Manager, Sovran Capital
Assistant Portfolio Management (July 1991-July 1993); Chartered Financial
Manager Analyst; Atlanta Society of Financial Analysts. Ms.
Durkes has assisted in managing the Flex Fund since
August 1997.
</TABLE>
22
<PAGE> 23
David S. Griffin, C.F.A. Portfolio Manager, ICM (March 1991 to present);
Assistant Portfolio Mutual Fund Sales, ISI (Feb. 1986 to March 1991).
Manager Chartered Financial Analyst. Atlanta Society of
Financial Analysts. Mr. Griffin has assisted in
managing the FLEX FUND since July 1993.
MULTIFLEX FUND
Robert S. Slotpole Vice President and Portfolio Manager, IMR (June 1993
Portfolio Manager to present); Portfolio Manager, Hamilton Partners
(February 1992 to June 1993); Vice President and
Portfolio Manager, The First Boston Corporation (May
1985 to February 1992). Mr. Slotpole is responsible
for the asset allocation decisions regarding the
Fund's investments in its five asset classes. Mr.
Slotpole is assisted by a team of analysts, each of
whom specializes in one of the asset classes in which
the Fund may invest. Each analyst is also responsible
for the security selection in his asset class within
the overall asset allocation parameters and security
selection methodologies established by IMR. Mr.
Slotpole has managed the MULTIFLEX FUND since July 1,
1994.
REAL ESTATE FUND
IRAI employs a team of portfolio managers who are collectively responsible for
the investment decisions relating to the REAL ESTATE FUND.
INTERNATIONAL VALUE FUND
W. Lindsay Davidson Portfolio Manager, IGAM (August 2 to present);
Portfolio Manager Portfolio Manager, ICM (April 1993 to August 2);
Portfolio Manager, INVESCO Asset Management Limited
(May 1984 to March 1993). Mr. Davidson has managed
the International Value Fund since its commencement
of operations in May 1995.
For the services to be rendered and the expenses to be assumed by the Advisor
under the Investment Advisory Agreement, each of the Funds pays to the Advisor
an advisory fee which is computed daily and paid as of the last day of each
month on the basis of each Fund's daily net asset value, using for each daily
calculation the most recently determined net asset value of the Fund. See
"Determination of Net Asset Value."
On an annual basis, the advisory fee is equal to 0.75% of the average net
asset value of each of the LARGE CAP VALUE FUND and FLEX FUND; 0.90% of the
average net asset value of the REAL ESTATE FUND; 1.00% of the average net asset
value of each of the MULTIFLEX FUND and INTERNATIONAL VALUE FUND; 0.50% of the
average net asset value of the CASH MANAGEMENT FUND, and 0.65% of the average
net asset value of the INCOME FUND (the previous advisor agreed to waive
advisory fees payable by the INCOME FUND for a three-year period beginning
October 1, 1995, so that the advisory fee would not exceed 0.40% of average
daily net assets. AIM has voluntarily agreed to assume the remaining term of the
previous advisor's commitment).
For services rendered to the LARGE CAP VALUE FUND, INCOME FUND and FLEX FUND,
by ICM under those Funds' Sub-Advisory Agreement, AIM pays to ICM a sub-advisory
fee which is computed daily and paid as of the last day of each month on the
basis of each Fund's daily net asset value using for each daily calculation the
most recently determined net asset value of the Fund. See "Determination of Net
Asset Value." On an annual basis, the sub-advisory fee is equal to 0.20% of the
average net asset value of the Fund for each of the LARGE CAP VALUE FUND and
FLEX FUND, and 0.10% of the average net asset value of the INCOME FUND.
For services rendered to the MULTIFLEX FUND by IMR under that Fund's
Sub-Advisory Agreement, AIM pays to IMR a sub-advisory fee which is computed
daily and paid as of the last day of each month on the basis of the Portfolio's
daily net asset value using for each daily calculation the most recently
determined net asset value of the Fund. See "Determination of Net Asset Value."
On an annual basis, the sub-advisory fee is equal to the following: 0.35% of
average net assets on the first $500 million of assets and 0.25% of average net
assets on assets in excess of $500 million.
For services rendered to the REAL ESTATE FUND by IRAI under that Fund's
Sub-Advisory Agreement, AIM pays to IRAI a sub-advisory fee which is computed
daily and paid as of the last day of each month on the basis of the Fund's daily
net asset value using for each daily calculation the most recently determined
net asset value of the Fund. See "Determination of Net Asset Value." On an
annual basis, the sub-advisory fee is equal to 0.35% of average net assets on
the first $100 million of assets and 0.25% of average net assets on assets in
excess of $100 million.
For services rendered to the INTERNATIONAL VALUE FUND by IGAM under that
Fund's Sub-Advisory Agreement, AIM pays to IGAM a sub-advisory fee which is
computed daily and paid as of the last day of each month on the basis of the
Fund's daily net asset value using for each daily calculation the most recently
determined net asset value of the Fund. See "Determination of Net Asset Value."
On an annual basis, the sub-advisory fee is equal to 0.35% of average net assets
up to $50 million; 0.30% on average net assets over $50 million up to $100
million; and 0.25% on average net assets in excess of $100 million.
23
<PAGE> 24
As manager to the Company, AIM also provides operating services pursuant to an
Operating Services Agreement with the Company. Under the Operating Services
Agreement, each Fund pays to the Manager an annual fee of 0.45% of daily net
assets of the Fund for providing or arranging to provide accounting, legal
(except litigation), dividend disbursing, transfer agent, registrar, custodial,
shareholder reporting, sub-accounting and recordkeeping services and functions.
The agreement provides that the Manager pays 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, Operating Services Agreement,
and Plan of Distribution of the Company (see "Distribution Plan" below) is to
place a cap or ceiling on the total expenses of each Fund, other than brokerage
commissions, interest, taxes, litigation, directors' fees and expenses, and
other extraordinary expenses. AIM has voluntarily agreed to adhere to maximum
expense ratios for the Funds for a period of three years beginning August 2,
1997, provided that expense ratios might change within this period in the event
one or more Funds were reorganized or merged with another fund. Any such
reorganization or merger would require approval by shareholders of the affected
Fund(s). To the extent that expenses exceed the amounts listed below, AIM will
waive its fees or reimburse the Fund to assure that expenses do not exceed the
designated maximum amounts as qualified above. The expense ceilings include
reductions at larger asset sizes to reflect anticipated economies of scale as
the Funds grow in size.
If, in any calendar quarter, the average net assets of each of the LARGE CAP
VALUE FUND or FLEX FUND are less than $500 million, each Fund'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 quarter, the
average net assets of the MULTIFLEX FUND or INTERNATIONAL VALUE FUND 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 exceed 1.60% for Class A and
2.25% for Class C. If, in any calendar quarter, the average net assets of the
REAL ESTATE FUND 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 INCOME FUND may not exceed 1.35% for
Class A and 1.70% for Class C, and the expenses of the CASH MANAGEMENT FUND may
not exceed 0.95% of average net assets. The Advisor has agreed to reimburse the
INCOME FUND 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.
The Advisor and Sub-Advisors permit investment and other personnel to purchase
and sell securities for their own accounts, subject to a compliance policy
governing personal investing. This policy requires the Advisor's and
Sub-Advisors' personnel to conduct their personal investment activities in a
manner that the Advisor and Sub-Advisors believe is not detrimental to the Funds
or the Advisor's and Sub-Advisors' other advisory clients. See the Statement of
Additional Information for more detailed information.
DISTRIBUTOR. A I M Distributors, Inc., the Funds' distributor (the
"Distributor"), a wholly owned subsidiary of AIM, is the principal underwriter
of the Company under a separate Distribution Agreement (the "Distribution
Agreement"). The Distributor is also the principal underwriter for other
investment companies. The Distributor acts as agent upon the receipt of orders
from investors. The Distributor's principal office is located at 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1173.
The Distributor will be reimbursed for distribution-related expenses by the
LARGE CAP VALUE FUND, INCOME FUND, FLEX FUND, MULTIFLEX FUND, REAL ESTATE FUND
and INTERNATIONAL VALUE FUND pursuant to the plans of distribution promulgated
pursuant to Rule 12b-1 under the 1940 Act, as described under "Distribution
Plan" herein and in the Statement of Additional Information under "Distribution
of Shares." The CASH MANAGEMENT FUND does not have a plan of distribution under
Rule 12b-1.
DISTRIBUTION PLAN. Rule 12b-1 under the 1940 Act ("Rule 12b-1") permits
investment companies to use their assets to bear expenses of distributing their
shares if they comply with various conditions. Pursuant to Rule 12b-1, the LARGE
CAP VALUE FUND, INCOME FUND, FLEX FUND, MULTIFLEX FUND, REAL ESTATE FUND and
INTERNATIONAL VALUE FUND have adopted plans of distribution for each Class. The
CASH MANAGEMENT FUND has not adopted a plan of distribution for either class.
Class A Distribution Plan. The Class A Plan provides that each Fund (except
the CASH MANAGEMENT FUND and INCOME FUNDS) may make payments to AIM Distributors
which may not exceed a maximum annual rate of 0.35% of the average daily net
assets of the Funds attributable to Class A shares, to cover certain
distribution and shareholder service expenses. The INCOME FUND payments under
the Class A Plan may not exceed a maximum annual rate of 0.25% of that Fund's
average daily net assets. In general, these amounts up to a maximum annual rate
of 0.25% are used for the payment to broker-dealers (including, for this
purpose, certain other qualifying financial institutions) as a "service fee" for
providing account maintenance or personal service to existing shareholders. The
directors are authorized to reduce the amount of payments or to suspend the Plan
for such periods as they may determine.
Class C Distribution Plan. The Class C Plan provides that each Fund (except
the CASH MANAGEMENT FUND) may make payments to AIM Distributors which may not
exceed a maximum daily rate of 0.60% of the INCOME FUND'S average daily net
assets attributable to its Class C shares, and 1.0% of the other Funds' average
daily net assets attributable to their respective Class C shares, to cover
certain distribution and shareholder service expenses. This expense includes the
payment calculated at an annual rate of 0.25% of
24
<PAGE> 25
average annual net assets to broker-dealers as a "service fee" for providing
account maintenance or personal service to existing shareholders. The directors
are authorized to reduce the amount of payments or to suspend the Plan for such
periods as they may determine.
Although Class C shares are sold without an initial sales charge, AIM
Distributors may pay a sales commission to dealers who sell Class C shares of
the relevant Funds. These sales commissions may equal 0.60% on sales of INCOME
FUND and 1.0% on all other Funds. These commissions are not paid on sales to
investors exempt from the CDSC, including shareholders of record on April 30,
1995 who purchase additional shares in any of the Funds on or after May 1, 1995,
and in circumstances where AIM Distributors grants an exemption on particular
transactions. In addition, in order to further compensate dealers (including,
for this purpose, certain other qualifying financial institutions) for services
provided in connection with sales of Class C shares and the maintenance of
shareholder accounts, AIM Distributors makes quarterly payments to qualifying
dealers and qualifying financial institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers are designated as the dealer of record. AIM Distributors makes such
payments up to a maximum annual rate of 1.0% (0.60% for INCOME FUND), of the
average net asset value of Class C shares sold by such broker-dealers or
qualifying financial institutions, which are outstanding on the books of such
Funds for each month, subject to the annual limitations described above. When a
sales commission has been paid to the selling broker-dealer or qualifying
financial institution, additional quarterly payments will not be made until
after the first full year.
GENERAL. AIM Distributors may suspend or modify the payments made to dealers
or other qualifying financial institutions under the Plans described above, and
such payments are subject to the continuation of the Distribution Plans by the
directors, the terms of selling or shareholder servicing agreements between
dealers and AIM Distributors, and any applicable limits imposed by the NASD. For
additional information concerning the Fund's plans of distribution, see the
Statement of Additional Information under "Distribution of Shares."
- --------------------------------------------------------------------------------
CAPITALIZATION
The authorized capital stock of the Company consists of 10,075,000,000 shares
of common stock having a par value of $.001 per share. The authorized capital
stock of the Company has been classified as 10,000,000 shares of each of the
LARGE CAP VALUE FUND, INCOME FUND, REAL ESTATE FUND and INTERNATIONAL VALUE
FUND; 15,000,000 shares of MULTIFLEX FUND; 20,000,000 shares of FLEX FUND; and
10,000,000,000 shares of the CASH MANAGEMENT FUND. Authorized shares of each
Fund are divided between Class A and Class C shares, as follows:
<TABLE>
<CAPTION>
FUND NAME CLASS A SHARES CLASS C SHARES
--------- -------------- --------------
<S> <C> <C>
LARGE CAP VALUE FUND........................................ 5,000,000 5,000,000
FLEX FUND................................................... 7,500,000 12,500,000
MULTIFLEX FUND.............................................. 5,000,000 10,000,000
INTERNATIONAL VALUE FUND.................................... 5,000,000 5,000,000
REAL ESTATE FUND............................................ 5,000,000 5,000,000
INCOME FUND................................................. 5,000,000 5,000,000
CASH MANAGEMENT FUND........................................ 5,000,000,000 5,000,000,000
</TABLE>
The Company's Articles of Incorporation provide that the obligations and
liabilities of each Fund or class, as applicable, are restricted to the assets
of the particular Fund or class, as applicable, and generally do not extend to
the assets of the other Funds or classes of the Company.
There are no conversion or preemptive rights in connection with any shares of
the Company, nor are there cumulative voting rights with respect to the shares
of the Company. Each of the Funds' shares has equal voting rights, except that
only shares of the respective Fund or class are entitled to vote on matters
concerning only that Fund or class. (See, also, "Miscellaneous," below.) Each
class of shares is entitled to participate in dividends and distributions
declared by the respective Funds and in net assets of such Funds upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities applicable to each class, including distribution and shareholder
servicing charges.
All issued and outstanding shares of the Company will be fully paid and
nonassessable and will be redeemable at the net asset value per share (subject
to any applicable contingent deferred sales charge). Unless specifically
requested in writing by a shareholder, the interests of shareholders in the
Company will not be evidenced by a certificate or certificates representing
shares of the Company.
- --------------------------------------------------------------------------------
SHAREHOLDER REPORTS
Each Fund will issue to each of its shareholders semiannual and annual reports
containing each Fund's financial statements, including selected financial
highlights and a schedule of each Fund's portfolio securities. The federal
income tax status of shareholder distributions will also be reported to
shareholders after the end of each year.
25
<PAGE> 26
Shareholders having any questions concerning any of the Funds may call the
Distributor. The toll-free telephone number is (800) 347-4246.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
From time to time the Fund may provide yield and total return figures for the
Funds and their classes in advertisements and in reports and other
communications to shareholders.
"Average annual total return" and "total return" figures represent the
increase (or decrease) in the value of an investment in the particular Fund and
class over a specified period. Both calculations assume that all income
dividends and capital gain distributions during the period are reinvested at net
asset value in additional shares of the class. Quotations of average annual
total return represent an average annual compounded rate of return on a
hypothetical investment in the Fund and class over a period of 1, 5, and 10
years ending on the most recent calendar quarter close. Quotations of total
return, which are not annualized, reflect actual earnings and asset value
fluctuations for the periods indicated. Both types of return are based on past
experience and do not guarantee future results.
Funds other than the CASH MANAGEMENT FUND may provide quotations of "yield,"
"dividend yield," and "distribution yield" for each class. Quotations of yield
for these Funds will be based on all investment income per share earned during a
given 30-day period (including dividends and interest), less expenses of the
class accrued during the period ("net investment income"), and will be computed
by dividing net investment income by the maximum public offering price per share
on the last day of the period.
Dividend yield is a measure of investment return during a specified period
based on dividends actually paid by a class during that period. Dividend yield
is calculated by totaling the dividends paid by a class during the specified
period and dividing that sum by the net asset value per share of the class on
the last day of the period. Where the dividend yield is calculated for a period
of less than a year, results may be annualized. Distribution yield is computed
in the same way, but includes distributions paid from capital gains realized by
the class, as well as dividends from its net investment income.
In addition, from time to time the CASH MANAGEMENT FUND advertises its "yield"
and "effective yield." Both yield figures are based on historical earnings and
are not intended to indicate future performance. The "yield" of the CASH
MANAGEMENT FUND refers to the net income generated by an investment in the CASH
MANAGEMENT FUND over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the CASH MANAGEMENT FUND is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. "Yield" is based on historical
earnings and is not intended to indicate future performance. Additional
performance information is contained in the Statement of Additional Information
(see "Performance Information"), as well as in the Fund's Annual Report to
Shareholders, both of which are available upon request without charge.
Performance information for a Fund may be compared in advertisements, sales
literature, and reports to shareholders to: (i) unmanaged indices, such as the
S&P's 500 Stock Index, the Salomon Brothers Broad Investment Grade Bond Index,
the Morgan Stanley Capital International indices, the Dow Jones Industrial
Average, Donoghue Money Market Institutional Averages, the Merrill Lynch 1 to 3
Year Treasury Index, the Salomon Brothers World Government Benchmark Bond Index,
the Lehman Brothers Municipal Bond Index, the Lehman Brothers Aggregate Bond
Index, the Lehman Brothers Government Corporate Index and the NAREIT Equity
Index; (ii) other groups of mutual funds tracked by Lipper Analytical Services,
a widely used independent research firm which ranks mutual funds by overall
performance, investment objectives and assets, or tracked by other services,
companies, publications or persons who rank mutual funds on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation)
and other measures of the performance of the economy to assess the real rate of
return from an investment in the Fund. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
- --------------------------------------------------------------------------------
MISCELLANEOUS
As stated above, the Funds are series of the Company. The Fund, as a Maryland
corporation, is not required to hold annual shareholder meetings. However,
special meetings may be called for purposes such as electing or removing
directors, changing fundamental policies or approving an advisory contract, or
as may be required by applicable law or the Company's Articles of Incorporation
or By-Laws. Meetings of shareholders will be called upon written request of
shareholders holding in the aggregate at least 10% of the Company's outstanding
shares. The directors will provide appropriate assistance to shareholders, in
compliance with provisions of the 1940 Act, if such a request for a meeting is
received. Each shareholder receives one vote for each share owned, except that
only shares of the respective Fund or class are entitled to vote on matters
concerning only that Fund or class and each Fund and class shall have separate
voting rights on matters as to which the interests of the Fund or class differ
from the interests of any other Fund or class, to the extent required by
applicable law, regulation and regulatory interpretation.
26
<PAGE> 27
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* AIM GLOBAL GROWTH FUND
AIM ADVISOR FLEX FUND AIM GLOBAL INCOME FUND
AIM ADVISOR INCOME FUND AIM GLOBAL UTILITIES FUND
AIM ADVISOR INTERNATIONAL VALUE FUND AIM GROWTH FUND
AIM ADVISOR LARGE CAP VALUE FUND AIM HIGH YIELD FUND
AIM ADVISOR MULTIFLEX FUND AIM INCOME FUND
AIM ADVISOR REAL ESTATE FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM AGGRESSIVE GROWTH FUND AIM INTERNATIONAL EQUITY FUND
AIM ASIA-PACIFIC GROWTH FUND AIM LIMITED MATURITY TREASURY SHARES
AIM BALANCED FUND AIM MONEY MARKET FUND*
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*
AIM CONSTELLATION FUND AIM TAX-FREE INTERMEDIATE SHARES
AIM EUROPEAN CAPITAL GROWTH FUND AIM VALUE FUND
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM WEINGARTEN FUND
</TABLE>
* 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.
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-AEF 06/97
A-1
<PAGE> 28
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 ASIA-PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BLUE CHIP FUND, AIM
CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM EUROPEAN
CAPITAL GROWTH FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND,
AIM GLOBAL INCOME FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND, AIM HIGH
YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL
EQUITY FUND, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND FUND, AIM VALUE FUND and
AIM WEINGARTEN FUND (other than AIM AGGRESSIVE GROWTH FUND), collectively, the
"Multiple Class Funds," may be purchased at their respective net asset value
plus a sales charge as indicated below, except that shares of AIM TAX-EXEMPT
CASH FUND, 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-AEF 06/97
A-2
<PAGE> 29
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 ASIA-PACIFIC GROWTH FUND, AIM
BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM
CONSTELLATION FUND, AIM EUROPEAN CAPITAL GROWTH 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>
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
</TABLE>
There is no sales charge on purchases of $1,000,000 or more; however, AIM
Distributors may pay a dealer concession and/or advance a service fee on such
transactions. See "All Groups of AIM Funds." PURCHASES OF $1,000,000 OR MORE ARE
AT NET ASSET VALUE, SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE OF 1% IF
SHARES ARE REDEEMED PRIOR TO 18 MONTHS FROM THE DATE SUCH SHARES WERE PURCHASED,
AS DESCRIBED UNDER THE CAPTION "HOW TO REDEEM SHARES -- CONTINGENT DEFERRED
SALES CHARGE PROGRAM FOR LARGE PURCHASES."
GROUP II. Certain AIM Funds are currently sold with a sales charge ranging
from 4.75% to 2.00% of the offering price on purchases of less than $1,000,000.
These AIM Funds are: AIM TAX-EXEMPT BOND FUND OF CONNECTICUT; and the Class A
shares of each of AIM 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>
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-AEF 06/97
A-3
<PAGE> 30
GROUP III. Certain AIM Funds are currently sold with a sales charge ranging
from 1.00% to 0.50% of the offering price on purchases of less than $1,000,000.
These AIM Funds are AIM LIMITED MATURITY TREASURY SHARES and AIM TAX-FREE
INTERMEDIATE SHARES.
<TABLE>
<CAPTION>
DEALER
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 shares which normally involve
payment of initial sales charges, and which are sold at net asset value and are
not subject to a contingent deferred sales charge, in an amount up to 0.10% of
such purchases of shares of AIM LIMITED MATURITY TREASURY SHARES, and in an
amount up to 0.25% of such purchases of shares of AIM TAX-FREE INTERMEDIATE
SHARES.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.0% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds. Payment 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 quarterly payments
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
constitute 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].
MCF-AEF 06/97
A-4
<PAGE> 31
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, 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 Class B Plan payments of 1.00% per
annum on the average daily net assets of a Multiple Class Fund attributable
to Class B shares. See the discussion under the caption
"Management -- Distribution Plans." In addition, Class B shares redeemed
within six years from the date such shares were purchased are subject to a
contingent deferred sales charge ranging from 5% for redemptions made
within the first year to 1% for redemptions made within the sixth year. No
contingent deferred sales charge will be imposed if Class B shares are
redeemed after six years from the date such shares were purchased.
Redemptions of Class B shares and associated charges are further described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Class B shares will automatically convert into Class A shares of the same
Multiple Class Fund (together with a pro rata portion of all Class B shares
acquired through the reinvestment of dividends and distributions) eight
years from the end of the calendar month in which the purchase of Class B
shares was made. Following such conversion of their Class B shares,
investors will be relieved of the higher Class B Plan payments associated
with Class B shares. See "Management -- Distribution Plans."
CLASS C SHARES are sold without an initial sales charge. Thus the entire
purchase price of Class C shares is immediately invested in Class C shares.
The Class C shares (except Class C shares of AIM ADVISOR CASH MANAGEMENT
FUND) are subject, however, to Class A and C 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 -- 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 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"). 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.
MCF-AEF 06/97
A-5
<PAGE> 32
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 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 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. Class B shares of AIM MONEY MARKET FUND are designed for temporary
investment as part of an investment program in the Class B shares and, unlike
shares of most money market funds, are subject to a contingent deferred sales
charge as well as Rule 12b-1 distribution fees and service fees.
SHARE CERTIFICATES. Share certificates for all AIM Funds will be issued upon
written request by a shareholder to AIM Distributors or the Transfer Agent.
Otherwise, such shares will be held on the shareholder's behalf by the
applicable AIM Fund(s) and be recorded on the books of such fund(s). See
"Exchange Privilege -- Exchanges by Telephone" and "How to Redeem
Shares -- Redemptions by Telephone" for restrictions applicable to shares issued
in certificate form. Please note that certificates will not be issued for shares
held in prototype retirement plans.
MINIMUM ACCOUNT BALANCE. If (1) an account opened in a fund has been in effect
for at least one year and the shareholder has not made an additional purchase in
that account within the preceding six calendar months and (2) the value of such
account drops below $500 for three consecutive months as a result of redemptions
or exchanges, the fund has the right to redeem the account, after giving the
shareholder 60 days' prior written notice, unless the shareholder makes
additional investments within the notice period to bring the account value up to
$500.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of shares of the AIM Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "purchaser" as hereinafter defined. Purchases of shares of AIM
TAX-EXEMPT CASH FUND, Class 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;
MCF-AEF 06/97
A-6
<PAGE> 33
- 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) 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) 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) 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
MCF-AEF 06/97
A-7
<PAGE> 34
Fund with a value of $20,000 and wishes to invest an additional $20,000 in a
fund with a maximum initial sales charge of 5.50%, the reduced initial sales
charge of 5.25% will apply to the full $20,000 purchase and not just to the
$15,000 in excess of the $25,000 breakpoint. To qualify for obtaining the
discount applicable to a particular purchase, the purchaser or his dealer must
furnish AFS with a list of the account numbers and the names in which such
accounts of the purchaser are registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of any of the AIM Funds at
net asset value (without payment of an initial sales charge) may be made in
connection with: (a) the reinvestment of dividends and distributions from a fund
(see "Dividends, Distributions and Tax Matters"); (b) exchanges of shares of
certain other funds (see "Exchange Privilege"); (c) use of the reinstatement
privilege (see "How to Redeem Shares"); or (d) a merger, consolidation or
acquisition of assets of a fund.
Shareholders of record of Class A shares of AIM WEINGARTEN FUND and AIM
CONSTELLATION FUND on September 8, 1986, and shareholders of record of Class A
shares of AIM CHARTER FUND on November 17, 1986, may purchase additional Class A
shares of the particular AIM Fund(s) whose shares they owned on such date, at
net asset value (without payment of a sales charge) for as long as they
continuously own Class A shares of such AIM Fund(s) having a market value of at
least $500. In addition, discretionary advised clients of any investment
advisors whose clients held Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND on September 8, 1986, or who held Class A shares of AIM
CHARTER FUND on November 17, 1986, and have held such Class A shares at all
times subsequent to such date, may purchase Class A shares of the applicable AIM
Fund(s) at the net asset value of such shares.
The following persons may purchase shares of the AIM Funds through AIM
Distributors without payment of an initial sales charge: (a) A I M Management
Group Inc. ("AIM Management") and its affiliated companies; (b) any current or
retired officer, director, trustee or employee, or any member of the immediate
family (including spouse, 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
omnibus account per fund and the financial institution or service organization
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 up to 1.00% of the net asset value of
any shares of the Load Funds (as defined on page A-10 herein) up to 0.10% of the
net asset value of any shares of AIM LIMITED MATURITY TREASURY SHARES, and up to
0.25% of the net asset value of any shares of all other AIM Funds sold at net
asset value to an employee benefit plan in accordance with this paragraph.
Class A shares of AIM WEINGARTEN FUND and AIM CONSTELLATION FUND may be
deposited at net asset value, without payment of a sales charge, in G/SET series
unit investment trusts, whose portfolios consist exclusively of Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND and stripped United States
Treasury issued notes or bonds bearing no current interest ("Treasury
Obligations"). Class A shares of such funds may also be purchased at net asset
value by other unit investment trusts approved by the Board of Directors of AIM
Equity Funds, Inc. Unit holders of such trusts may elect to invest cash
distributions from such trusts in Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND at net asset value, including: (a) distributions of any
dividend income or other income received by such trusts; (b) distributions of
any net capital gains received in respect of Class A shares of AIM WEINGARTEN
FUND or AIM CONSTELLATION FUND and proceeds of the sale of Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND used to redeem units of such trusts;
and (c) proceeds from the maturity of the Treasury Obligations at the
termination dates of such trusts. Prior to the termination dates of such trusts,
a unit holder may invest the proceeds from the redemption or
MCF-AEF 06/97
A-8
<PAGE> 35
repurchase of his units in Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND at net asset value, provided: (a) that the investment in
Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND is effected
within 30 days of such redemption or repurchase; and (b) that the unit holder or
his dealer provides AIM Distributors with a letter which: (i) identifies the
name, address and telephone number of the dealer who sold to the unit holder the
units to be redeemed or repurchased; and (ii) states that the investment in
Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND is being funded
exclusively by the proceeds from the redemption or repurchase of units of such
trusts.
FOR ANY FUND NAMED ON THE COVER PAGE OF THIS PROSPECTUS, AIM DISTRIBUTORS AND
ITS AGENTS RESERVE THE RIGHT AT ANY TIME (1) TO WITHDRAW ALL OR ANY PART OF THE
OFFERING MADE BY THIS PROSPECTUS; (2) TO REJECT ANY PURCHASE OR EXCHANGE ORDER
OR TO CANCEL ANY PURCHASE DUE TO NONPAYMENT OF THE PURCHASE PRICE; (3) TO
INCREASE, WAIVE OR LOWER THE MINIMUM INVESTMENT REQUIREMENTS; OR (4) TO MODIFY
ANY OF THE TERMS OR CONDITIONS OF PURCHASE OF SHARES OF SUCH FUND. For any fund
named on the cover page, AIM Distributors and its agents will use their best
efforts to provide notice of any such actions through correspondence with
broker-dealers and existing shareholders, supplements to the AIM Funds'
prospectuses, or other appropriate means, and will provide sixty (60) days'
notice in the case of termination or material modification to the exchange
privilege discussed under the caption "Exchange Privilege."
- --------------------------------------------------------------------------------
SPECIAL PLANS
Except as noted below, each AIM Fund provides the special plans described
below for the convenience of its shareholders. Once established, there is no
obligation to continue to invest through a plan, and a shareholder may terminate
a plan at any time.
Special plan applications and further information, including details of any
fees which are charged to a shareholder investing through a plan, may be
obtained by written request, directed to AFS at the address provided under "How
to Purchase Shares," or by calling the Client Services Department of AFS at
(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 Class A shares of a Multiple Class Fund, not subject to a contingent
deferred sales charge, Class C shares of AIM ADVISOR CASH MANAGEMENT FUND, Class
C shares not subject to a contingent deferred sales charge, AIM Cash Reserve
Shares of AIM MONEY MARKET FUND, AIM LIMITED MATURITY TREASURY SHARES, AIM
TAX-FREE INTERMEDIATE SHARES or AIM TAX-EXEMPT CASH FUND can arrange for
monthly, quarterly or annual checks in any amount (but not less than $50) to be
drawn against the balance of his account in the designated AIM Fund.
Shareholders who own either Class A shares subject to a contingent deferred
sales charge, or Class B or Class C shares subject to a contingent deferred
sales charge of a Multiple Class Fund 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
MCF-AEF 06/97
A-9
<PAGE> 36
draft are invested in shares of the designated AIM Fund at the applicable
offering price determined on the date of the draft. An Automatic Investment Plan
may be discontinued upon 10 days' prior notice to the Transfer Agent or AIM
Distributors.
AUTOMATIC DIVIDEND INVESTMENT PLAN. Shareholders may elect to have all
dividends and distributions declared by an AIM Fund paid in cash or invested at
net asset value, without payment of an initial sales charge, either in shares of
the same AIM Fund or invested in shares of another AIM Fund. For each of the
Multiple Class Funds, dividends and distributions attributable to Class A shares
may be reinvested in Class A shares of the same fund, in Class A shares of
another Multiple Class Fund or in shares of another AIM Fund which is not a
Multiple Class Fund; dividends and distributions attributable to Class B shares
may be reinvested in Class B shares of the same fund or in Class B shares of
another Multiple Class Fund; 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; 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).
MCF-AEF 06/97
A-10
<PAGE> 37
- --------------------------------------------------------------------------------
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; shares 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 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 SHARES
CLASS A FUND -- CLASS A AIM TAX-FREE INTERMEDIATE SHARES
AIM ADVISOR INCOME FUND -- AIM GLOBAL INCOME
CLASS A FUND -- CLASS A NO LOAD FUNDS:
AIM ADVISOR INTERNATIONAL AIM GLOBAL UTILITIES
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
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 ASIA-PACIFIC GROWTH FUND -- CLASS A
FUND -- CLASS A AIM MUNICIPAL BOND
AIM BALANCED FUND -- CLASS A FUND -- CLASS A
AIM BLUE CHIP FUND -- CLASS A AIM TAX-EXEMPT BOND FUND
AIM CAPITAL DEVELOPMENT OF CONNECTICUT
FUND -- CLASS A AIM VALUE FUND -- CLASS A
AIM CHARTER FUND -- CLASS A AIM WEINGARTEN FUND -- CLASS A
AIM CONSTELLATION
FUND -- CLASS A
AIM EUROPEAN CAPITAL GROWTH
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) 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 ADVISOR CASH
MANAGEMENT FUND or AIM TAX-EXEMPT CASH FUND; (ii) 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; (iii) Class A shares
and shares of all other AIM Funds may be exchanged for Class A shares, except
for Class A shares of AIM ADVISOR CASH MANAGEMENT FUND; (iv) Class B shares may
be exchanged only for Class B shares; (v) Class C shares may only be exchanged
for Class C shares, except for Class C shares of AIM ADVISOR CASH MANAGEMENT
FUND; (vi) 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; (vii) 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
(viii) 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.
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
MCF-AEF 06/97
A-11
<PAGE> 38
(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.
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
MCF-AEF 06/97
A-12
<PAGE> 39
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 of
Multiple Class Funds or among Class C shares of Multiple Class Funds. 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 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-
MCF-AEF 06/97
A-13
<PAGE> 40
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 the 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 disability at the time
of the redemption request and is provided with satisfactory evidence of such
death or disability), (2) in connection with certain distributions from
individual retirement accounts, custodial accounts maintained pursuant to Code
Section 403(b), deferred compensation plans qualified under Code Section 457 and
plans qualified under Code Section 401 (collectively, "Retirement Plans"), (3)
pursuant to a Systematic Withdrawal Plan, provided that amounts withdrawn under
such plan do not exceed on an annual basis 12% of the value of the shareholder's
investment in Class B 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 and (5) effected by AIM of its investment in Class B or Class C
shares.
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 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;
(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.
MCF-AEF 06/97
A-14
<PAGE> 41
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; and (4) redemptions of shares purchased by an investor in amounts of
$1,000,000 or more where such investor's dealer of record, due to the nature of
the investor's account, notifies AIM Distributors prior to the time of
investment that the dealer waives the payments otherwise payable to the dealer
as described in the third paragraph under the caption "Terms and Conditions of
Purchase of the AIM Funds -- All Groups of AIM Funds."
REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to the
Transfer Agent. Upon receipt of a redemption request in proper form, payment
will be made as soon as practicable, but in any event will normally be made
within seven days after receipt. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders."
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the Fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnerships, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.
In addition to these requirements, shareholders who have invested in a fund to
establish an IRA, should include the following information along with a written
request for either partial or full liquidation of fund shares: (a) a statement
as to whether or not the shareholder has attained age 59- 1/2; and (b) a
statement as to whether or not the shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.
REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by telephone.
If a shareholder does not wish to allow telephone redemptions by any person in
his account, he should decline that option on the account application. The
telephone redemption feature can be used only if: (a) the redemption proceeds
are to be mailed to the address of record or wired to the pre-authorized bank
account as indicated on the account application; (b) there has been no change of
address of record on the account within the preceding 30 days; (c) the shares to
be redeemed are not in certificate form; (d) the person requesting the
redemption can provide proper identification information; and (e) the proceeds
of the redemption do not exceed $50,000. Accounts in AIM Distributors' prototype
retirement plans (such as IRA and IRA/SEP) or 403(b) plans are not eligible for
the telephone redemption option. AIM Distributors has made arrangements with
certain dealers and investment advisors to accept telephone instructions for the
redemption of shares. AIM Distributors reserves the right to impose conditions
on these dealers and investment advisors, including the condition that they
enter into agreements (which contain additional conditions with respect to the
redemption of shares) with AIM Distributors. The Transfer Agent and AIM
Distributors will not be liable for any loss, expense or cost arising out of any
telephone redemption request effected in accordance with the authorization set
forth at that item of the account application if they reasonably believe such
request to be genuine, but may in certain cases be liable for losses due to
unauthorized or fraudulent transactions if they do not follow
MCF-AEF 06/97
A-15
<PAGE> 42
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 Class A, Class B and Class C shares of the
Multiple Class Funds, and shares of the other AIM Funds that are subject to the
contingent deferred sales charge program for large purchases described above,
may be subject to the imposition of deferred sales charges that will be deducted
from the redemption proceeds. See "Multiple Distribution System" and "Contingent
Deferred Sales Charge Program for Large Purchases." Orders for the redemption of
shares received in proper form 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 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.
MCF-AEF 06/97
A-16
<PAGE> 43
REINSTATEMENT PRIVILEGE (CLASS A 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) 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 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 of the Multiple Class Funds or shares of
any other AIM Fund, and who subsequently reinvest a portion or all of the value
of the redeemed shares in shares of 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 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.
MCF-AEF 06/97
A-17
<PAGE> 44
- --------------------------------------------------------------------------------
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 semiannually semiannually 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 ASIA-PACIFIC 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 EUROPEAN CAPITAL GROWTH 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 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
MCF-AEF 06/97
A-18
<PAGE> 45
(except Class C shares of AIM ADVISOR CASH MANAGEMENT FUND). Dividends on Class
A, Class B and Class C shares and AIM Cash Reserve Shares may also be affected
by other class-specific expenses.
Changes in the form of dividend and distribution payments may be made by the
shareholder at any time by notice to the Transfer Agent and are effective as to
any subsequent payment if such notice is received by the Transfer Agent prior to
the record date of such payment. Any dividend and distribution election remains
in effect until the Transfer Agent receives a revised written election by the
shareholder.
Any dividend or distribution paid by a fund which does not declare dividends
daily has the effect of reducing the net asset value per share on the
ex-dividend date by the amount of the dividend or distribution. Therefore, a
dividend or distribution declared shortly after a purchase of shares by an
investor would represent, in substance, a return of capital to the shareholder
with respect to such shares even though it would be subject to income taxes, as
discussed below.
TAX MATTERS
Each AIM Fund has qualified and intends to qualify for treatment as a
regulated investment company under Subchapter M of the Code. As long as a fund
qualifies for this tax treatment, it is not subject to federal income taxes on
net investment income and capital gains that are distributed to shareholders.
Each fund, for purposes of determining taxable income, distribution requirements
and other requirements of Subchapter M, is treated as a separate corporation.
Therefore, no fund may offset its gains against another fund's losses and each
fund must individually comply with all of the provisions of the Code which are
applicable to its operations.
TAX TREATMENT OF DISTRIBUTIONS -- GENERAL. Because each AIM Fund intends to
distribute substantially all of its net investment income and net realized
capital gains to its shareholders, it is not expected that any such fund will be
required to pay any federal income tax. Each AIM Fund also intends to meet the
distribution requirements of the Code to avoid the imposition of a
non-deductible 4% excise tax calculated as a percentage of certain undistributed
amounts of taxable ordinary income and capital gain net income. Nevertheless,
shareholders normally are subject to federal income taxes, and any applicable
state and local income taxes, on the dividends and distributions received by
them from a fund whether in the form of cash or additional shares of a fund,
except for tax-exempt dividends paid by AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT
BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND, and AIM TAX-FREE
INTERMEDIATE SHARES (the "Tax-Exempt Funds") which are exempt from federal tax.
Dividends paid by a fund (other than capital gain distributions) may qualify for
the federal 70% dividends received deduction for corporate shareholders to the
extent of the qualifying dividends received by the fund on domestic common or
preferred stock. It is not likely that dividends received from, AIM ADVISOR CASH
MANAGEMENT FUND, AIM ADVISOR INCOME FUND, AIM ADVISOR INTERNATIONAL VALUE FUND,
AIM ADVISOR REAL ESTATE FUND, AIM ASIA-PACIFIC GROWTH FUND, AIM EUROPEAN CAPITAL
GROWTH 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 inter-
MCF-AEF 06/97
A-19
<PAGE> 46
est on certain indebtedness of the shareholder, and may have other collateral
federal income tax consequences. The Tax-Exempt Funds may invest in Municipal
Securities the interest on which will constitute an item of tax preference and
which therefore could give rise to a federal alternative minimum tax liability
for shareholders, and may invest up to 20% of their net assets in such
securities and other taxable securities. For additional information concerning
the alternative minimum tax and certain collateral tax consequences of the
receipt of exempt-interest dividends, see the Statements of Additional
Information applicable to the Tax-Exempt Funds.
The Tax-Exempt Funds may pay dividends to shareholders which are taxable, but
will endeavor to avoid investments which would result in taxable dividends. The
percentage of dividends which constitute exempt-interest dividends, and the
percentage thereof (if any) which constitute an item of tax preference, will be
determined annually. This percentage may differ from the actual percentages for
any particular day.
To the extent that dividends are derived from taxable investments or net
realized short-term capital gains, they will constitute ordinary income for
federal income tax purposes, whether received in cash or additional shares.
Distributions of net long-term capital gains will be taxable as long-term
capital gains, whether received in cash or additional shares, and regardless of
the length of time a particular shareholder may have held his shares.
From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
Municipal Securities. If such a proposal were enacted, the ability of the
Tax-Exempt Funds to pay exempt-interest dividends might be adversely affected.
AIM INTERMEDIATE GOVERNMENT FUND and AIM LIMITED MATURITY TREASURY
SHARES -- SPECIAL TAX INFORMATION. Certain states exempt from state income taxes
dividends paid by mutual funds out of interest on U.S. Treasury and certain
other U.S. Government obligations, and investors should consult with their own
tax advisors concerning the availability of such exemption.
AIM ADVISOR INTERNATIONAL VALUE FUND, AIM ASIA-PACIFIC GROWTH FUND, AIM
EUROPEAN CAPITAL GROWTH 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 and AIM LIMITED MATURITY TREASURY 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-AEF 06/97
A-20
<PAGE> 47
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-AEF 06/97
B-1
<PAGE> 48
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-AEF 06/97
B-2
<PAGE> 49
[AIM LOGO] THE AIM FAMILY OF FUNDS --Registered Trademark--
Investment Advisor
A I M Advisors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Sub-Advisors
INVESCO Capital Management, Inc.
1315 Peachtree Street, N.E.
Atlanta, GA 30309
INVESCO Management & Research, Inc.
101 Federal Street
Boston, MA 02110
INVESCO Realty Advisors, Inc.
One Lincoln Centre, Suite 1200
5400 LBJ Freeway/LB-2
Dallas, TX 75240
INVESCO Global Asset Management Limited
Cedar House
41 Cedar Avenue
Hamilton, HM12 Bermuda
Principal Underwriter
A I M Distributors, Inc.
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Transfer Agent
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Independent Accountants
Price Waterhouse LLP
Denver, Colorado
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> 50
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR ANY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
SUBJECT TO COMPLETION. DATED JULY 18, 1997
STATEMENT OF
ADDITIONAL INFORMATION
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
(SERIES PORTFOLIOS OF AIM ADVISOR FUNDS, INC.)
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 OF THE ABOVE-NAMED FUNDS,
A COPY OF WHICH MAY BE OBTAINED FROM AUTHORIZED DEALERS
OR BY WRITING
A I M DISTRIBUTORS, INC., P.O. BOX 4739, HOUSTON, TEXAS 77210-4739,
OR BY CALLING (800) 347-4246
---------------
Statement of Additional Information Dated: August 4, 1997
Relating to the Prospectus Dated: August 4, 1997
<PAGE> 51
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GENERAL INFORMATION ABOUT THE COMPANY . . . . . . . . . . . . . . . . . . . . 1
The Company and its Shares . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . 2
Convertible Securities . . . . . . . . . . . . . . . . . . . . . . . 2
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Combined Option Positions . . . . . . . . . . . . . . . . . . . . . 3
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 3
Options on Futures Contracts . . . . . . . . . . . . . . . . . . . . 4
Risks as to Futures Contracts and Related Options . . . . . . . . . 5
Securities Issued on a When-Issued or Delayed Delivery Basis . . . . 5
Mortgage-Related Securities . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PORTFOLIO SECURITIES LOANS . . . . . . . . . . . . . . . . . . . . . . . . 10
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 11
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . 11
Remuneration of Directors . . . . . . . . . . . . . . . . . . . . 15
AIM Funds Retirement Plan for Eligible Directors/Trustees . . . . 16
Deferred Compensation Agreements . . . . . . . . . . . . . . . . . 17
THE ADVISORY AND SUB-ADVISORY AGREEMENTS . . . . . . . . . . . . . . . . . 18
OPERATING SERVICES AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 20
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . 22
DISTRIBUTIONS AND TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . 24
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Federal Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Options, Futures and Foreign Currency Forward Contracts . . . . . 25
Swap Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 26
Currency Fluctuations -- "Section 988" Gains or Losses . . . . . . 26
Investment in Passive Foreign Investment Companies . . . . . . . . 26
Debt Securities Acquired at a Discount . . . . . . . . . . . . . . 27
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Disposition of Shares . . . . . . . . . . . . . . . . . . . . . . 28
Backup Withholding . . . . . . . . . . . . . . . . . . . . . . . . 28
Other Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . 29
BROKERAGE AND PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . 29
</TABLE>
<PAGE> 52
<TABLE>
<S> <C>
REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 31
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . 35
Computation of Net Asset Value . . . . . . . . . . . . . . . . . . 39
The Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Independent Accountants . . . . . . . . . . . . . . . . . . . . . 40
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . FS
</TABLE>
ii
<PAGE> 53
INTRODUCTION
AIM Advisor Funds, Inc. (INVESCO Advisor Funds, Inc. prior to August
2, 1997) (the "Company") 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
the fund being considered for investment. This information, which relates to
the following portfolios of the Company: AIM ADVISOR CASH MANAGEMENT FUND
(formerly, INVESCO Cash Management Portfolio), AIM ADVISOR FLEX FUND (formerly,
INVESCO Flex Portfolio), AIM ADVISOR INCOME FUND (formerly, INVESCO Income
Portfolio), AIM ADVISOR INTERNATIONAL VALUE FUND (formerly, INVESCO
International Value Portfolio), AIM ADVISOR LARGE CAP VALUE FUND (formerly,
INVESCO Equity Portfolio), AIM ADVISOR MULTIFLEX FUND (formerly, INVESCO
MultiFlex Portfolio), and AIM ADVISOR REAL ESTATE FUND (formerly, INVESCO Real
Estate Portfolio) (individually, a "Fund" and collectively, the "Funds"), is
included in a Prospectus, dated August 4, 1997 (the "Prospectus"). 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 Company's 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 the Funds.
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 Company'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 COMPANY
THE COMPANY AND ITS SHARES
The Company was organized in 1989 as a Maryland corporation, and is
registered with the SEC as an open-end, series, management investment company.
The Company currently consists of seven separate portfolios: AIM ADVISOR CASH
MANAGEMENT FUND (the "Cash Management Fund"), AIM ADVISOR FLEX FUND (the "Flex
Fund"), AIM ADVISOR INCOME FUND (the "Income Fund"), AIM ADVISOR INTERNATIONAL
VALUE FUND (the "International Value Fund"), AIM ADVISOR LARGE CAP VALUE FUND
(the "Large Cap Value Fund") and AIM ADVISOR MULTIFLEX FUND (the "MultiFlex
Fund") and AIM ADVISOR REAL ESTATE FUND (the "Real Estate Fund"). Each
portfolio of the Company offers both Class A and Class C shares. This Statement
of Additional Information and the associated Prospectus relate solely to the
Funds.
The prior directors of the Company, at a meeting held on March 26,
1997, voted to approve a consolidation of the Company's services with those of
The AIM Family of Funds--Registered Trademark--. On July 9, 1997, shareholders
of the Company approved (1) a new investment advisory contract with A I M
Advisors, Inc. ("AIM") with terms substantially identical to those of the
Company's prior investment advisory contract with INVESCO Services, Inc.
("ISI"), (2) five sub-advisory arrangements reflecting this change and that
INVESCO Capital Management, Inc. will no longer be sub-advisor to INTERNATIONAL
VALUE FUND or CASH MANAGEMENT FUND, (3) a new sub-advisory contract between AIM
and INVESCO Global Asset Management Limited with respect to INTERNATIONAL VALUE
FUND, and (4) a new board of directors consisting of persons who are currently
directors of The AIM Family of Funds. There will be no change in the identities
of the current sub-advisors, except that CASH MANAGEMENT FUND will no longer
have a sub-advisor but will,
<PAGE> 54
instead, be directly advised by AIM, and INVESCO Global Asset Management Limited
will act as sub-advisor to INTERNATIONAL VALUE FUND. As a result of these
changes, A I M Distributors, Inc. is the Company's principal underwriter and
certain other affiliated and unaffiliated service providers to the The AIM
Family of Funds provide services to the Company. The changes are not expected to
increase fees payable by the Company or any Fund for services.
As used in the Prospectus, the term "majority of the outstanding
shares" of the Company, of a particular Fund or of a class of a Fund means,
respectively, the vote of the lesser of (i) 67% or more of the shares of the
Company, such Fund or such class present at a meeting of shareholders, if the
holders of more than 50% of the outstanding shares of the Company, such Fund or
such class are present or represented by proxy or (ii) more than 50% of the
outstanding shares of the Company, such Fund or such class.
Each share of a Fund is entitled to one vote, to participate equally in
dividends and distributions declared by the Board of Directors with respect to
the class of such Fund and, upon liquidation of the Fund, to participate
proportionately in the net assets of the Fund allocable to such class remaining
after satisfaction of the Fund's outstanding liabilities of the Fund allocable
to such class. Fractional shares have proportionately the same rights, including
voting rights, as are provided for full shares.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion elaborates on the disclosure of the Funds'
investment policies contained in the Prospectus.
CONVERTIBLE SECURITIES
Although the equity investments of the International Value Fund
consist primarily of common and preferred stocks, the Fund may buy securities
convertible into common stock if, for example, the sub-adviser believes that a
company's convertible securities are undervalued in the market. Convertible
securities eligible for purchase by the Fund include convertible bonds,
convertible preferred stocks, and warrants. A warrant is an instrument issued
by a corporation which gives the holder the right to subscribe to a specific
amount of the corporation's capital stock at a set price for a specified period
of time. Warrants do not represent ownership of the securities, but only the
right to buy the securities. The prices of warrants do not necessarily move
parallel to the prices of underlying securities. Warrants may be considered
speculative in that they have no voting rights, pay no dividends, and have no
rights with respect to the assets of a corporation issuing them. Warrant
positions will not be used to increase the leverage of the Fund; consequently,
warrant positions are generally accompanied by cash positions equivalent to the
required exercise amount.
OPTIONS
Each of the Funds other than the CASH MANAGEMENT FUND, is authorized
to write (sell) covered call options on the securities in which it may invest
and to enter into closing purchase transactions with respect to such options.
Writing a call option obligates a Fund to sell or deliver the option's
underlying security, in return for the strike price, upon exercise of the
option. By writing a call option, the Fund receives an option premium from the
purchaser of the call option. Writing covered call options is generally a
profitable strategy if prices remain the same or fall. Through receipt of the
option premium, the Fund would seek to mitigate the effects of a price decline.
By writing covered call options, however, the Fund gives up the opportunity,
while the option is in effect, to profit from any price increase in the
underlying security above the option exercise price. In addition, the Fund's
ability to sell the underlying security will be limited while the option is in
effect unless the Fund effects a closing purchase transaction.
Each Fund other than the CASH MANAGEMENT FUND, may purchase put
options. A put purchased by the Fund constitutes a hedge against a decline in
the price of a security owned by the Fund. It may be sold at a profit or loss
depending upon changes in the price of the underlying security. It may be
exercised at a
2
<PAGE> 55
profit provided that the amount of the decline in the price of the underlying
security below the exercise price during the option period exceeds the option
premium, or it may expire without value. A call constitutes a hedge against an
increase in the price of a security which the Fund has sold short, it may be
sold at a profit or loss depending upon changes in the price of the underlying
security, it may be exercised at a profit provided that the amount of the
increase in the price of the underlying security over the exercise price during
the option period exceeds the option premium, or it may expire without value.
The maximum loss exposure involved in the purchase of an option is the cost of
the option contract. A Fund may engage in strategies employing combinations of
covered put and call options.
COMBINED OPTION POSITIONS
Each Fund other than the CASH MANAGEMENT FUND, for hedging purposes,
may purchase and write options in combination with each other to adjust the
risk and return characteristics of the Fund's overall position. For example,
the 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.
FUTURES CONTRACTS
Each of the Funds other than the CASH MANAGEMENT FUND, may purchase
and sell futures contracts in order to hedge the value of its portfolio against
changes in market conditions. 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 the Funds'
custodian to collateralize the position and ensure that the use of such futures
contracts is unleveraged. Unlike when a Fund purchases or sells a security, no
price is paid or received by a Fund upon the purchase or sale of a futures
contract. Initially, a Fund will be required to deposit with its custodian for
the account of the broker a stated amount, as called for by the particular
contract, of cash or U.S. Treasury bills. This amount is known as "initial
margin." The nature of initial margin in futures transactions is different from
that of margin in securities transactions in that futures contract margin does
not involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract assuming all contractual obligations have been satisfied.
Subsequent payments, called "variation margin," to and from the broker will be
made on a daily basis as the price of the futures contract fluctuates making
the long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." For example, when 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 gain.
3
<PAGE> 56
A description of the various types of futures contracts that may be
utilized by the Funds is as follows:
Stock Index Futures Contracts
A stock index assigns relative values to the common stocks included in
the index and the index fluctuates with changes in the market values of the
common stocks so included. A stock index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the stock
index value at the close of the last trading day of the contract and the price
at which the futures contract is originally struck. No physical delivery of the
underlying stocks in the index is made. Currently, stock index futures
contracts can be purchased or sold primarily with respect to broad based stock
indices such as the 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 the index. The Funds will
only enter into stock index futures contracts in order to hedge the value of
its portfolio against changes in market conditions. When a Fund anticipates a
significant market or market sector advance, the purchase of a stock index
futures contract affords a hedge against not participating in such advance.
Conversely, in anticipation of or in a general market or market sector decline
that adversely affects the market values of a Fund's portfolio of securities,
the Fund may sell stock index futures contracts.
Foreign Currency Futures Contracts
A Fund, other than the CASH MANAGEMENT FUND, may also use futures
contracts to hedge the risk of changes in the exchange rate of foreign
currencies.
OPTIONS ON FUTURES CONTRACTS
Each Fund, other than CASH MANAGEMENT FUND, may purchase options on
futures contracts. 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 will purchase put options on futures contracts to hedge against
the risk of falling prices for their respective portfolio securities. A Fund
will purchase call options on futures contracts as a hedge against a rise in
the price of securities which it intends to purchase. Options on futures
contracts may also be used to hedge the risks of changes in the exchange rate
of foreign currencies. The purchase of a put option on a futures contract is
similar to the purchase of protective put options on a portfolio security or a
foreign currency. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an individual
security or a foreign currency. 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.
4
<PAGE> 57
RISKS AS TO FUTURES CONTRACTS AND RELATED OPTIONS
There are several risks in connection with the use of futures
contracts and related options as hedging devices. One risk arises because of
the imperfect correlation between movements in the price of hedging instruments
and movements in the price of the stock, debt security or foreign currency
which are the subject of the hedge. If the price of a hedging instrument moves
less than the price of the stock, debt security or foreign currency which is
the subject of the hedge, the hedge will not be fully effective. If the price
of a hedging instrument moves more than the price of the stock, debt security
or foreign currency, a Fund will experience either a loss or gain on the
hedging instrument which will not be completely offset by movements in the
price of the stock, debt security or foreign currency which is the subject of
the hedge. 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 the Funds is also subject to
AIM's ability to predict correctly movements in the direction of the stock
market, of interest rates or of foreign exchange rates. Because of possible
price distortions in the futures 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 its 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, other than
CASH MANAGEMENT FUND, intend to purchase or sell futures contracts there is no
assurance that a liquid market on an exchange or a board of trade will exist
for any particular contract at any particular time. If there is not a liquid
market, it may not be possible to close a futures position 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 a
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 a Fund's 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.
SECURITIES ISSUED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
Investment in securities on a when-issued or delayed delivery basis may
increase a Fund's exposure to market fluctuation and may increase the
possibility that the Fund will incur short-term gains subject to federal
taxation or short-term losses if the Fund must engage in portfolio transactions
in order to honor a when-issued or delayed delivery commitment. In a delayed
delivery transaction, the Fund relies on the other party to complete the
transaction. If the transaction is not completed, the Fund may miss a price or
yield considered to be advantageous. A Fund will employ techniques designed to
reduce such risks. If a Fund purchases a when-issued security, the Fund's
custodian bank will segregate cash or other high grade securities (including
temporary investments and municipal securities) in an amount equal to the
when-issued commitment. If the market value of such securities declines,
additional cash or securities will be segregated on a daily basis so that the
market value of the segregated assets will equal the amount of the Fund's
when-issued commitments. To the extent cash and securities are segregated, they
will not be available for new investments or to meet redemptions. Securities
purchased on a delayed delivery basis may require a similar segregation of cash
or other high grade securities.
5
<PAGE> 58
MORTGAGE-RELATED SECURITIES
Mortgage-related securities are interests in pools of mortgage loans
made to residential home buyers, including mortgage loans made by savings and
loan institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations (see "Mortgage
Pass-Through Securities" below). The Funds may also invest in debt securities
which are secured with collateral consisting of mortgage-related securities
(see "Collateralized Mortgage Obligations"), and in other types of
mortgage-related securities.
MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential or
commercial mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying property, refinancing or foreclosure,
net of fees or costs which may be incurred. Some mortgage-related securities
(such as securities issued by the Government National Mortgage Association
("GNMA")) are described as "modified pass-through." These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, at the scheduled payment dates regardless of whether
or not the mortgagor actually makes the payment.
GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly owned U.S. government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. government) include the Federal National Mortgage
Association ("FNMA") and the Fannie Mae (formerly, the Federal Home Loan
Mortgage Corporation ("FHLMC"). Fannie Mae is a government-sponsored
corporation owned entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development. Fannie Mae
purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by Fannie Mae are guaranteed as to timely
payment of principal and interest by Fannie Mae but are not backed by the full
faith and credit of the U.S. government.
FHLMC was created by Congress in 1970 for the purpose of increasing
the availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the 12 Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues
Participation Certificates ("PCs") which represent interests in conventional
mortgages from FHLMC's national portfolio. FHLMC guarantees the timely payment
of interest and ultimate collection of principal, but PCs are not backed by the
full faith and credit of the U.S. government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or
6
<PAGE> 59
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered
in determining whether a mortgage-related security meets a Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. A Fund will not purchase mortgage-related securities or other
assets which in the sub-adviser's opinion are illiquid if, as a result, more
than 15% of the value of the Fund's total assets will be illiquid.
Mortgage-backed securities that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities, are not subject to a Fund's
industry concentration restrictions, by virtue of the exclusion from that test
available to all U.S. Government securities. In the case of privately issued
mortgage-related securities, the Portfolios take the position that
mortgage-related securities do not represent interests in any particular
"industry" or group of industries. The assets underlying such securities may be
represented by a portfolio of first lien residential mortgages (including both
whole mortgage loans and mortgage participation interests) or portfolios of
mortgage pass- through securities issued or guaranteed by GNMA, Fannie Mae or
FHLMC. Mortgage loans underlying a mortgage-related security may in turn be
insured or guaranteed by the Federal Housing Administration or the Department
of Veterans Affairs. In the case of private issue mortgage-related securities
whose underlying assets are neither U.S. government securities nor U.S.
government-insured mortgages, to the extent that real properties securing such
assets may be located in the same geographical region, the security may be
subject to a greater risk of default than other comparable securities in the
event of adverse economic, political or business developments that may affect
such region and, ultimately, the ability of residential homeowners to make
payments of principal and interest on the underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO is a hybrid
between a mortgage-backed bond and a mortgage pass-through security. Similar to
a bond, interest and prepaid principal is paid, in most cases, semiannually.
CMOs may be collateralized by whole mortgage loans, but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of
mortgages according to how quickly the loans are repaid. Monthly payment of
principal received from the pool of underlying mortgages, including
prepayments, is first returned to investors holding the shortest maturity
class. Investors holding the longer maturity classes receive principal only
after the first class has been retired. An investor is partially guarded
against a sooner than desired return of principal because of the sequential
payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C
Bonds all bear current interest. Interest on the Series Z Bond is accrued and
added to principal and a like amount is paid as principal on the Series A, B,
or C Bond currently being paid off. When the Series A, B, and C Bonds are paid
in full, interest and principal on the Series Z Bond begins to be paid
currently. With some CMOs, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.
7
<PAGE> 60
FHLMC CMOS. FHLMC CMOs are debt obligations of FHLMC issued in
multiple classes having different maturity dates which are secured by the
pledge of a pool of conventional mortgage loans purchased by FHLMC. Unlike
FHLMC PCs, payments of principal and interest on the CMOs are made
semiannually, as opposed to monthly. The amount of principal payable on each
semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's
minimum sinking fund obligation for any payment date are paid to the holders of
the CMOs as additional sinking fund payments. Because of the "pass-through"
nature of all principal payments received on the collateral pool in excess of
FHLMC's minimum sinking fund requirement, the rate at which principal of the
CMOs is actually repaid is likely to be such that each class of bonds will be
retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral
in the event of delinquencies and/or defaults.
INVESTMENT RESTRICTIONS
The Directors of the Company, on behalf of the Funds, have adopted the
following investment restrictions, all of which are fundamental policies and
may not be changed as to any Fund without the approval of the holders of a
majority of such Fund's outstanding voting securities. The Funds may not:
(1) Invest in the securities of issuers conducting their principal
business activity in the same industry, if immediately after such investment
the value of a Fund's investments in such industry would exceed 25% of the
value of such Fund's total assets; provided, however, that this limitation does
not apply to a Fund's investments in obligations issued or guaranteed by the
U.S. government, its agencies, authorities or instrumentalities, and, as to the
CASH MANAGEMENT FUND, certificates of deposit of domestic branches of U.S.
banks or bankers' acceptances of domestic branches of U.S. banks.
(2) For the MULTIFLEX FUND, REAL ESTATE FUND AND INTERNATIONAL
VALUE FUND, with respect to 75% of the Fund's assets, invest in the securities
of any one issuer, other than obligations of, or guaranteed by, the U.S.
government, its agencies, authorities or instrumentalities, if immediately
after such investment more than 5% of the value of the Fund's total assets,
taken at market value, would be invested in such issuer or more than 10% of
such issuer's outstanding voting securities would be owned by such Fund. For
the LARGE CAP VALUE FUND, INCOME FUND, FLEX FUND and CASH MANAGEMENT FUND, with
respect to 100% of the Fund's assets, invest in the securities of any one
issuer, other than obligations of, or guaranteed by, the U.S. government, its
agencies, authorities or instrumentalities, if immediately after such
investment more than 5% of the value of the Fund's total assets, taken at
market value, would be invested in such issuer or more than 10% of such
issuer's outstanding voting securities would be owned by such Fund.
(3) Underwrite securities of other issuers, except insofar as it
may technically be deemed an "underwriter" under the Securities Act of 1933, as
amended, in connection with the disposition of a Fund's portfolio securities.
(4) Invest in companies for the purpose of exercising control or
management.
8
<PAGE> 61
(5) Issue any class of senior securities or borrow money, except
borrowings from banks for temporary or emergency purposes not in excess of 5%
of the value of a Fund's total assets at the time the borrowing is made.
(6) Mortgage, pledge, hypothecate or in any manner transfer as
security for indebtedness any securities owned or held except to an extent not
greater than 5% of the value of a Fund's total assets.
(7) Make short sales of securities or maintain a short position.
All Funds, except the CASH MANAGEMENT FUND, may, however, purchase or sell
options on futures and write, purchase and sell puts and calls.
(8) Purchase securities on margin, except that a Fund may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.
(9) Purchase or sell real estate or interests in real estate. A
Fund may invest in securities secured by real estate or interests therein or
issued by companies, including real estate investment trusts, which invest in
real estate or interests therein.
(10) Purchase or sell commodities or commodity contracts, except as
set forth in the Prospectus and in this Statement of Additional Information for
purchases and sales of options and futures, and options or futures on
underlying financial instruments.
(11) Make loans to other persons, provided that a Portfolio may
purchase debt obligations consistent with its investment objectives and
policies and, except for the CASH MANAGEMENT FUND, may lend limited amounts
(not to exceed 10% of total assets) of its portfolio securities to
broker-dealers or other institutional investors.
(12) Purchase securities of other investment companies except (a)
in connection 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 the Fund, (ii) no more than 5% of the value of the total
assets of a Fund would be invested in any one investment company, and (iii) no
more than 10% of the value of the total assets of a Fund would be invested in
the securities of such investment companies. A portion of a Fund's cash may be
invested from time to time in investment companies to which the Advisor or
sub-advisor serves as investment advisor; provided that no management or
distribution fee will be charged by the Advisor or sub-advisor with respect to
any such assets so invested and provided further that at no time will more than
3% of the Fund's assets be so invested. Should a Fund purchase securities of
other investment companies, shareholders may incur additional management,
advisory and distribution fees.
(13) Invest in securities for which there are legal or contractual
restrictions on resale, if more than 2% of the value of a Fund's total assets
would be invested in such securities, or invest in securities for which there
is no readily available market, if more than 5% of the value of a Fund's total
assets would be invested in such securities. In determining securities subject
to this 5% restriction, the Funds will include repurchase agreements maturing
in more than seven days.
The INCOME FUND has adopted the following additional investment
restriction, which is a fundamental policy and may not be changed without the
approval of the holders of a majority of the Income Fund's outstanding voting
securities, as defined above. The INCOME FUND may not invest in non-income
producing securities if immediately after such investment more than 35% of the
value of its total assets would be
9
<PAGE> 62
invested in such securities. (See "Investment Objectives and Policies" in the
Prospectus). However, as an operating policy, the INCOME FUND does not intend
to invest in non-income producing securities.
Additional investment restrictions adopted by the Directors on behalf
of the Funds, which may be changed by the Directors at their discretion,
provide that the Funds may not:
(1) For the LARGE CAP VALUE FUND, INCOME FUND, FLEX FUND, CASH
MANAGEMENT FUND and REAL ESTATE FUND, invest more than 10% of the value of the
applicable Fund's total assets in securities of foreign issuers; provided,
however, that the LARGE CAP VALUE FUND and FLEX FUND may invest up to 25% of
the value of the applicable Fund's total assets in sponsored ADRs (American
Depositary Receipts). The MULTIFLEX FUND may invest up to 40% of total assets
in securities of foreign issuers and the INTERNATIONAL VALUE FUND may invest up
to 100% of its total assets in securities of foreign issuers. Investing in
securities issued by companies whose principal business activities are outside
the United States may involve significant risks not present in domestic
investments.
(2) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except as set forth in the Prospectus and this Statement
of Additional Information 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
the applicable Fund's total assets. Covered call options and cash secured puts
will not exceed 25% of the applicable Fund's total assets. For a detailed
discussion on these types of instruments, see the Prospectus.
(3) Purchase or sell interests in oil, gas or other mineral leases
or exploration or development programs. A Fund, however, may purchase or sell
securities issued by entities which invest in such interests.
(4) Invest more than 5% of a Fund's total assets in securities of
companies having a record, together with predecessors, of less than three years
of continuous operation.
(5) Purchase or retain the securities of any issuer if any
individual officer or Director of a Fund, the Advisor or sub-advisor, or any
subsidiary thereof owns individually more than 0.5% of the securities of that
issuer and all such officers and Directors together own more than 5% of the
securities of that issuer.
(6) Engage in arbitrage transactions.
Another policy which may be changed by the Directors at their
discretion is that, to the extent a Fund invests in warrants, a Fund's
investment in warrants, valued at the lower of cost or market, may not exceed
5% of the value of such Fund's net assets. Included within that amount, but not
to exceed 2% of the value of such Fund's net assets, may be warrants which are
not listed on the New York or American Stock Exchanges. Warrants acquired by a
Fund as part of a unit or attached to securities may be deemed to be without
value.
PORTFOLIO SECURITIES LOANS
Each of the Funds, except the CASH MANAGEMENT FUND, may lend limited
amounts of Fund securities (not to exceed 10% of total assets) to
broker-dealers or other institutional investors. The sub-advisors will monitor
the creditworthiness of such broker-dealers in accordance with procedures
adopted by the Directors. Fund Management understands that it is the current
view of the staff of the SEC that the Funds are permitted to engage in loan
transactions only if the following conditions are met: (1) the applicable Fund
must receive 100% collateral in the form of cash or U.S. government securities,
e.g., U.S. Treasury bills or notes, from the borrower; (2) the borrower must
increase the collateral whenever the market value of the borrowed securities
(determined on a daily basis) rises above the level of the collateral; (3) the
applicable Fund must be able to terminate the loan after notice; (4) the
applicable Fund must receive reasonable interest on the loan or a flat fee from
the borrower, as well as amounts equivalent to any dividends, interest or other
distributions on the securities loaned and any increase in market value; (5)
the applicable Fund may pay only reasonable custodian fees in connection with
the loan; and (6) voting rights on the securities loaned may pass to the
borrower; however, if a material event affecting the investment occurs, the
Fund must be able to terminate
10
<PAGE> 63
the loan and vote proxies or enter into an alternative arrangement with the
borrower to enable the Fund to vote proxies. Excluding items (1) and (2),
these practices may be amended from time to time as regulatory provisions
permit.
While there may be delays in recovery of loaned securities or even a
loss of rights in collateral supplied should the borrower fail financially,
loans will be made only to firms deemed by the sub-advisers to be of good
standing and will not be made unless, in the judgment of the respective
sub-adviser, the consideration to be earned from such loans would justify the
risk.
It is expected that each of the Funds will use the cash portions of
loan collateral to invest in short-term income producing securities for such
Fund's account and that such Fund may share some of the income from these
investments with the borrower.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal
occupations during the last five years are set forth below.
<TABLE>
<CAPTION>
Positions Held
---------------
Name, Address and Age with Registrant Principal Occupation During Past 5 Years
--------------------- --------------- ----------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (78) Director and Chairman of the Board of Directors,
11 Greenway Plaza, Suite 100 Chairman A I M Management Group Inc., A I M Advisors,
Houston, TX 77046 Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund
Services, Inc., A I M Institutional Fund
Services, Inc. and Fund Management Company;
and Vice Chairman and Director, AMVESCAP plc.
BRUCE L. CROCKETT (53) Director Director, ACE Limited (insurance company).
906 Frome Lane Formerly, Director, President and Chief
McLean, VA 22102 Executive Officer, COMSAT Corporation and
Chairman, Board of Governors of INTELSAT
(international communications company.)
OWEN DALY II (72) Director Director, Cortland Trust Inc. (investment
Six Blythewood Road company). Formerly, Director, CF & I Steel
Baltimore, MD 21210 Corp., Monumental Life Insurance Company and
Monumental General Insurance Company; and
Chairman of the Board of Equitable
Bancorporation.
</TABLE>
__________________________________
* A director who is an "interested person" of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.
11
<PAGE> 64
<TABLE>
<CAPTION>
Positions Held
---------------
Name, Address and Age with Registrant Principal Occupation During Past 5 Years
--------------------- --------------- ----------------------------------------
<S> <C> <C>
JACK FIELDS (45) Director Formerly, Member of the U. S. House of
2607 Old Humble Road Representatives.
Humble, Texas 77396
**CARL FRISCHLING (60) Director Partner, Kramer, Levin, Naftalis & Frankel
919 Third Avenue (law firm). Director, ERD Waste, Inc. (waste
New York, NY 10022 management 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) Director and Director, President and Chief Executive
11 Greenway Plaza, Suite 100 President Officer, A I M Management Group Inc.;
Houston, TX 77046 Director and President, A I M Advisors, Inc.;
Director and Senior Vice President,
A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund
Services, Inc., A I M Institutional Fund
Services, Inc. and Fund Management Company;
and Director and Executive Vice President,
AMVESCAP plc.
JOHN F. KROEGER (72) Director Director, Flag Investors International Fund,
37 Pippins Way Inc., Flag Investors Emerging Growth Fund,
Morristown, NJ 07960 Inc., Flag Investors Telephone Income Fund,
Inc., Flag Investors Equity Partners Fund,
Inc., Total Return U.S. Treasury Fund, Inc.,
Flag Investors Intermediate Term Income Fund,
Inc., Managed Municipal Fund, Inc., Flag
Investors Value Builder Fund, Inc., Flag
Investors Maryland Intermediate Tax-Free
Income Fund, Inc., Flag Investors Real Estate
Securities Fund, Inc., Alex. Brown Cash
Reserve Fund, Inc. and North American
Government Bond Fund, Inc. (investment
companies). Formerly, Consultant, Wendell &
Stockel Associates, Inc. (consulting firm).
</TABLE>
__________________________________
** A director who is an "interested person" of the Company as defined in
the 1940 Act.
* A director who is an "interested person" of A I M Advisors, Inc. and
the Company as defined in the 1940 Act.
12
<PAGE> 65
<TABLE>
<CAPTION>
Positions Held
---------------
Name, Address and Age with Registrant Principal Occupation During Past 5 Years
--------------------- --------------- ----------------------------------------
<S> <C> <C>
LEWIS F. PENNOCK (54) Director Attorney in private practice in Houston,
6363 Woodway, Suite 825 Texas.
Houston, TX 77057
IAN W. ROBINSON (74) Director Formerly, Executive Vice President and Chief
183 River Drive Financial Officer, Bell Atlantic Management
Tequesta, FL 33469 Services, Inc. (provider of centralized
management services to telephone companies);
Executive Vice President, Bell Atlantic
Corporation (parent of seven telephone
companies); and Vice President and Chief
Financial Officer, Bell Telephone Company of
Pennsylvania and Diamond State Telephone
Company.
LOUIS S. SKLAR (57) Director Executive Vice President, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited
2800 Post Oak Blvd. Partnership (real estate development).
Houston, TX 77056
***JOHN J. ARTHUR (52) Senior Vice Senior Vice President and Treasurer,
11 Greenway Plaza, Suite 100 President and A I M Advisors, Inc.; and Vice President and
Houston, TX 77046 Treasurer Treasurer, A I M Management Group Inc.,
A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund
Services, Inc., A I M Institutional Fund
Services, Inc. and Fund Management Company.
GARY T. CRUM (49) Senior Vice Director and President, A I M Capital
11 Greenway Plaza, Suite 100 President Management, Inc.; Director and Senior Vice
Houston, TX 77046 President, A I M Management Group Inc. and
A I M Advisors, Inc.; and Director,
A I M Distributors, Inc. and AMVESCAP plc.
SCOTT G. LUCAS (37) Senior Vice Director and Senior Vice President,
11 Greenway Plaza, Suite 100 President A I M Capital Management, Inc.; and Vice
Houston, TX 77046 President, A I M Management Group Inc. and
A I M Advisors, Inc.
</TABLE>
__________________________________
*** Mr. Arthur and Ms. Relihan are married to each other.
13
<PAGE> 66
<TABLE>
<CAPTION>
Positions Held
---------------
Name, Address and Age with Registrant Principal Occupation During Past 5 Years
--------------------- --------------- ----------------------------------------
<S> <C> <C>
***CAROL F. RELIHAN (42) Senior Vice Senior Vice President, General Counsel and
11 Greenway Plaza, Suite 100 President and Secretary, A I M Advisors, Inc.; Vice
Houston, TX 77046 Secretary President, General Counsel 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,
11 Greenway Plaza, Suite 100 Assistant Treasurer A I M Advisors, Inc.; and Assistant Vice
Houston, TX 77046 President and Assistant Treasurer, Fund
Management Company.
ROBERT G. ALLEY (48) Vice President Senior Vice President, A I M Capital
11 Greenway Plaza, Suite 100 Management, Inc.; and Vice President,
Houston, TX 77046 A I M Advisors, Inc. Formerly, Senior Fixed
Income Money Manager, Waddell and Reed, Inc.
MELVILLE B. COX (53) Vice President Vice President and Chief Compliance Officer,
11 Greenway Plaza, Suite 100 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.
JONATHAN C. SCHOOLAR (36) Vice President Director and Senior Vice President,
11 Greenway Plaza, Suite 100 A I M Capital Management, Inc.; and Vice
Houston, TX 77046 President, A I M Advisors, Inc.
</TABLE>
The standing committees of the Board of Directors are the Audit
Committee, the Investments Committee and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Fields,
Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. The Audit
Committee is responsible for meeting with the Company's auditors to review
audit procedures and results and to consider any matters arising from an audit
to be brought to the attention of the directors as a whole with respect to the
Company's fund accounting or its internal accounting controls, and for
considering such matters as may from time to time be set forth in a charter
adopted by the Board of Directors and such committee.
__________________________________
*** Mr. Arthur and Ms. Relihan are married to each other.
14
<PAGE> 67
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 Directors 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 directors who are not
interested persons as long as the Company maintains a distribution plan
pursuant to Rule 12b-1 under the 1940 Act, reviewing from time to time the
compensation payable to the disinterested directors, and considering such
matters as may from time to time be set forth in a charter adopted by the Board
of Directors and such committee.
REMUNERATION OF DIRECTORS
Each director is reimbursed for expenses incurred in attending each
meeting of the Board of Directors or any committee thereof. Each director who
is not also an officer of the Company is compensated for his services according
to a fee schedule which recognizes the fact that such director also serves as a
director or trustee of other mutual funds advised by AIM as well as a director
of the Funds (collectively, the "AIM Funds"). Each such director receives a
fee, allocated among the AIM Funds for which he serves as a director or
trustee, which consists of an annual retainer component and a meeting fee
component.
15
<PAGE> 68
Set forth below is information regarding compensation paid or accrued
for each director of the Company:
<TABLE>
<CAPTION>
RETIREMENT
BENEFITS
ESTIMATED ACCRUED TOTAL
COMPENSATION BY ALL AIM COMPENSATION
DIRECTOR FROM COMPANY(1) FUNDS FROM ALL AIM FUNDS(2)
-------- ------------ ----- ------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
Bruce L. Crockett 7,832 38,621 68,000
Owen Daly II 7,832 82,607 68,000
Jack Fields(3) 0 0 0
Carl Frischling 7,832 56,683 68,000
Robert H. Graham 0 0 0
John F. Kroeger 7,832 83,654 66,000
Lewis F. Pennock 7,832 33,702 67,000
Ian W. Robinson 7,832 64,973 68,000
Louis S. Sklar 7,832 47,593 66,500
</TABLE>
- -----------------------
(1) Figures estimate what would have been paid for the calendar year ended
December 31, 1996 based on rates applicable for that year modified to reflect
changes in director compensation for the AIM Funds approved in March 1997.
(2) Each Director serves as director or trustee of the 11 registered
investments companies advised by AIM (comprised of 55 portfolios). Data reflect
total compensation earned during the calendar year ended December 31, 1996.
Does not include accrued retirement benefits or earnings on deferred
compensation.
(3) Mr. Fields commenced serving as a director/trustee of the AIM Funds on
March 11, 1997.
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each director (who is not a employee of any of
the AIM Funds, A I M Management Group Inc. or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board of Directors.
Pursuant to the Plan, the normal retirement date is the date on which the
eligible director has attained age 65 and has completed at least five years of
continuous service with one or more of the regulated investment companies
managed, administered or distributed by AIM or its affiliates (the "Applicable
AIM Funds"). Each eligible director is entitled to receive an annual benefit
from the Applicable AIM Funds commencing on the first day of the calendar
quarter coincident with or following his date of retirement equal to 75% of the
retainer paid or accrued by the Applicable AIM Funds for such director during
the twelve-month period immediately preceding the director's retirement
(including amounts deferred under a separate agreement between the Applicable
AIM Funds and the director) for the number of such director's years of service
(not in excess of 10 years of service) completed with respect to any of the
Applicable AIM Funds. Such benefit is payable to each eligible director
16
<PAGE> 69
in quarterly installments. If an eligible director dies after attaining the
normal retirement date but before receipt of any benefits under the Plan
commences, the director's surviving spouse (if any) shall receive a quarterly
survivor's benefit equal to 50% of the amount payable to the deceased director
for no more than ten years beginning the first day of the calendar quarter
following the date of the director's death. Payments under the Plan are not
secured or funded by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming various compensation
and years of service classifications. The estimated credited years of service
for Messrs. Crockett, Daly, Fields, Frischling, Kroeger, Pennock, Robinson and
Sklar are 10, 10, 0, 20, 19, 15, 10 and 7 years, respectively.
ESTIMATED ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
=====================================================================
Number of Years
of Service with Annual Compensation
the AIM Funds Paid By All AIM Funds
=========================================
<S> <C> <C> <C>
$80,000 $86,500 $89,500
=====================================================================
10 $60,000 $64,875 $67,125
9 $54,000 $58,388 $60,413
8 $48,000 $51,900 $53,700
7 $42,000 $45,413 $46,988
6 $36,000 $38,925 $40,275
5 $30,000 $32,438 $33,563
=====================================================================
</TABLE>
DEFERRED COMPENSATION AGREEMENTS
Messrs. Daly, Frischling, Kroeger, Robinson and Sklar (for purposes of
this paragraph only, the "deferring directors") have each executed a Deferred
Compensation Agreement (collectively, the "Agreements"). Pursuant to the
Agreements, the deferring directors may elect to defer receipt of up to 100% of
their compensation payable by the Company, and such amounts are placed into a
deferral account. Currently, the deferring directors may select various AIM
Funds in which all or part of their deferral accounts shall be deemed to be
invested. Distributions from the deferring directors' deferral accounts will be
paid in cash, in generally equal quarterly installments over a period of five
(5) or ten (10) years (depending on the Agreement) beginning on the date the
deferring director's retirement benefits commence under the Plan. The Company's
Board of Directors, in its sole discretion, may accelerate or extend the
distribution of such deferral accounts after the deferring director's
termination of service as a director of the Company. If a deferring director
dies prior to the distribution of amounts in his deferral account, the balance
of the deferral account will be distributed to his designated beneficiary in a
single lump sum payment as soon as practicable after such deferring director's
death. The Agreements are not funded and, with respect to the payments of
amounts held in the deferral accounts, the deferring directors have the status
of unsecured creditors of the Company and of each other AIM Fund from which
they are deferring compensation.
17
<PAGE> 70
THE ADVISORY AND SUB-ADVISORY AGREEMENTS
The investment advisor to the Company is A I M Advisors, Inc. (the
"Advisor"), which has its principal office at 11 Greenway Plaza, Suite
100, Houston, Texas 77046. AIM is a direct wholly owned subsidiary of A I M
Management Group Inc. ("AIM Management") and is the sole shareholder of the
Company's principal underwriter, A I M Distributors, Inc. AIM Management is an
indirect wholly owned subsidiary of AMVESCAP PLC, ("AMVESCAP") 11 Devonshire
Square, London EC2M 4YR, United Kingdom.
The sub-advisor to the LARGE CAP VALUE FUND, INCOME FUND and FLEX FUND
is INVESCO Capital Management, Inc., a Delaware corporation ("ICM"), which has
its principal office at 1315 Peach Street, N. E., Atlanta, Georgia 30309. ICM
also has an advisory office in Coral Gables, Florida and a marketing and client
service office in San Francisco, California.
The sub-advisor to the MULTIFLEX FUND is INVESCO Management and
Research, Inc., of Boston, Massachusetts ("IMR"), a Massachusetts corporation
which has its principal office at 101 Federal Street, Boston, MA 02110. IMR
manages funds of approximately $2.1 billion, predominantly in pension and
endowment accounts.
The sub-advisor to the REAL ESTATE FUND is INVESCO Realty Advisors,
Inc., a Texas corporation based in Dallas ("IRAI"), which has its principal
office at One Lincoln Centre, Suite 1200, 5400 LBJ Freeway/LB 2, Dallas, Texas
75240. IRAI is responsible for providing advisory services in the U.S. real
estate markets for AMVESCAP's clients worldwide. Established in 1983 as a
registered investment adviser and qualified professional asset manager, funds
under management total $2.7 billion. As of December 31, 1996, its direct Fund
contained 98 properties totaling over 26.5 million square feet of commercial
real estate and 14,265 apartment units. Clients include corporate plans and
public pension funds as well as endowment and foundation accounts.
The sub-advisor to INTERNATIONAL VALUE FUND is INVESCO Global Asset
Management Limited ("IGAM"), which has its principal office at Cedar House, 41
Cedar Avenue, Hamilton, HM 12 Bermuda. IGAM is responsible for analyzing global
economic trends and establishing AMVESCAP's global investment asset allocations
for AMVESCAP affiliates in addition to managing $11 million in assets as of
December 31, 1996. Due to a structural reorganization, INTERNATIONAL VALUE
FUND'S portfolio manager and assisting staff of ICM who have been responsible
for services to this Fund are being transferred to IGAM, thereby maintaining
continuity in the style of management for the Fund as it was under the prior
sub-advisory arrangement with ICM.
ICM, [IGAM], IMR and IRAI are wholly owned subsidiaries of INVESCO
North American Holdings, Inc. ("INAH"), a Delaware corporation, which is a
wholly owned subsidiary of AMVESCAP (formerly, AMVESCO PLC and INVESCO PLC).
AMVESCAP is a publicly-traded holding company that, through its subsidiaries,
engages in the business of investment management on an international basis.
INVESCO PLC changed its name to AMVESCO PLC on March 3, 1997 as part of a
merger between a direct subsidiary of INVESCO PLC and A I M Management Group
Inc., thus creating one of the largest independent investment management
businesses in the world with approximately $165 billion in assets under
management. Shareholders approved a name change for AMVESCO PLC to AMVESCAP PLC
effective May 8, 1997.
Under their Investment Advisory and Sub-Advisory Agreements (the
"Agreements") with the respective Funds, the Advisor and sub-advisors will,
subject to the supervision of the Directors of the Company and in conformance
with the stated policies of the Funds, manage the investment operations of the
Funds. In this regard, it will be the responsibility of the Advisor and
sub-advisors not only to make investment decisions for the Funds, but also to
place the purchase and sale orders for the portfolio transactions of the Funds.
(See "Brokerage and Portfolio Transactions.") The Investment Advisory Agreement
provides that, in fulfilling its responsibilities, the Advisor may engage the
services of other investment managers with respect to one or more of the Funds.
18
<PAGE> 71
The Advisor is also responsible for furnishing to the Funds, at the
Advisor's expense, the services of persons believed to be competent to perform
all supervisory and administrative services required by the Funds, in the
judgment of the Directors, to conduct their respective businesses effectively,
as well as the offices, equipment and other facilities necessary for their
operations. Such functions include the maintenance of each Fund's accounts and
records, and the preparation of all requisite corporate documents such as tax
returns and reports to the SEC and shareholders. Operational services which
are necessary for the day-to-day operations of the Funds are provided under a
separate Operating Services Agreement between the Company and AIM (See
"Operating Services Agreement").
Except as discussed below (see "Operating Services Agreement"), each
of the Funds is responsible for the payment of its own expenses. Interest,
taxes, distribution expenses, directors' fees and expenses and extraordinary
items such as litigation costs will be borne by the Company or particular Fund,
as applicable. Expenditures, including costs incurred in connection with the
purchase or sale of Fund securities, which are capitalized in accordance with
generally accepted accounting principles applicable to investment companies,
are accounted for as capital items and not as expenses. There were no
reimbursements for the Funds during the periods ended December 31, 1996 and
1995, except for INCOME FUND, for $72,341 and $17,720, respectively. There were
no reimbursements for the Funds during the period ended December 31, 1994.
For the services to be rendered and the expenses to be assumed by the
Advisor under the Investment Advisory Agreements, each Fund will pay to the
Advisor an advisory fee which will be computed daily and paid as of the last
day of each month on the basis of the Fund's daily net asset value, using for
each daily calculation the most recently determined net asset value of the
Fund. Rule 18f-3 under the 1940 Act ("Rule 18-f-3") permits a fund to use a
multiclass system including separate class arrangements for distribution of
shares and related exchange privileges applicable to the classes. The Company's
Plan Pursuant To Rule 18f-3 provides that advisory and operating services fees
(see "Operating Services Agreement") are expenses of a particular Fund that are
not attributable to a particular class of the Fund ("Fund Expenses") so shall
be allocated to each class on the basis of its net asset value relative to the
net asset value of the Fund. (See "Computation of Net Asset Value"). On an
annual basis, the advisory fee is equal to 0.75% of the average net asset value
of net assets of the Fund for each of the LARGE CAP VALUE FUND and FLEX FUND,
0.90% of the average net asset value of the REAL ESTATE FUND, 1.0% of the
average net asset value of each of the MULTIFLEX FUND and INTERNATIONAL VALUE
FUND, 0.65% of the average net asset value of the INCOME FUND (the Advisor has
agreed to reimburse the INCOME FUND for a three year period beginning October
1, 1995, so that the advisory fees shall not exceed 0.40% of average daily net
assets) and 0.50% of the average net asset value of the CASH MANAGEMENT FUND.
Those fees which equal 0.75% of average annual net assets are higher than those
generally charged by investment advisors to similar funds for advisory
services. However, the Advisor also provides certain supervisory and
administrative services to the Funds pursuant to the Investment Advisory
Agreements. No advisory fee will be paid to the Advisor with respect to any
assets of the Funds invested in the CASH MANAGEMENT FUND.
For the services to be rendered and the expenses to be assumed by ICM,
IGAM, IMR and IRAI under their respective Sub-Advisory Agreements, the Advisor
will pay to each sub-advisor a fee which will be computed daily and paid as of
the last day of each month on the basis of each Fund's daily net asset value,
using for each daily calculation the most recently determined net asset value
of the Fund. (See "Computation of Net Asset Value"). On an annual basis, the
sub-advisory fee is equal to 0.20% of the average net asset value of the Fund
for each of the LARGE CAP VALUE FUND and FLEX FUND; 0.10% of the average net
asset value of the INCOME FUND; 0.35% of the average net asset value of the
REAL ESTATE FUND on assets up to $100 million and 0.25% on assets in excess of
$100 million; 0.35% of the average net asset value of the MULTIFLEX FUND on
assets up to $500 million and 0.25% on assets in excess of $500 million; and
the following for the INTERNATIONAL VALUE FUND: 0.35% on net assets up to $50
million, 0.30% on net assets over $50 million and up to $100 million, and 0.25%
on net assets over $100 million.
The current Investment Advisory and Sub-Advisory Agreements were
approved by the shareholders of each of the Funds on July 9, 1997, effective as
of August 2, 1997, for an initial two year period. Thereafter, the Agreements
will each continue in effect from year to year provided such continuance is
specifically
19
<PAGE> 72
approved at least annually by (i) the vote of a majority of each applicable
Fund's outstanding voting securities (see "General Information About the
Company") or by the Directors, and (ii) the vote of a majority of the
Directors, who are not "interested persons" (as such term is defined in the
1940 Act) of the Funds or the Advisor or the respective sub-advisor. The
Agreements are terminable on 60 days' written notice by either party thereto
and will terminate automatically if assigned.
For the fiscal years ended December 31, 1996, 1995 and 1994 the
aggregate amounts of the advisory fees paid to the prior advisors pursuant to
prior investment advisory agreements (INVESCO Services, Inc. for the period
July 1, 1993 through December 31, 1994 and the year ended December 31, 1995 and
INVESCO Capital Management Inc. in prior periods) by the Funds, were as
follows:
<TABLE>
<CAPTION>
Fund 1996 1995 1994
- ---- ---- ---- ----
<S> <C> <C> <C>
LARGE CAP VALUE FUND $ 946,203 $ 725,315 $ 594,977
INCOME FUND (net) 115,744 177,461 243,102
FLEX FUND 3,351,899 2,387,908 1,909,886
MULTIFLEX FUND 2,164,778 1,424,150 815,359
REAL ESTATE FUND 102,386 13,012 N/A
INTERNATIONAL VALUE FUND 314,843 24,906 N/A
CASH MANAGEMENT FUND 95,995 85,504 93,680
</TABLE>
The investment advisory services of the Advisor to the Funds are not
exclusive and the Advisor is free to render investment advisory services to
others, including other investment companies.
OPERATING SERVICES AGREEMENT
AIM, as manager of the Funds, also provides operating services
pursuant to an Operating Services Agreement with the Fund. Under the Operating
Services Agreement, each Fund pays to AIM an annual fee of 0.45% of daily net
assets of the Fund for providing or arranging to provide accounting, legal
(except litigation), dividend disbursing, registrar, custodial, shareholder
reporting, sub-accounting and recordkeeping services and functions. These
agreements provide that AIM pays 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 and Operating Services
Agreement, and the Distribution Plans of each of the Funds (see "Distribution
of Shares"), is to place a cap or ceiling on the total expenses of each Fund,
other than brokerage commissions, interest, taxes, litigation, directors' fees
and expenses, and other extraordinary expenses. AIM has voluntarily agreed to
adhere to maximum expense ratios for the Funds. To the extent that a Fund's
expenses exceed the amounts listed below, AIM will waive its fees or reimburse
the Fund to assure that each Fund's expenses do not exceed the designated
maximum amounts except for those items specifically identified above. The
expense ceilings include reductions at larger asset sizes to reflect
anticipated economies of scale as the Funds grow in size.
If, in any calendar quarter, the average net assets of each of the
LARGE CAP VALUE FUND or FLEX FUND are less than $500 million, each Fund'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 quarter, the average net assets of the MULTIFLEX FUND or
INTERNATIONAL VALUE FUND 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
20
<PAGE> 73
billion, expenses shall not exceed 1.60% for Class A and 2.25% for Class C. If,
in any calendar quarter, the average net assets of the REAL ESTATE FUND 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 INCOME FUND may not exceed 1.35% for Class A and 1.70% for
Class C, and the expenses of the CASH MANAGEMENT FUND may not exceed 0.95% of
average net assets. The Adviser has agreed to reimburse the INCOME FUND 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.
THE DISTRIBUTOR
AIM Distributors, the Company's distributor, is the principal
underwriter of the Company under a separate Distribution Agreement (the
"Distribution Agreement"). The Distributor's office is located at 11 Greenway
Plaza, Suite 100, Houston, Texas 77046-1143. The Distributor will receive
payments from each Fund, except CASH MANAGEMENT FUND, pursuant to the
provisions of the Company's plans of distribution described under "Distribution
of Shares." Prior to August 2, 1997, INVESCO Services, Inc. (the "Prior
Distributor") was the principal underwriter of the Company.
Prior to May 1, 1995, the Prior Distributor received directly the full
amount of all contingent deferred sales charges paid upon redemption of shares
of the LARGE CAP VALUE FUND, INCOME FUND, and FLEX FUND purchased prior to
January 1, 1992. Imposition of a contingent deferred sales charge on
redemptions of shares purchased prior to 1992 has been discontinued.
The aggregate amounts of contingent deferred sales charges received by
the Prior Distributor for the fiscal year ended December 31, 1996, were as
follows:
<TABLE>
<S> <C>
LARGE CAP VALUE FUND $ 4,449
INCOME FUND 816
FLEX FUND 36,838
MULTIFLEX FUND 21,071
CASH MANAGEMENT FUND 1,722
REAL ESTATE FUND 1,789
INTERNATIONAL VALUE FUND 4,747
</TABLE>
The aggregate amount of payments (not including contingent deferred
sales charges) received by the Prior Distributor for the fiscal year ended
December 31, 1996, from each of the Funds, except the CASH MANAGEMENT FUND, was
as follows:
<TABLE>
<S> <C>
LARGE CAP VALUE FUND $1,261,604
INCOME FUND 173,616
FLEX FUND 4,469,198
MULTIFLEX FUND 2,164,778
REAL ESTATE FUND 113,762
INTERNATIONAL VALUE FUND 314,843
</TABLE>
21
<PAGE> 74
The amounts paid by each of the Funds, except the CASH MANAGEMENT
FUND, under the Class C Distribution Plan for the fiscal year ended December
31, 1996, were used by the Prior Distributor as follows:
<TABLE>
<CAPTION>
Printing and Mailing Compensation
Prospectus (to other to Dealers and
Fund Advertising than Shareholders other Expenses
- ---- ----------- ------------------ --------------
<S> <C> <C> <C>
LARGE CAP VALUE FUND $7,500 $ 4,181 $1,249,923
INCOME FUND 7,500 -0- 181,855
FLEX FUND 7,500 12,639 4,449,039
MULTIFLEX FUND 7,500 46,453 2,110,825
REAL ESTATE FUND 7,500 282 105,980
INTERNATIONAL VALUE FUND 7,500 15,118 292,225
</TABLE>
Any remaining amounts paid to the Prior Distributor were retained by
it to offset the initial commission paid by the Prior Distributor to dealers
selling shares of the Funds, other than CASH MANAGEMENT FUND.
Class A shares were not offered for sale at the time and there were no
payments under the Class A Distribution Plan.
DISTRIBUTION OF SHARES
Rule 12b-1 under the 1940 Act ("Rule 12b-1") permits a fund to use its
assets to bear expenses of distributing its shares if it complies with various
conditions, including adoption of a plan of distribution containing certain
provisions set forth in the Rule. The plans described below were approved by
the directors of the Fund with respect to the LARGE CAP VALUE FUND, INCOME
FUND, FLEX FUND, MULTIFLEX FUND, REAL ESTATE FUND and INTERNATIONAL VALUE FUND,
including a majority of the directors who are not "interested persons" of the
Funds as defined in the 1940 Act ("Independent Directors") and the directors
who have no direct or indirect financial interest in the plan or any agreement
related thereto (the "Rule 12b-1 Directors"). The directors determined that, in
their judgment, there was a reasonable likelihood that the plans will benefit
each Fund and its shareholders by, among other things, providing broker-dealers
with an incentive to sell additional shares of the Company, thereby helping to
satisfy the Company's liquidity needs and helping to increase the Company's
investment flexibility. Continuation of the plans is approved annually. On June
8, 1993, the Distribution Plan applicable to Class C shares was approved by
shareholders of the LARGE CAP VALUE FUND, INCOME FUND, and FLEX FUND. On
November 8, 1993, the Plan applicable to Class C shares was approved by the
sole shareholder of the MULTIFLEX FUND. On April 10, 1995, the Plan applicable
to Class C shares was approved by the sole shareholder of each of the REAL
ESTATE FUND and INTERNATIONAL VALUE FUND. The Class A Distribution Plan was
approved by the board of directors of the Company at its August 13, 1996 Board
meeting, and by the initial shareholder(s) of Class A shares of each Fund prior
to their public offering. On February 4, 1997, the board of directors approved
amending the Plan, effective January 1, 1997, to convert the Plan to a
compensation type Rule 12b-1 plan. This amendment of the Plan did not result in
increasing the amount of any Fund's payments thereunder.
CLASS A DISTRIBUTION PLAN. The Class A Plan provides that each Fund may incur
certain distribution and maintenance fees which may not exceed a maximum annual
rate of 0.35% of the average net assets of the Funds attributable to Class A
shares except the CASH MANAGEMENT FUND and INCOME FUND. The INCOME FUND
payments under the Class A Plan may not exceed a maximum annual rate of 0.25%
of the average daily net assets. The CASH MANAGEMENT FUND has not adopted a
plan of distribution for either class. This expense includes the payment to
broker-dealers and other qualifying financial institutions of a "service fee"
for providing account maintenance or personal service to existing shareholders.
22
<PAGE> 75
Under the Class A Plan, broker-dealers selling Company shares may be
paid fees for selling shares and maintaining Company assets. Of such fees .25%
of average net assets may be paid as a "service fee." The service fee, computed
on the basis of the average net asset value of Class A shares sold by
broker-dealers which are outstanding on the books of such Funds for each month,
will be made at least quarterly to the selling broker-dealer. Additionally, the
plan authorizes each applicable Fund, subject to the annual limitations
described above, to pay the Distributor (or other broker-dealers): (1) the
costs and expenses incurred in preparation, printing and distribution of the
Company's sales literature and prospectuses and statements of additional
information for prospective investors; (2) amounts from time to time to support
marketing shares of the Company through programs with broker-dealers selling
Company shares; and (3) overhead expenses which include the costs of the
Distributor's personnel whose primary responsibilities involve marketing the
Company. In addition, the plan provides that the Company may pay, subject to
the annual limitations, such other distribution costs and expenses as the
Directors may from time to time specify.
CLASS C DISTRIBUTION PLAN. The Class C Plan provides that each Fund may incur
certain distribution and maintenance fees which may not exceed a maximum annual
rate of 0.60% of the INCOME FUND'S average net assets attributable to Class C
shares , and 1.0% of the other Funds' average annual net assets attributable to
their respective Class C shares. This expense includes the payment of 0.25% of
average annual net assets to broker-dealers as a "service fee" for providing
account maintenance or personal service to existing shareholders.
Under the Class C Plan, broker-dealers selling Company shares may be
paid fees for selling shares and maintaining Company assets. Generally, an
asset-based fee for selling shares and providing services to shareholders will
be paid out of Rule 12b-1 plan payments by the Distributor as follows: payments
not exceeding 1.0% per annum (0.60% per annum for the INCOME FUND), which
amount includes the 0.25% "service fee," of the average net asset value of
Class C shares sold by broker-dealers, which are outstanding on the books of
such Funds for each month, will be made at least quarterly to the selling
broker-dealer. Additionally, the plan authorizes each applicable Fund, subject
to the annual limitations described above, to pay the Distributor (or other
broker-dealers): (1) the costs and expenses incurred in preparation, printing
and distribution of the Company's prospectuses and statements of additional
information for prospective investors, and sales literature; (2) amounts from
time to time to support marketing shares of the Company through programs with
broker-dealers selling Company shares; and (3) overhead expenses which include
the costs of the Distributor's personnel whose primary responsibilities involve
marketing the Company. In addition, the plan provides that the Company may pay,
subject to the annual limitations, such other distribution costs and expenses
as the Directors may from time to time specify.
GENERAL. The Plans may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors or by vote of a majority of the outstanding voting
securities of the applicable class of the Fund. Any change in a Plan that would
materially increase the distribution expenses of a class of the Fund provided
for in the Plans requires shareholder approval; otherwise, the Plans may be
amended by a majority of the Directors, including a majority of the Rule 12b-1
Directors.
For so long as the Plans are in effect, the Funds will be required to
commit the selection and nomination of candidates for Independent Directors to
the discretion of the Independent Directors.
The total amounts paid by each Fund under the foregoing arrangements
for any year may not exceed the maximum plan limit specified above, and the
amounts and purposes of expenditures under the Plans must be reported to the
Rule 12b-1 Directors quarterly. The Rule 12b-1 Directors may require or approve
changes in the implementation or operation of the Plans and may also require
that total expenditures by each applicable class of a Fund under the Plans be
kept within limits lower than the maximum amount permitted by the Plans as
stated above.
The Distributor may pay additional amounts from its own resources to
dealers or others who meet designated eligibility criteria relating to sales of
Company shares, or who provide administrative or informational assistance to
shareholders.
23
<PAGE> 76
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
It is the intention of the LARGE CAP VALUE FUND, INCOME FUND, FLEX
FUND, MULTIFLEX FUND, REAL ESTATE FUND and INTERNATIONAL VALUE FUND a Fund to
distribute to its respective shareholders all of the applicable Fund's net
investment income and net realized capital gains, if any. The per share
dividends and distribution on each class of shares of a Fund will be reduced as
a result of any service fees applicable to that class. The gross income,
realized and unrealized capital gains and losses and expenses (other than Class
Expenses, as defined below) of each Fund, other than CASH MANAGEMENT FUND,
shall be allocated to each class on the basis of its net asset value relative
to the net asset value of the Fund. Expenses to be so allocated include
expenses of the Company that are allocated to a Fund and are not attributable
to a particular Fund or class of a Fund ("Company Expenses") and expenses of
the particular Fund that are not attributable to a particular class of the Fund
("Fund Expenses"). Company Expenses include, but are not limited to, directors'
fees. Fund Expenses include advisory fees and operating service fees. Expenses
attributable to a particular class ("Class Expenses") include distribution plan
expenses, which must be allocated to the class for which they are incurred.
Other expenses may be allocated as Class Expenses, but only if the Company's
President and Treasurer have determined, subject to Board approval, that such
category of expense will be treated as Class Expenses, consistent with
applicable legal principles under the 1940 Act and the Internal Revenue Code of
1986, as amended ("Code").
The LARGE CAP VALUE FUND, FLEX FUND, MULTIFLEX FUND, and REAL ESTATE
FUND make periodic distributions of their net investment income (including any
net short-term capital gain) during the months of March, June, September and
December and distributes any realized net capital gains at least annually,
during the month of December. The INTERNATIONAL VALUE FUND makes semiannual
distributions of net investment income (including any net short-term capital
gain) during the months of June and December and distributes any realized net
capital gain at least annually, during the month of December. The INCOME FUND
makes monthly distributions of its net investment income (including any net
short-term capital gain), and distributes any realized net capital gain at
least annually, during the month of December.
The net income of the CASH MANAGEMENT FUND is declared daily and its
dividends are distributed monthly. Net realized capital gains, if any, are
distributed at least annually, during the month of December. CASH MANAGEMENT
FUND will allocate gross income, realized and unrealized capital gains and
losses and expenses to each class on the basis of relative net assets (settled
shares), provided that each class shall bear any Class Expense. "Relative net
assets (settled shares)," for this purpose, are net assets valued in accordance
with generally accepted accounting principles but excluding the value of
subscriptions receivable, in relation to the net assets of CASH MANAGEMENT
FUND. Expenses to be so allocated also include expenses of the Company that are
allocated to a Fund and are not attributable to a particular Fund or class of a
Fund ("Company Expenses") and expenses of the particular Fund that are not
attributable to a particular class of the Fund ("Fund Expenses"). Company
Expenses include, but are not limited to, directors' fees.
All such distributions will be reinvested automatically in additional
shares (or fractions thereof) of each applicable Fund and class pursuant to
each Fund's Automatic Dividend Reinvestment Plan unless a shareholder has
elected not to participate in this plan or has elected to terminate his
participation in the plan and to receive his distributions in excess of ten
dollars in cash. Shareholders of the CASH MANAGEMENT FUND who redeem all of
their shares at any time during the month will be paid all dividends accrued
through the date of redemption. Shareholders of the CASH MANAGEMENT FUND who
redeem less than all of their shares will be paid the proceeds of the
redemption in cash, and dividends with respect to the redeemed shares will be
reinvested in additional shares (unless the shareholder has elected not to
participate in the Fund's Automatic Dividend Investment Plan or has elected to
terminate his participation in such plan). (See "Special Plans- Automatic
Dividend Investment Plan" in the Prospectus.)
24
<PAGE> 77
FEDERAL TAXES
Each Fund of the Company intends to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). Accordingly, a Fund generally must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive in each taxable year less than 30% of its
gross income from the sale or other disposition of certain assets held less
than three months, namely: (i) stock or securities; (ii) options, futures, or
forward contracts (other than those on foreign currencies); or (iii) foreign
currencies (or options, futures, or forward contracts on foreign currencies)
that are not directly related to the Fund's principal business of investing in
stock or securities (or options and futures with respect to stock or
securities) (the "30% Limitation"); and (c) 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, the
securities of other regulated investment companies and other securities, with
such other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the value of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities and the securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses.
As a regulated investment company, a Fund generally will not be
subject to U.S. federal income tax on income and gains that it distributes to
shareholders, if at least 90% of each Fund's investment company taxable income
(which includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Funds intend to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax at the Fund level. To avoid the tax, each Fund must distribute during each
calendar year, (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for a one-year period generally ending on October 31 of the calendar
year (or, at the election of a regulated investment company having a taxable
year ending November 30 or December 31, for its taxable year (a" taxable year
election")), and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. To avoid application of the excise
tax, each Fund intends to make distributions in accordance with the calendar
year distribution requirements. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December of the year with a record date in such a month
and paid by the Fund during January of the following year. Such distributions
will be taxable to shareholders in the calendar year the distributions are
declared, rather than the calendar year in which the distributions are
received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
Some of the options, futures and foreign currency forward contracts in
which a Fund may invest may be "Section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however foreign currency gains or losses arising from
certain Section 1256 contracts are ordinary in character. Also, Section 1256
contracts held by a Fund at the end of each taxable year (and on certain other
dates prescribed in the Code) are "marked to market" with the result that
unrealized gains or losses are treated as though they were realized.
The transactions in options, futures and forward contracts undertaken
by a Fund may result in "straddles" for federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by a Fund.
In addition, losses realized by a Fund on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for
25
<PAGE> 78
the taxable year in which such losses are realized. Because only a few
regulations implementing the straddle rules have been promulgated, the
consequences of such transactions to a Fund are not entirely clear. The
straddle rules may increase the amount of short-term capital gain realized by a
Fund, which is taxed as ordinary income when distributed to shareholders.
A Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
may operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
The 30% Limitation and the diversification requirements applicable to
each Fund's assets may limit the extent to which a Fund will be able to engage
in transactions in options, futures and forward contracts.
SWAP AGREEMENTS
The MULTIFLEX FUND and INTERNATIONAL VALUE FUND may enter into swap
agreements. The rules governing the tax aspects of swap agreements are in a
developing stage and are not entirely clear in certain respects. Accordingly,
while a Fund intends to account for such transactions in a manner deemed to be
appropriate, the Internal Revenue Service might not accept such treatment. If
it did not, the status of the Company as a regulated investment company might
be affected. The Company intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for the Company to
qualify as a regulated investment company may limit the extent to which the
Fund will be able to engage in swap agreements.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time a Fund accrues income or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time
the Fund actually collects such receivables or pays such liabilities generally
are treated as ordinary income or ordinary loss. Similarly, on disposition of
some investments, including debt securities denominated in a foreign currency
and certain forward contracts, gains or losses attributable to fluctuations in
the value of the foreign currency between the date of acquisition of the
security and the date of disposition also are treated as ordinary gain or loss.
These gains and losses, referred to under the Code as "Section 988" gains or
losses, increase or decrease the amount of a Fund's investment company taxable
income available to be distributed to its shareholders as ordinary income. If
Section 988 losses exceed other investment company taxable income during a
taxable year, the Fund may not be able to make any ordinary dividend
distributions, and distributions made before the losses were realized may be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund shares.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
A Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross
income is investment-type income. If a Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution
26
<PAGE> 79
is treated as having been realized ratably over the period during which the
Fund held the PFIC shares. The Fund itself will be subject to tax on the
portion, if any, of an excess distribution that is so allocated to prior Fund
taxable years and an interest factor will be added to the tax, as if the tax
had been payable in such prior taxable years. Certain distributions from a
PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions
might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Under an election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the
taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market the Fund's PFIC
shares at the end of each taxable year (and on certain other dates prescribed
in the Code), with the result that unrealized gains are treated as though they
were realized. If this election were made, tax at the Fund level under the PFIC
rules would generally be eliminated, but the Fund could, in limited
circumstances, incur nondeductible interest charges or deferred taxes. A Fund's
intention to qualify annually as a regulated investment company may limit its
elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of
the recognition of income with respect to PFIC shares, as well as subject a
Fund itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not invest in PFIC shares.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by a Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the
debt security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by a Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the
extent the gain, or principal payment, does not exceed the "accrued market
discount" on such debt security. In addition, the deduction of any interest
expenses attributable to debt securities having market discount may be
deferred. Market discount generally accrues in equal daily installments. A Fund
may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of
income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by a Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, a Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the
debt security matures. A Fund may make one or more of the elections applicable
to debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
A Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from
sales proceeds of securities held by the Fund or by borrowing.
27
<PAGE> 80
DISTRIBUTIONS
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. With respect to shareholders that are not exempt
from federal taxation, distributions of investment company taxable income are
taxable to a U.S. shareholder as ordinary income, whether paid in cash or
shares. Dividends paid by a Fund to a corporate shareholder, to the extent such
dividends are attributable to dividends received from U.S. corporations, may
qualify for the dividends received deduction. However, the alternative minimum
tax applicable to corporations may reduce the value of the dividends received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated by a Fund
as capital gain dividends, are taxable as long-term capital gains, whether paid
in cash or in shares, regardless of how long the shareholder has held the
Fund's shares and are not eligible for the dividends received deduction.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors
should be careful to consider the tax implications of buying shares of a Fund
just prior to a distribution. The price of shares purchased at this time may
reflect the amount of the forthcoming distribution. Those purchasing just prior
to a distribution will receive a distribution which generally will be taxable
to them.
DISPOSITION OF SHARES
With respect to tax-exempt shareholders, a redemption, sale or
exchange of shares of a Portfolio will not be subject to federal income
taxation to the extent permitted under the applicable tax-exemption. Upon a
redemption, sale or exchange of his or her shares of a Fund, a shareholder that
is not exempt from federal income taxation will realize a taxable gain or loss
depending upon his or her basis in the shares. However, it is not expected that
dispositions of CASH MANAGEMENT FUND shares will give rise to a gain or loss,
if that Fund maintains a net asset value per share of one dollar. A gain or
loss will be treated as capital gain or loss if the shares are capital assets
in the shareholder's hands and generally will be long-term or short-term,
depending upon the shareholder's holding period for the shares. Any loss
realized on a redemption, sale or exchange will be disallowed to the extent the
shares disposed of are replaced (including through reinvestment of dividends)
within a period of 61 days beginning 30 days before and ending 30 days after
the shares are disposed of. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of a Fund's shares held by the shareholder for six
months or less will be treated for tax purposes as a long-term capital loss to
the extent of any distributions of capital gain dividends received or treated
as having been received by the shareholder with respect to such shares.
If a shareholder (a) incurs a sales load in acquiring shares of a
Fund, (b) disposes of such shares less then 91 days after they are acquired,
and (c) subsequently acquires shares of the Fund or another Fund at a reduced
sales load pursuant to a right to reinvest at such reduced sales load acquired
in connection with the acquisition of the shares disposed of, then the sales
load on the shares disposed of (to the extent of the reduction in the sales
load on the shares subsequently acquired) shall not be taken into account in
determining gain or loss on the shares disposed of, but shall be treated as
incurred on the acquisition of the shares subsequently acquired.
BACKUP WITHHOLDING
Each Fund will be required to report to the Internal Revenue Service
(the "IRS") all distributions and, with the exception of the CASH MANAGEMENT
FUND, will also be required to report gross proceeds from the redemption of the
Fund's shares, except in the case of certain exempt shareholders. All
distributions and proceeds from the redemption of Fund shares (with the
exception of CASH MANAGEMENT FUND shares) will be subject to withholding of
federal income tax at a rate of 31% ("backup withholding") in the case of
non-exempt shareholders if (1) the shareholder fails to furnish the Fund with
and to certify the shareholder's correct taxpayer identification number or
social security number or (2) when required to do so, the shareholder fails
28
<PAGE> 81
to certify that he or she is not subject to backup withholding. Additionally,
all dividend distributions will be subject to withholding of federal income tax
at a rate of 31% ("backup withholding") in the case of non-exempt shareholders
if the IRS notifies the shareholder or the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect. If the withholding provisions are
applicable, any such distributions or proceeds, whether reinvested in
additional shares or taken in cash, will be reduced by the amounts required to
be withheld.
OTHER TAXATION
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of
the tax consequences applicable to the Funds or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in a Fund.
BROKERAGE AND PORTFOLIO TRANSACTIONS
The Advisor or sub-advisors will arrange for the placement of orders
and the execution of Fund transactions for each of the Funds. Various brokerage
firms may be used to carry out Fund transactions. The Advisor and sub-advisors
have agreed, in selecting brokers and dealers to be used in Fund transactions,
to give primary consideration to the broker's or dealer's ability to provide
the best execution of the transaction at prices most favorable to the Funds.
When such transactions involve listed securities, the Advisor and sub-advisors
take into consideration the advisability of effecting the transaction with a
broker or dealer which is not a member of the securities exchange on which the
security is listed, i.e., a third market transaction, or effecting the
transaction in the institutional or fourth market. In over-the-counter market
transactions, the Advisor and sub-advisors attempt to deal with the primary
market maker and thereby avoid payment of a brokerage commission. However, in
situations where in the Advisor's or sub-advisors' judgment execution through
some other broker is likely to result in a savings or other advantage to the
Fund, such broker will be used.
With respect to fixed and variable income securities, such portfolio
securities generally will be purchased or sold to parties acting as either
principal or agent. Newly issued securities normally will be purchased directly
from the issuer or from an underwriter acting as principal. Other purchases
will be placed with those dealers whom the Advisor or sub-advisors believe will
provide the best execution of the transaction at prices most favorable to the
applicable Fund. Usually, no brokerage commissions (as such) are paid by the
Fund for such transactions, although the price paid usually includes an
undisclosed compensation to the dealer. The prices paid to the underwriters of
newly-issued securities normally include a concession paid by the issuer to the
underwriter. Purchases of after-market securities from dealers normally are
executed at a price between bid and asked prices.
Subject to the primary consideration of best execution at prices most
favorable to the applicable Fund, the Advisor or sub-advisors may, in the
allocation of such investment transaction business, consider the general
research and investment information and other services provided by the brokers
and dealers, although they have adopted no formula for such allocation. These
research and investment information services make available to the Advisor and
sub-advisors the views and information of individuals and research staffs of
many securities firms for the Advisor's or sub-advisors' analysis and
consideration. Although such information may be a useful supplement to the
Advisor's and sub-advisors' own investment information, the value of such
research and services is not expected to reduce materially the expenses of the
Advisor or sub-advisors in the performance of its services under the Agreements
and will not reduce the advisory fee payable to the Advisor by the Funds. In
recognition of the value of the above-described brokerage and research services
provided by certain brokers, the Funds' Advisor or sub-advisors, consistent
with the standard of seeking to obtain the best execution on Fund transactions,
may place orders with such brokers for the execution of transactions
29
<PAGE> 82
for the Funds on which the commissions or discounts are in excess of those
which other brokers might have charged for effecting the same transactions.
The Advisor and sub-advisors may also follow a policy of considering
sales of shares of the Funds as a factor in the selection of broker-dealers to
execute portfolio transactions, subject to the primary consideration of best
execution discussed above.
On occasions when the Advisor or sub-advisors deem the purchase or
sale of a security to be in the best interest of a Fund as well as other
customers, the Advisor or sub-advisors, to the extent permitted by applicable
laws and regulations, may aggregate the securities to be so purchased or sold
for such parties in order to obtain best execution and lower brokerage
commissions. In such event, allocation of the shares so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Advisor
or sub-advisors in the manner it considers to be most equitable and consistent
with its fiduciary obligations to all such customers, including the applicable
Fund. In some cases the aggregation of securities to be sold or purchased could
have a detrimental effect on the price of the security insofar as a Fund is
concerned. However, in other cases, the ability of a Fund to participate in
volume transactions will be beneficial to the Fund.
For the fiscal years ended December 31, 1996, 1995 and 1994, the LARGE
CAP VALUE FUND paid total brokerage commissions of $75,469, $86,189 and
$64,780, respectively. For the fiscal year ended December 31, 1996, the LARGE
CAP VALUE FUND paid $2,520 to brokers providing research services for this
Fund. For the fiscal years ended December 31, 1996, 1995 and 1994, the FLEX
FUND paid total brokerage commissions of $193,286, $116,550 and $96,813,
respectively. For the fiscal year ended December 31, 1996, the FLEX FUND paid
$0 to brokers providing research services for this Fund. For the fiscal years
ended December 31, 1996, 1995 and 1994, the MULTIFLEX FUND paid total brokerage
commissions of $400,646, $247,023 and $269,827. For the fiscal year ended
December 31, 1996, the MULTIFLEX FUND paid $259,093 to brokers providing
research services for this Fund. For the period ended December 31, 1996, the
REAL ESTATE FUND and INTERNATIONAL VALUE FUND paid total brokerage commissions
of $40,353 and $21,872, respectively, and made no payments to brokers for
research services. The REAL ESTATE FUND and INTERNATIONAL VALUE FUND commenced
operations on May 1, 1995. [There were no brokerage commissions paid to
affiliated broker-dealers during the fiscal years ended December 31, 1996, 1995
or 1994, by any of the Funds.]
During the fiscal years ended December 31, 1996, 1995 and 1994, the
LARGE CAP VALUE FUND'S portfolio turnover rates were 19%, 17% and 21%,
respectively; the INCOME FUND'S portfolio turnover rates were 34%, 24% and 59%,
respectively; the FLEX FUND'S portfolio turnover rates were 26%, 5% and 36%,
respectively; and the MULTIFLEX FUND'S portfolio turnover rates were 62%, 50%
and 81%, respectively. For the fiscal year ended December 31, 1996 and the
period ended December 31, 1995, the REAL ESTATE FUND'S portfolio turnover rates
were 25% and 7%, respectively. For the fiscal year ended December 31, 1996 and
the period ended December 31, 1995, the INTERNATIONAL VALUE FUND'S portfolio
turnover rates were 5% and 2%, respectively. The REAL ESTATE FUND and
INTERNATIONAL VALUE FUND commenced operations on May 1, 1995.
At December 31, 1996, certain of the Funds held securities of the
Company's regular brokers or dealers, or their parents, as follows:
<TABLE>
<CAPTION>
Value of Securities
Fund Broker or Dealer at December 31, 1996
- ---- ---------------- --------------------
<S> <C> <C>
LARGE CAP VALUE FUND Morgan Stanley Group, Inc. $2,113,625
FLEX FUND Morgan Stanley Group, Inc. 6,283,750
MULTIFLEX FUND Morgan Stanley Group, Inc. 514,125
</TABLE>
30
<PAGE> 83
REDEMPTIONS
It is possible that in the future conditions may exist which would, in the
opinion of the Directors, make it undesirable for a Fund to pay for redeemed
shares in cash. In such cases, the Directors may authorize payment to be made
in Fund securities or other property of the applicable Fund. However, each Fund
is obligated under the 1940 Act to redeem for cash all shares presented to such
Fund for redemption by any one shareholder up to $250,000 (or 1% of the
applicable Fund's net assets if that is less) in any 90-day period. Securities
delivered in payment of redemptions are valued at the same value assigned to
them in computing the applicable Fund's net asset value per share. Shareholders
receiving such securities are likely to incur brokerage costs on their
subsequent sales of such securities.
PERFORMANCE INFORMATION
The Funds may from time to time include figures indicating their yield
and total return in advertisements or reports to shareholders or prospective
investors. Following is information on how those figures are computed.
Yield
(a) CASH MANAGEMENT FUND
The CASH MANAGEMENT FUND may advertise its "yield" and "effective
yield." Both figures are based on historical earnings and are not intended to
indicate future performance.
The "yield" of the CASH MANAGEMENT FUND is the income on a single
share of the Fund over a seven-day base period (which period will be stated in
the advertisement), which income is then "annualized." That is, the income
generated in the seven-day base period is assumed to be generated each week
over a 52-week period and is shown as a percentage of the investment. The yield
does not reflect capital changes but does reflect a deduction for expenses.
More technically, the change (exclusive of capital changes) in the value of a
single share for a specified seven-day period, less pro-rated expenses for that
period, is stated as a percentage of the share value at the beginning of that
period ("base period return"). This figure is then annualized by multiplying it
by 365/7 and carrying the result to at least the nearest hundredth of one
percent.
"Effective yield" is calculated similarly but, when annualized, the
income earned on a share is assumed to be reinvested. The effective yield on a
share is thus higher than the yield because it reflects the compounding of
reinvested income. More technically, effective yield is calculated as follows,
using the same base period return figure that is used in the yield calculation:
(365/7)
Effective yield = [(base period return + 1) ] - 1
Based on the seven-day period ended December 31, 1996, the yield for
the CASH MANAGEMENT FUND was 4.34%, and the effective yield was 4.44%. Average
Fund maturity for that period was 10 days.
(b) Funds other than CASH MANAGEMENT FUND
Funds other than CASH MANAGEMENT FUND may advertise "yield," "dividend
yield" and "distribution yield" for each class. Quotations of yield for each
class of these Funds will be based on all investment income per share earned
during a particular 30-day period (including dividends and interest), less
expenses accrued during the period ("net investment income"), and are computed
by dividing net investment income by the maximum offering price per share
(which includes the maximum sales charge) on the last day of the period,
according to the following formula:
31
<PAGE> 84
(6)
Yield = 2[(a-b + 1) -1]
---
cd
where a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements
or waivers),
c = the average daily number of shares outstanding during
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day
of the period.
For the 30-day period ended December 31, 1996, the yields for shares
now designated as Class C shares of the following Funds were:
INCOME FUND 4.77%
REAL ESTATE FUND 2.21%
Dividend yield is a measure of investment return during a specified
period based on dividends actually paid by a class of a Fund during that
period. Dividend yield is calculated by totaling the dividends paid by a class
from its net investment income during the specified period and dividing that
sum by the net asset value per share of the class on the last day of the
period. Distribution yield is computed in the same way, but includes
distributions paid with respect to a class from capital gains realized by the
Fund, as well as dividends from the net investment income of the class. Where
the dividend or distribution yield is calculated for a period of less than a
year, results may be annualized by using the following calculation method:
Total dividends/distributions paid by the class during the specified
period are divided by the net asset value of a class share on the last
day of the specified period. This result is divided by the number of
days in the specified period and the result is multiplied by 365.
The dividend yields for shares now designated as Class C shares each
of the following Funds for the 30-day period ended December 31, 1996 were as
follows:
INCOME FUND 5.42%
REAL ESTATE FUND 2.17%
The distribution yields for shares now designated as Class C shares of
each of the following Funds for the 30- day period ended December 31, 1996 were
as follows:
INCOME FUND 5.42%
REAL ESTATE FUND 2.84%
*Annualized
Total Return
Funds other than CASH MANAGEMENT FUND may advertise their "average
annual total return" and their "total return." Average annual total return and
total return figures represent the increase (or decrease) in the value of an
investment in the Fund over a specified period. Both calculations assume that
all income dividends and capital gains distributions during the period are
reinvested at net asset value in additional shares of the respective Fund.
Quotations of the average annual total return for each class reflect
the deduction of a proportional share of expenses allocated to the class and
Class Expenses on an annual basis. The results, which are annualized, represent
an average annual compound rate of return on a hypothetical investment in the
class over a period of 1, 5 and 10 years ending on the most recent calendar
quarter calculated pursuant to the following formula:
32
<PAGE> 85
(n)
P(1 + T) = ERV
where P = a hypothetical initial payment of $1,000
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.
The average annual total return as of December 31, 1996 for shares now
designated as Class C shares of each of the following Funds for the periods
listed below were as follows:
<TABLE>
<CAPTION>
Since
Fund 1 Year 5 Years 10 Years Inception
- ---- ------ ------- -------- ---------
<S> <C> <C> <C> <C>
LARGE CAP VALUE FUND 17.17% 12.40% 13.13% 13.73%
INCOME FUND -1.23% 5.73% 6.23% 8.12%
FLEX FUND 13.61% 11.62% N/A 11.30%*
MULTIFLEX FUND 17.03% N/A N/A 11.75%**
REAL ESTATE FUND 36.43% N/A N/A 26.89%***
INTERNATIONAL VALUE FUND 20.99% N/A N/A 19.47%***
- -----------------------
</TABLE>
* From 02-24-88 (commencement of operations) (9 years).
** From 11-17-93 (commencement of operations) (3 years).
*** From 05-01-95 (commencement of operations) (1.7 years).
The following tables illustrate performance of shares of each Fund
that are now designated as Class C shares. (Class A shares were not offered
during the periods illustrated.)
<TABLE>
<CAPTION>
One Five Ten
Year Years Years
---- ----- -----
LARGE CAP VALUE FUND
<S> <C> <C> <C>
Based on the average annual compound rates of
return listed above over these periods, you could
have expected the following redeemable values
on a $1,000 investment assuming redemption at
the end of each time period (December 31, 1996) $1,162 $1,794 $3,434
You could have expected the following values
assuming no redemption at the end of each time
period (December 31, 1996) $1,172 $1,794 $3,434
INCOME FUND
Based on the average annual compound rates of
return listed above over these periods, you could
have expected the following redeemable values
on a $1,000 investment assuming redemption at
the end of each time period (December 31, 1996) $ 982 $1,321 $1,831
You could have expected the following values
assuming no redemption at the end of each time
period (December 31, 1996) $ 988 $1,321 $1,831
</TABLE>
33
<PAGE> 86
<TABLE>
<CAPTION>
One Five
Year Years
---- -----
FLEX FUND
<S> <C> <C>
Based on the average annual compound rates of
return listed above over these periods, you could
have expected the following redeemable values
on a $1,000 investment assuming redemption at
the end of each time period (December 31, 1996) $1,126 $1,733
You could have expected the following values
assuming no redemption at the end of each time
period (December 31, 1996) $1,136 $1,733
</TABLE>
Quotations of total return, which are not annualized, represent
historical earnings and asset value fluctuations. Total return is based on past
performance and is not a guarantee of future results. The following table
provides the actual total rates of return for shares that are now designated as
Class C shares of the indicated Funds for the fiscal years ended December 31,
1996, 1995, 1994, 1993 and 1992. These rates of return are net of all expenses
and assume all dividends and distributions by the Funds have been reinvested on
the reinvestment dates during each period.
<TABLE>
<CAPTION>
LARGE REAL INTERNATIONAL
CAP VALUE INCOME FLEX MULTIFLEX ESTATE VALUE
FUND FUND FUND FUND FUND FUND
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1996 17.17% -1.23% 13.61% 17.03% 36.43% 20.99%
1995 30.28% 21.12% 27.30% 21.58% 9.12%** 11.28%**
1994 2.69% -1.80% 0.64% -1.02% N/A N/A
1993 9.16% 7.39% 10.48% 0.46%* N/A N/A
1992 4.84% 4.74% 7.72% N/A N/A N/A
</TABLE>
* Period November 17, 1993 (commencement of operations) through December 31,
1993.
** Period May 1, 1995 (commencement of operations) through December 31, 1995.
Performance information for a Fund or class reflects only the
performance of a hypothetical investment in that Fund or class during the
particular time period on which the calculations are based. Performance
information should be considered in light of the Fund's investment objectives
and policies, the types of quality of the Fund's portfolio investments, market
conditions during the particular time period and operating expenses. Such
information should not be considered as a representation of the future
performance of a Fund or class.
34
<PAGE> 87
MISCELLANEOUS
PRINCIPAL SHAREHOLDERS
As of June 1, 1997, the following entities owned of record or
beneficially 5% or more of the shares of a Fund:
<TABLE>
<CAPTION>
Name and Address of Number Percent
Beneficial Owner of Shares of Class
- ---------------- --------- --------
<S> <C> <C>
CLASS A
- -------
LARGE CAP VALUE FUND
Association in Family 1,832.76 40.81%*
Practice PA
PSP 7 17 85 John Ford John
Kijak Adolph Johnson Cotts
12520 Prosperity Dr., Ste. 150
Silver Spring, MD 20904
Greg Greer 459.31 10.22%
and Gary Jones and
Randall Greer JTWROS
1401 17th St. NW #604
Washington, DC 20036
Item House, Inc. 433.57 9.65%
4824 Ridgeside Dr.
Dallas, TX 75244
Raymond James Assoc., Inc. 418.98 9.32%
Cust. Sherry Yandle Harlan
IRA 73833905
25125 SW Mirrormont Pl.
Issaquah, WA 98027
Raymond James Assoc., Inc. 335.51 7.47%
CSDN
Sharon R. Meredith IRA
1223 Lancaster Way SE
Issaquah, WA 98029
Raymond James Assoc., Inc. 286.73 6.38%
Cust. Diane Gelormino IRA
21100 NE 246th Cir.
Battle Ground, WA 98604
</TABLE>
35
<PAGE> 88
<TABLE>
<CAPTION>
Name and Address of Number Percent
Beneficial Owner of Shares of Class
- ---------------- --------- --------
<S> <C> <C>
INCOME FUND
Florence A. Correll 504.47 83.10%*
1329 Nevada St.
Allentown, PA 18103
INVESCO Services, Inc. 102.59 16.89%
Attn: Tony Green
1355 Peachtree St. NE
Atlanta, GA 30309
FLEX FUND
Cypress Enterprises 27,278.29 52.25%*
A Partnership
730 S. Tonti
New Orleans, LA 70119
Raymond James Assoc., Inc. 7,959.39 15.24%
Cust. Charles C. Gleason IRA
4629 Rue BYU
Sanibel, FL 33957
CASH MANAGEMENT FUND
INVESCO Services, Inc. 101,491.40 76.02%*
Attn: Tony Green
1355 Peachtree St. NE
Atlanta, GA 30309
Britt Sexton 19,227.52 14.40%
8420 Stone Haven Dr.
Hayden, ID 83835
Ryland K. Pruett, Jr. 7,156.19 5.36%
and Kelly H. Pruett JTWROS
2337 Mirow Pl.
Charlotte, NC 28270
MULTIFLEX FUND
Raymond James Assoc., Inc. 10,623.03 32.36%*
Cust. Charles C. Gleason IRA
4629 Rue BYU
Sanibel, FL 33957
</TABLE>
36
<PAGE> 89
<TABLE>
<CAPTION>
Name and Address of Number Percent
Beneficial Owner of Shares of Class
- ---------------- --------- --------
<S> <C> <C>
Raymond James Assoc. Inc. 3,874.47 11.80%
Cust. Linda K. Merchant IRA
8031 216th Ct. NE
Redmond, WA 98053
Raymond James Assoc., Inc. 2,200.12 6.70
Cust. Elsie Hinrichsen IRA RO
933 E. Laurel St.
Kent, WA 98031
REAL ESTATE FUND
Fleet National Bank 2,660.73 13.94%
Trst. Charlotte EENT 401K
FBO Richard Felkner
A/C 0004823270
PO Box 92800
Rochester, NY 14692
Gus P. Kolias 1,774.13 9.30%
Karen G. Kolias JTWROS
16110 Chasemore Dr.
Spring, TX 77379
INTERNATIONAL FUND
Merrill Lynch Pierce Fenner 8,170.00 39.79%*
& Smith for the Sole Benefit
of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E. 3rd Flr.
Jacksonville, FL 32246
Reliance Trust Company 2,746.75 13.37
Trst. Gautier Family Trust 120000054
DTD 05/02/84
3384 Peachtree Rd., Ste. 900
Atlanta, GA 30326
Belezak Sons, Inc. 1,843.00 8.97%
Trst. Belezak Sons Inc. Emp.
Ret. Pln. UAD 6/30/76
4085 E. Lapalma Ave. Unit H
Anaheim, CA 92807
Lolita D. McKenna 1,080.29 5.26%
8109 Coach St.
Potomac, MD 20854
</TABLE>
37
<PAGE> 90
<TABLE>
<CAPTION>
Name and Address of Number Percent
Beneficial Owner of Shares of Class
- ---------------- --------- --------
<S> <C> <C>
CLASS C
LARGE CAP VALUE FUND
Merrill Lynch Pierce Fenner & Smith 274,194.00 16.75%
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E,. 3rd Flr.
Jacksonville, FL 32246
INCOME FUND
Merrill Lynch Pierce Fenner & Smith 53,512.00 10.63%
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E., 3rd Flr.
Jacksonville, FL 32246
FLEX FUND
Merrill Lynch Pierce Fenner & Smith 935,294.00 12.45%
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E., 3rd Flr.
Jacksonville, FL 32246
MULTIFLEX FUND
Merrill Lynch Pierce Fenner & Smith 501,343.00 8.87%
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E., 3rd Flr.
Jacksonville, FL 32246
REAL ESTATE FUND
Merrill Lynch Pierce Fenner & Smith 35,196.00 6.83%
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E., 3rd Flr.
Jacksonville, FL 32246
INTERNATIONAL VALUE FUND
Merrill Lynch Pierce Fenner & Smith 669,195.00 51.52%*
for the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E., 3rd Flr.
Jacksonville, FL 32246
</TABLE>
38
<PAGE> 91
*Beneficial Owner may be deemed to control the Fund by virtue of its ownership
percentage of the outstanding securities of that Fund.
As of June 1, 1997, the officers and Directors of the Fund, as a
group, owned less than 1% of the outstanding shares of the Funds.
COMPUTATION OF NET ASSET VALUE
For Cash Management Fund: The net asset value per share of the Fund is
determined daily as of the close of trading on the New York Stock Exchange
("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 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 Directors to be "Eligible Securities" and to present
minimal credit risk to the Fund.
The Board of Directors 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 Directors 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 Directors determines
that such a deviation exists for the Fund, it will take such corrective action
as the Board of Directors 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 Company's officers in a manner specifically
authorized by the Board of Directors. 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.
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 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 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 Directors.
The net asset value per share of each class of the Funds will not be
calculated on days that the NYSE is closed. These days presently include New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
THE CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is custodian of the portfolio securities and cash of the
Funds and maintains certain records on behalf of the Funds. Subject to the
prior approval of the Board of Directors, the custodian may, in the future, use
the services of subcustodians as to one or more of the Funds.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 950 Seventeenth Street, Denver, Colorado serves
as the independent accountants for each of the Funds, providing services
including audit of the annual financial statements, and preparation of tax
returns filed on behalf of the Funds.
39
<PAGE> 92
APPENDIX A
Some of the terms used in the Fund's Prospectus and this Statement of
Additional Information are described below.
The term "MONEY MARKET" refers to the marketplace composed of the
financial institutions which handle the purchase and sale of liquid,
short-term, high-grade debt instruments. The money market is not a single
entity, but consists of numerous separate markets, each of which deals in a
different type of short-term debt instrument. These include U.S. Government
obligations, commercial paper, certificates of deposit and bankers'
acceptances, which are generally referred to as money market instruments.
U.S. GOVERNMENT OBLIGATIONS are debt securities (including bills,
notes and bonds) issued by the U.S. Treasury or issued by an agency or
instrumentality of the U.S. Government which is established under the authority
of an Act of Congress. Such agencies or instrumentalities include, but are not
limited to, the Federal National Mortgage Association, Government National
Mortgage Association, the Federal Farm Credit Bank, and the Federal Home Loan
Bank. Although all obligations of agencies, authorities and instrumentalities
are not direct obligations of the U.S. Treasury, payment of the interest and
principal on these obligations is generally backed directly or indirectly by
the U.S. Government. This support can range from the backing of the full faith
and credit of the United States to U.S. Treasury guarantees, or to the backing
solely of the issuing instrumentality itself. In the case of securities not
backed by the full faith and credit of the United States, the investor 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.
BANK OBLIGATIONS include certificates of deposit which are negotiable
certificates evidencing the indebtedness of a commercial bank to repay funds
deposited with it for a definite period of time (usually from 14 days to one
year) at a stated interest rate.
BANKERS' ACCEPTANCES are credit instruments evidencing the obligation
of a bank to pay a draft which has been drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity.
TIME DEPOSITS are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate.
COMMERCIAL PAPER consists of short-term (usually one to 180 days)
unsecured promissory notes issued by corporations in order to finance their
current operations.
CORPORATE DEBT obligations are bonds and notes issued by corporations
and other business organizations, including business trusts, in order to
finance their long-term credit needs.
CERTIFICATES OF DEPOSIT are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning
a specified return.
MORTGAGE-BACKED securities are interests in a pool of mortgage loans.
Most mortgage securities are pass-through securities, which means that they
provide investors with payments consisting of both principal and interest as
mortgages in the underlying mortgage pool are paid off by the borrowers. The
dominant issuers or guarantors of mortgage securities are the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") are hybrid instruments
with characteristics of both mortgage- backed and mortgage pass-through
securities. Similar to a bond, interest and pre-paid principal on a CMO are
paid, in most cases, semi-annually. CMOs may be collateralized by whole
mortgage loans but
40
<PAGE> 93
are more typically collateralized by Funds of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA. 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 receive
principal only after the first class has been retired.
MUNICIPAL BONDS are debt obligations which generally have a maturity
at the time of issue in excess of one year and are issued to obtain funds for
various public purposes. 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 full 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 specific revenue source.
Industrial development bonds or private activity bonds are issued by or on
behalf of public authorities to obtain funds for privately operated facilities
and are, in most cases, revenue bonds which do not generally carry the pledge
of the full faith and credit of the issuer of such bonds, but depend for
payment on the ability of the industrial user to meet its obligations (or any
property pledged as security).
ZERO COUPON BONDS are debt obligations issued without any requirement
for the periodic payment of interest. Zero coupon bonds are issued at a
significant discount from face value. The discount approximates the total
amount of interest the bonds would accrue and compound over the period until
maturity at a rate of interest reflecting the market rate at the time of
issuance. A Fund, if it holds zero coupon bonds in its Fund, however, would
recognize income currently for Federal tax purposes in the amount of the
unpaid, accrued interest (determined under tax rules) and generally would be
required to distribute dividends representing such income to shareholders
currently, even though funds representing such income would not have been
received by the Fund. Cash to pay dividends representing unpaid, accrued
interest may be obtained from sales proceeds of Fund securities and Fund shares
and from loan proceeds. Because interest on zero coupon obligations is not paid
to the Fund on a current basis but is in effect compounded, the value of the
securities of this type is subject to greater fluctuations in response to
changing interest rates than the value of debt obligations which distribute
income regularly.
RATINGS OF CORPORATE DEBT OBLIGATIONS Except as to the Cash Management
Fund, Fund purchases of taxable obligations are not limited to those
obligations rated within the four highest categories by Moody's and S&P.
However, the Flex Fund's and Income Fund's standards for investment grade
obligations are generally similar to those standards included in the four
highest categories by Moody's and S&P. The Cash Management Fund will limit its
investments to those obligations within the two highest categories. The
Relative Return Bond Fund may invest up to 10% of Fund assets in corporate
bonds rated below Baa by Moody's or below BBB by S&P but rated at least Ba by
Moody's or BB by S&P. The MultiFlex Fund may invest up to 5% of Fund assets in
corporate bonds rated below Baa by Moody's or below BBB by S&P, but rated at
least Ba by Moody's or BB by S&P.
The characteristics of corporate debt obligations rated by Moody's are
generally 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. 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.
41
<PAGE> 94
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. The future of such bonds cannot be considered as well assured.
B -- Bonds which are rated B generally lack characteristics of a
desirable investment.
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 are speculative to a high degree.
C -- Bonds rated C are the lowest rated class of bonds and are
regarded as having extremely poor prospects.
The characteristics of corporate debt obligations rated by S&P are
generally as follows:
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA 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 -- Debt rated BB is predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with terms of the
obligation. BB indicates the lowest degree of speculation; CC indicates the
highest degree of speculation.
BB,B,CCC,CC -- Debt in these ratings is predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest.
A bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by the rating services from other sources which they consider
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in or unavailability of, such information, or for other reasons.
42
<PAGE> 95
RATINGS OF COMMERCIAL PAPER. Cash Management Fund purchases are
limited to those instruments rated A-1 by S&P and Prime 1 by Moody's.
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: liquidity ratios are adequate to meet cash requirements; the
issuer's long-term debt is rated "A" or better; the issuer has access to at
least two additional channels of borrowing; and basic earnings and cash flow
have an upward trend with allowances made for unusual circumstances. Typically,
the issuer's industry is well established and the issuer has a strong position
within the industry.
Commercial paper rated Prime 1 by Moody's is the highest commercial
paper assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and consumer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. Relative
strength or weakness of the above factors determine how the issuer's commercial
paper is rated within various categories.
. DETERMINATION OF CREDIT QUALITY OF UNRATED SECURITIES. In determining
whether an unrated debt security is of comparable quality to a rated security,
the sub-adviser may consider the following factors, among others:
(1) other securities of the issuer that are rated;
(2) the issuer's liquidity, debt structure, repayment schedules,
and external credit support facilities;
(3) the reliability and quality of the issuer's management;
(4) the length to maturity of the security and the percentage of
the Fund represented by securities of that issuer;
(5) the issuer's earnings and cash flow trends;
(6) the issuer's industry, the issuer's position in its industry,
and an appraisal of speculative risks which may be inherent in
the industry;
(7) the financial strength of the issuer's parent and its
relationship with the issuer;
(8) the extent and reliability of credit support, including a
letter of credit or third party guarantee applicable to
payment of principal and interest;
(9) the issuer's ability to repay its debt from cash sources or
asset liquidation in the event that the issuer's backup credit
facilities are unavailable;
(10) other factors deemed relevant by the subadvisor.
43
<PAGE> 96
FINANCIAL STATEMENTS
FS
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of INVESCO Advisor Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, includ-
ing the schedules of investment securities, and the related statements of op-
erations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of INVESCO Advisor
Flex Fund, INVESCO Advisor Equity Fund, INVESCO Advisor MultiFlex Fund,
INVESCO Advisor International Value Fund, INVESCO Advisor Real Estate Fund,
INVESCO Advisor Income Fund and INVESCO Advisor Cash Management Fund (consti-
tuting INVESCO Advisor Funds, Inc., hereafter referred to as the "Fund") at
December 31, 1996, the results of each of their operations, the changes in
each of their net assets and the financial highlights for each of the respec-
tive periods presented, in conformity with generally accepted accounting prin-
ciples. These financial statements and financial highlights (hereafter re-
ferred to as "financial statements") are the responsibility of the Fund's man-
agement; our responsibility is to express an opinion on these financial state-
ments based on our audits. We conducted our audits of these financial state-
ments in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and dis-
closures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall fi-
nancial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Denver, Colorado
January 30, 1997
FS-1
<PAGE> 98
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>
FS-2
<PAGE> 99
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR FLEX FUND (CONTINUED)
SuperValu, Inc......................................... 150,000 $ 4,256,250
Unilever N.V........................................... 40,000 7,010,000
------------
84,140,625
------------
DIVERSIFIED 4.89%
Cognizant Corp......................................... 75,000 2,475,000
Hanson PLC, ADR........................................ 350,000 2,362,500
Minnesota Mining & Manufacturing Co.................... 70,000 5,801,250
National Service Industries, Inc....................... 100,000 3,737,500
Phelps Dodge Corp...................................... 70,000 4,725,000
Textron, Inc........................................... 50,000 4,712,500
------------
23,813,750
------------
ENERGY 4.80%
Amoco Corp............................................. 50,000 4,025,000
Exxon Corp............................................. 50,000 4,900,000
Repsol AS, ADR......................................... 200,000 7,625,000
Royal Dutch Petroleum Co............................... 40,000 6,830,000
------------
23,380,000
------------
FINANCE 12.07%
American General Corp.................................. 110,000 4,496,250
Dun & Bradstreet Corp.................................. 75,000 1,781,250
First Chicago NBD Corp................................. 150,000 8,062,500
First of America Bank Corp............................. 100,000 6,012,500
First Union Corp....................................... 50,000 3,700,000
Marsh & McLennan Cos., Inc............................. 50,000 5,200,000
Morgan Stanley Group, Inc.............................. 110,000 6,283,750
NationsBank Corp....................................... 65,000 6,353,750
Ohio Casualty Corp..................................... 150,000 5,325,000
SAFECO Corp............................................ 150,000 5,915,625
Wachovia Corp.......................................... 100,000 5,650,000
------------
58,780,625
------------
TECHNOLOGY 3.76%
Computer Associates International, Inc................. 100,000 4,975,000
Hewlett-Packard Co..................................... 100,000 5,025,000
International Business Machines Corp................... 55,000 8,305,000
------------
18,305,000
------------
TRANSPORTATION & SERVICES 0.94%
Browning-Ferris Industries, Inc........................ 175,000 4,593,750
------------
UTILITIES 5.44%
Edison International Corp.............................. 350,000 6,956,250
GPU Corp............................................... 175,000 5,884,375
NYNEX Corp............................................. 90,000 4,331,250
Telefonica de Espana, ADR.............................. 75,000 5,193,750
Telefonos de Mexico, "L", ADR.......................... 125,000 4,125,000
------------
26,490,625
------------
TOTAL COMMON STOCKS
(Cost $227,149,703)................................... 331,953,405
------------
PREFERRED STOCKS 0.98%
TRANSPORTATION & SERVICES 0.98%
Illinois Central Corp. (Cost $3,843,152)............ 150,000 $ 4,800,000
------------
TOTAL COMMON & PREFERRED STOCKS
(Cost $230,992,855)................................ 336,753,405
------------
FIXED INCOME SECURITIES 29.67%
U.S. GOVERNMENT OBLIGATIONS 22.60%
U.S. TREASURY NOTES
6.750%, 02/28/1997................................. $ 8,000,000 8,012,504
6.125%, 03/31/1998................................. 10,000,000 10,021,880
7.125%, 10/15/1998................................. 5,000,000 5,100,000
8.875%, 02/15/1999................................. 11,250,000 11,900,396
6.750%, 06/30/1999................................. 5,000,000 5,087,500
6.375%, 07/15/1999................................. 10,000,000 10,093,750
8.750%, 08/15/2000................................. 14,000,000 15,172,500
7.875%, 08/15/2001................................. 7,000,000 7,461,566
7.500%, 05/15/2002................................. 4,500,000 4,758,750
6.500%, 08/15/2005................................. 5,000,000 5,034,375
9.375%, 02/15/2006................................. 8,000,000 9,625,000
9.250%, 02/15/2016................................. 9,000,000 11,418,750
7.250%, 08/15/2022................................. 6,000,000 6,346,878
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $107,619,851)................................ 110,033,849
------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS 5.12%
FEDERAL HOME LOAN MORTGAGE CORP. GOLD
6.500%, 07/01/2001, Pool #G50362................... 3,901,506 3,895,431
8.000%, 10/01/2010, Pool #G10518................... 2,934,034 3,019,306
------------
6,914,737
------------
FEDERAL NATIONAL MORTGAGE ASSN.
8.500%, 03/01/2010, Pool #313136................... 2,905,382 3,022,506
6.500%, 06/01/2011, Pool #250579................... 2,923,135 2,870,154
6.500%, 08/01/2026, Pool #313097................... 4,924,348 4,698,138
------------
10,590,798
------------
GOVERNMENT NATIONAL MORTGAGE ASSN.
6.500%, 10/15/2008, Pool #354668................... 1,432,577 1,413,774
7.000%, 10/15/2008, Pool #372807................... 1,263,648 1,268,782
6.000%, 11/15/2008, Pool #365945................... 1,465,885 1,415,495
7.500%, 03/15/2026, Pool #417287................... 3,338,349 3,340,435
------------
7,438,486
------------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost $25,009,362)................................. 24,944,021
------------
CORPORATE BONDS 1.95%
FINANCE 0.51%
NationsBank Corp., 5.375%, 04/15/2000............... 1,550,000 1,502,550
</TABLE>
FS-3
<PAGE> 100
<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR FLEX FUND (CONTINUED)
National City Corp., 7.200%, 05/15/2005................ $ 1,000,000 $ 1,007,485
------------
2,510,035
------------
INDUSTRIAL 0.83%
ConAgra, Inc., 9.750%, 11/01/1997...................... 1,000,000 1,030,537
Ford Motor Co., 7.500%, 11/15/1999..................... 750,000 770,165
Rockwell International, Inc., 6.625%, 06/01/2005....... 1,500,000 1,477,484
Wal-Mart Stores, Inc., 5.500%, 03/01/1998.............. 750,000 746,197
------------
4,024,383
------------
UTILITIES 0.61%
Pennsylvania Power & Light Co., 6.875%, 02/01/2003..... 1,000,000 1,000,402
Pennsylvania Power & Light Co., 6.550%, 03/01/2006..... 1,900,000 1,826,729
Union Electric Co., 6.750%,
10/15/1999............................................ 150,000 151,531
------------
2,978,662
------------
TOTAL CORPORATE BONDS
(Cost $9,731,554)..................................... 9,513,080
------------
TOTAL FIXED INCOME SECURITIES
(Cost $142,360,767)................................... 144,490,950
------------
SHORT TERM INVESTMENTS 1.18%
United Missouri Bank, Money Market Fiduciary+ 4.900%... 5,737,117 5,737,117
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $5,737,117)..................................... 5,737,117
------------
TOTAL INVESTMENTS
(100.00%) (Cost $379,090,739#)........................ $486,981,472
============
INVESCO ADVISOR EQUITY FUND
COMMON STOCKS 94.76%
BASIC MATERIALS 2.88%
Great Lakes Chemical Corp.............................. 20,000 $ 935,000
Imperial Chemical Industries PLC, ADR.................. 33,200 1,726,400
Westvaco Corp.......................................... 45,000 1,293,750
------------
3,955,150
------------
CAPITAL GOODS 9.95%
Boeing Co.............................................. 28,400 3,021,050
Emerson Electric Co.................................... 12,000 1,161,000
Lockheed Martin Corp................................... 35,860 3,281,190
Pitney Bowes, Inc...................................... 25,700 $ 1,400,650
Raytheon Co............................................ 39,400 1,896,125
Unifi, Inc............................................. 40,000 1,285,000
WMX Technologies, Inc.................................. 50,000 1,631,250
------------
13,676,265
------------
CONSUMER CYCLICAL 12.29%
Circuit City Stores, Inc............................... 54,000 1,626,750
Cooper Tire & Rubber Co................................ 62,000 1,224,500
Disney (Walt) Co....................................... 30,400 2,116,600
Gap, Inc............................................... 50,000 1,506,250
Mattel, Inc............................................ 50,000 1,387,500
Maytag Corp............................................ 86,900 1,716,275
McDonald's Corp........................................ 53,400 2,416,350
Penney (J.C.) Co., Inc................................. 40,000 1,950,000
Russell Corp........................................... 56,000 1,666,000
Shaw Industries, Inc................................... 109,000 1,280,750
------------
16,890,975
------------
CONSUMER STAPLES 21.19%
Abbott Laboratories.................................... 50,400 2,557,800
American Home Products Corp............................ 42,000 2,462,250
Columbia/HCA Healthcare, Inc........................... 70,200 2,860,650
Giant Food, Inc., Cl. A................................ 60,000 2,070,000
Heinz (H.J.) Co........................................ 58,350 2,086,013
Kimberly-Clark Corp.................................... 20,000 1,905,000
Lilly (Eli) & Co....................................... 35,400 2,584,200
Merck & Co., Inc....................................... 41,900 3,320,575
Mylan Laboratories..................................... 77,000 1,289,750
PepsiCo, Inc........................................... 85,000 2,486,250
Philip Morris Cos., Inc................................ 28,300 3,187,287
Schering-Plough Corp................................... 35,600 2,305,100
------------
29,114,875
------------
DIVERSIFIED 8.25%
American Brands, Inc................................... 50,000 2,481,250
Cognizant Corp......................................... 40,000 1,320,000
General Electric Co.................................... 29,000 2,867,375
Minnesota Mining & Manufacturing Co.................... 20,000 1,657,500
Textron, Inc........................................... 32,000 3,016,000
------------
11,342,125
------------
ENERGY 6.53%
Amoco Corp............................................. 24,600 1,980,300
Exxon Corp............................................. 22,000 2,156,000
Repsol AS, ADR......................................... 60,000 2,287,500
Royal Dutch Petroleum Co............................... 14,900 2,544,175
------------
8,967,975
------------
FINANCE 18.96%
American General Corp.................................. 60,000 2,452,500
American International Group, Inc...................... 23,100 2,500,575
Boatmen's Bancshares, Inc.............................. 35,000 2,257,500
Chubb Corp............................................. 25,000 1,343,750
</TABLE>
FS-4
<PAGE> 101
<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR EQUITY FUND (CONTINUED)
Dun & Bradstreet Corp.................................. 60,000 $ 1,425,000
Federal National Mortgage Assn......................... 40,000 1,490,000
First Chicago NBD Corp................................. 53,800 2,891,750
First of America Bank Corp............................. 40,000 2,405,000
First Union Corp....................................... 30,000 2,220,000
General RE Corp........................................ 13,500 2,129,625
Jefferson-Pilot Corp................................... 24,000 1,359,000
Morgan Stanley Group, Inc.............................. 37,000 2,113,625
SAFECO Corp............................................ 37,000 1,459,187
------------
26,047,512
------------
TECHNOLOGY 9.66%
COMPAQ Computer Corp.*................................. 32,000 2,376,000
Computer Associates International, Inc................. 55,000 2,736,250
Hewlett-Packard Co..................................... 56,000 2,814,000
International Business Machines Corp................... 18,000 2,718,000
Xerox Corp............................................. 50,000 2,631,250
------------
13,275,500
------------
UTILITIES 5.05%
CINergy Corp........................................... 61,000 2,035,875
Southern New England Telecommunications Corp........... 60,000 2,332,500
Telefonos de Mexico, "L", ADR.......................... 40,800 1,346,400
Texas Utilities Co..................................... 30,000 1,222,500
------------
6,937,275
------------
TOTAL COMMON STOCKS
(Cost $86,731,704).................................... 130,207,652
------------
PREFERRED STOCK 1.08%
TRANSPORTATION & SERVICES 1.08%
Illinois Central Corp.................................. 46,500 1,488,000
------------
TOTAL PREFERRED STOCK
(Cost $1,451,774)..................................... 1,488,000
------------
SHORT TERM INVESTMENTS 4.16%
COMMERCIAL PAPER 1.51%
Kellogg Co., 5.650%, 01/06/1997........................ $ 1,070,000 1,069,161
Gannett Co., 5.350%, 01/07/1997........................ 1,000,000 999,108
------------
TOTAL COMMERCIAL PAPER
(Cost $2,068,269)..................................... 2,068,269
------------
OTHER SECURITIES 2.65%
United Missouri Bank, Money Market Fiduciary+ 4.900%... 3,646,494 3,646,494
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $5,714,763)..................................... $ 5,714,763
------------
TOTAL INVESTMENTS
(100.00%) (Cost $93,898,241#)......................... $137,410,415
============
INVESCO ADVISOR MULTIFLEX FUND
COMMON STOCKS 78.81%
LARGE CAPITALIZATION EQUITIES 17.21%
Abbott Laboratories..................................... 17,650 $ 895,738
Air Products & Chemicals, Inc........................... 3,400 235,025
American Brands, Inc.................................... 13,000 645,125
American General Corp................................... 18,200 743,925
American Home Products Corp............................. 11,000 644,875
American International Group, Inc....................... 6,950 752,337
Amoco Corp.............................................. 4,000 322,000
Archer-Daniels-Midland Co............................... 37,800 831,600
Atlantic Richfield Co................................... 3,900 516,750
Boatmen's Bancshares, Inc............................... 16,600 1,070,700
Boeing Co............................................... 3,400 361,675
Bristol-Myers Squibb Co................................. 8,950 973,313
Chubb Corp.............................................. 2,900 155,875
Circuit City Stores, Inc................................ 14,000 421,750
Columbia/HCA Healthcare, Inc............................ 22,828 930,241
COMPAQ Computer Corp.*.................................. 11,400 846,450
Computer Associates International, Inc.................. 10,400 517,400
Comsat Corp............................................. 6,200 152,675
Cooper Tire & Rubber Co................................. 22,300 440,425
Disney (Walt) Co........................................ 5,000 348,125
Dover Corp.............................................. 10,850 545,212
Dow Chemical Co......................................... 6,200 485,925
DTE Energy Co........................................... 23,000 744,625
Dun & Bradstreet Corp................................... 14,100 334,875
Emerson Electric Co..................................... 8,800 851,400
Exxon Corp.............................................. 8,700 852,600
Federal National Mortgage Assn.......................... 24,300 905,175
First Chicago NBD Corp.................................. 17,000 913,750
Ford Motor Co........................................... 16,600 529,125
Gannett Co., Inc........................................ 7,000 524,125
General Electric Co..................................... 5,500 543,813
General RE Corp......................................... 3,800 599,450
Great Lakes Chemical Corp............................... 13,000 607,750
Heinz (H.J.) Co......................................... 19,000 679,250
Hewlett-Packard Co...................................... 18,400 924,600
International Business Machines Corp.................... 4,700 709,700
Jefferson-Pilot Corp.................................... 2,600 147,225
Johnson & Johnson....................................... 10,800 537,300
Kimberly-Clark Corp..................................... 9,100 866,775
Lilly (Eli) & Co........................................ 7,500 547,500
Lockheed Martin Corp.................................... 9,616 879,864
Marsh & McLennan Cos., Inc.............................. 4,025 418,600
Mattel, Inc............................................. 17,000 471,750
McDonald's Corp......................................... 16,000 724,000
Merck & Co., Inc........................................ 9,100 721,175
Minnesota Mining & Manufacturing Co..................... 9,000 745,875
Morgan Stanley Group, Inc............................... 9,000 514,125
Norfolk Southern Corp................................... 3,500 306,250
</TABLE>
FS-5
<PAGE> 102
<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR MULTIFLEX FUND (CONTINUED)
Penney (J.C.) Co., Inc................................. 13,375 $ 652,031
PepsiCo, Inc........................................... 28,350 829,237
Phelps Dodge Corp...................................... 8,500 573,750
Philip Morris Cos., Inc................................ 9,750 1,098,094
Pitney Bowes, Inc...................................... 9,600 523,200
Ralston Purina Group................................... 12,100 887,838
Raytheon Co............................................ 20,000 962,500
Rite Aid Corp.......................................... 18,000 715,500
Royal Dutch Petroleum Co............................... 6,900 1,178,175
Russell Corp........................................... 5,100 151,725
SAFECO Corp............................................ 26,300 1,037,206
Salomon, Inc........................................... 13,000 612,625
Schering-Plough Corp................................... 15,050 974,488
Shaw Industries, Inc................................... 13,000 152,750
Southern Co............................................ 12,500 282,813
Southern New England
Telecommunications Corp............................... 23,350 907,731
Texas Utilities Co..................................... 11,000 448,250
Textron, Inc........................................... 10,000 942,500
Vulcan Materials Co.................................... 11,000 669,625
Wachovia Corp.......................................... 10,000 565,000
Wal-Mart Stores, Inc................................... 10,500 240,187
Westvaco Corp.......................................... 18,000 517,500
Whirlpool Corp......................................... 11,500 536,188
WMX Technologies, Inc.................................. 22,500 734,062
Xerox Corp............................................. 14,500 763,062
------------
46,393,855
------------
SMALL CAPITALIZATION EQUITIES 23.94%
Access Health, Inc.*................................... 4,100 183,475
ACX Technologies, Inc.*................................ 10,200 202,725
Advanced Technology Laboratories, Inc.*................ 12,500 387,500
Albank Financial Corp.................................. 15,840 496,980
Alberto-Culver Co., Cl. B.............................. 4,900 235,200
AMC Entertainment, Inc.*............................... 11,800 169,625
AMERCO*................................................ 400 14,000
American Bankers Insurance Group, Inc.................. 5,800 296,525
American Management Systems, Inc.*..................... 15,500 379,750
AmeriSource Health Corp., Cl. A*....................... 4,900 236,425
Amylin Pharmaceuticals, Inc.*.......................... 17,500 227,500
AptarGroup, Inc........................................ 6,700 236,175
Arvin Industries, Inc.................................. 5,800 143,550
Ashland Coal, Inc...................................... 8,300 230,325
Aspen Technologies, Inc.*.............................. 4,800 385,200
Associated Group, Inc., Cl. A*......................... 5,100 156,825
Astoria Financial Group Corp........................... 29,600 1,091,500
Baldor Electric Co..................................... 6,900 169,912
Ballard Medical Products............................... 14,200 264,475
Barr Laboratories, Inc.*............................... 6,200 $ 157,325
Belden, Inc............................................ 4,800 177,600
Bell Industries, Inc.*................................. 11,720 250,515
Bergen Brunswig Corp., Cl. A........................... 7,700 219,450
Bindley Western Industries, Inc........................ 18,900 366,188
Bio-Rad Laboratories, Inc., Cl. A*..................... 6,450 193,500
Black Box Corp.*....................................... 4,200 173,250
Blount International, Inc.............................. 5,100 195,712
BMC Industries, Inc.................................... 5,900 185,850
Boole & Babbage, Inc.*................................. 18,000 450,000
Borders Group, Inc.*................................... 3,600 129,150
Borg-Warner Automotive, Inc............................ 21,800 839,300
Cablevision Systems Corp.*............................. 5,500 168,437
Cabot Oil & Gas Corp., Cl. A........................... 20,100 344,213
CACI International, Inc., Cl. A*....................... 13,900 291,900
Cal Fed Bancorp, Inc.*................................. 9,700 237,650
Camco International, Inc............................... 7,700 355,162
Carlisle Cos., Inc..................................... 4,900 296,450
Carmike Cinemas, Inc., Cl. A*.......................... 7,100 180,163
Carson Pirie Scott & Co.*.............................. 7,800 196,950
Carter-Wallace, Inc.................................... 22,400 350,000
CCB Financial Corp..................................... 5,100 348,075
Centex Construction Products, Inc...................... 9,400 169,200
Centex Corp............................................ 16,500 620,812
Central Louisiana Electric Co., Inc.................... 1,300 35,913
Central Maine Power Co................................. 16,000 186,000
Central Newspapers, Inc., Cl. A........................ 9,900 435,600
Chesapeake Corp........................................ 23,200 727,900
CILCORP, Inc........................................... 1,700 62,262
Citrix Systems, Inc.*.................................. 400 15,625
CKE Restaurants, Inc................................... 14,900 536,400
CMAC Investment Corp................................... 6,200 227,850
Coast Savings Financial, Inc.*......................... 15,700 575,013
Commerce Group, Inc.................................... 20,300 512,575
Commercial Federal Corp................................ 5,800 278,400
Commonwealth Energy Systems............................ 10,400 244,400
Community First Bankshares, Inc........................ 10,600 291,500
Cullen Frost Bankers, Inc.............................. 26,000 864,500
Dallas Semiconductor Corp.............................. 300 6,900
Davox Corp.*........................................... 5,100 210,375
Dexter Corp............................................ 28,800 918,000
Dionex Corp. *......................................... 9,100 318,500
Dynatech Corp.*........................................ 3,400 150,450
Earthgrains Co......................................... 8,600 449,350
Energen Corp........................................... 5,200 157,300
Energy Ventures, Inc.*................................. 6,000 305,250
E'town Corp............................................ 5,100 161,287
Evans & Sutherland Computer Corp.*..................... 19,000 475,000
Fair Isaac & Co., Inc.................................. 6,000 234,750
</TABLE>
FS-6
<PAGE> 103
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR MULTIFLEX FUND (CONTINUED)
FINOVA Group, Inc...................................... 5,400 $ 346,950
First Commercial Corp.................................. 3,142 116,647
First Midwest Bancorp, Inc............................. 11,500 375,187
Foamex International, Inc.*............................ 10,400 171,600
Fremont General Corp................................... 6,930 214,830
Frontier Insurance Group, Inc.......................... 10,810 413,482
Fuller (H.B.) Co....................................... 5,000 235,000
Furniture Brands International, Inc.*.................. 18,000 252,000
G & K Services, Inc., Cl. A............................ 10,900 411,475
Gerber Scientific, Inc................................. 22,900 340,638
Giddings & Lewis, Inc.................................. 20,400 262,650
Gilead Sciences, Inc.*................................. 17,700 442,500
Guarantee Life Cos., Inc............................... 7,600 140,600
Harland (John H.) Co................................... 9,200 303,600
Harnischfeger Industries, Inc.......................... 7,100 341,687
Hawaiian Electric Industries, Inc.......... ........... 13,100 473,238
Health Management Systems, Inc.*....................... 10,800 151,200
Heartland Express, Inc.*............................... 8,850 215,719
Hooper Holmes, Inc..................................... 300 5,213
Horace Mann Educators Corp............................. 13,200 532,950
IDEX Corp.............................................. 12,800 510,400
IES Industries, Inc.................................... 8,800 262,900
Illinois Central Corp.................................. 18,000 576,000
Imperial Credit Industries, Inc.*...................... 14,800 310,800
Integrated Systems, Inc.*.............................. 14,200 369,200
International Multifoods Corp.......................... 11,600 210,250
Interstate Power Co.................................... 9,300 269,700
Invacare Corp.......................................... 10,200 280,500
Ionics, Inc.*.......................................... 4,700 225,600
JLG Industries, Inc.................................... 9,100 145,600
JP Foodservice, Inc.................................... 7,100 197,912
Kellwood Co............................................ 11,300 226,000
Kinder Care Learning Centers, Inc.*.................... 41,900 785,625
Lands' End, Inc.*...................................... 13,000 344,500
Lawyers Title Corp..................................... 13,700 268,863
Lennar Corp............................................ 15,100 411,475
Level One Communications, Inc.*........................ 10,400 371,800
Lincare Holdings, Inc.*................................ 7,800 319,800
Logicon, Inc........................................... 5,200 189,800
Louis Dreyfus Natural Gas Corp.*....................... 200 3,425
Luby's Cafeterias, Inc................................. 10,400 206,700
Magna Group, Inc....................................... 12,200 359,900
Measurex Corp.......................................... 15,200 364,800
Medusa Corp............................................ 8,800 302,500
Meredith Corp.......................................... 12,300 648,825
Methode Electronics, Inc., Cl. A....................... 26,300 532,575
Miller (Herman), Inc................................... 11,400 645,525
Minnesota Power & Light Co............................. 8,300 228,250
Molecular Dynamics, Inc.*.............................. 18,600 199,950
Multicare Cos., Inc.*.................................. 25,250 511,312
NAC Re Corp............................................ 6,600 $ 223,575
National Data Corp..................................... 5,700 247,950
Nautica Enterprises, Inc.*............................. 10,100 255,025
Newpark Resources, Inc.*............................... 13,300 495,425
NeXstar Pharmaceuticals, Inc.*......................... 11,900 178,500
Norrell Corp........................................... 13,500 367,875
NVR, Inc.*............................................. 21,000 273,000
OEC Medical Systems, Inc.*............................. 21,700 325,500
Oneida, Ltd............................................ 29,700 534,600
Oneok, Inc............................................. 10,200 306,000
Orion Capital Corp..................................... 4,600 281,175
Palmer Wireless, Inc., Cl. A*.......................... 15,700 164,850
Periphonics Corp.*..................................... 26,600 778,050
PHH Corp............................................... 24,500 1,053,500
Poe & Brown, Inc....................................... 18,200 482,300
Precision Castparts Corp............................... 5,950 295,269
Presidential Life Corp................................. 19,300 232,806
Primadonna Resorts, Inc.*.............................. 26,500 450,500
Prime Hospitality Corp.*............................... 13,000 209,625
Protective Life Corp................................... 13,100 522,362
Provident Bancorp, Inc................................. 1,750 59,500
Pulitzer Publishing Co................................. 6,400 296,800
Quanex Corp............................................ 32,500 889,687
Quick and Reilly Group, Inc............................ 6,450 192,694
Raymond James Financial, Inc........................... 10,900 328,362
Reliance Group Holdings, Inc........................... 18,200 166,075
Renaissance Communications Corp.*...................... 23,200 829,400
Rexall Sundown, Inc.*.................................. 4,100 111,469
Riser Foods, Inc., Cl. A............................... 9,700 307,975
Robbins & Myers, Inc................................... 23,100 577,500
Rock-Tenn Co., Cl. A................................... 9,460 186,835
Ross Stores, Inc....................................... 11,400 570,000
Santa Fe Energy Resources*............................. 39,500 548,062
SCI Systems, Inc.*..................................... 3,800 169,575
Scotsman Industries, Inc............................... 9,000 212,625
Sequa Corp., Cl. A*.................................... 5,500 215,875
Shopko Stores, Inc..................................... 15,400 231,000
SIGCORP, Inc........................................... 7,300 252,762
Smith (A.O.) Corp...................................... 6,000 179,250
Snyder Oil Corp........................................ 39,700 689,788
Springs Industries, Inc., Cl. A........................ 11,400 490,200
St. John Knits, Inc.................................... 19,600 852,600
Stanley Furniture Co., Inc.*........................... 20,400 405,450
Stone & Webster, Inc................................... 14,900 469,350
Stratus Computer, Inc.*................................ 7,700 209,825
SunGard Data Systems, Inc.*............................ 7,200 284,400
Symbol Technologies, Inc.*............................. 10,100 446,925
Synopsys, Inc.*........................................ 5,700 263,625
Tech Data Corp.*....................................... 12,300 336,712
Texas Industries, Inc.................................. 4,100 207,563
The Sports Authority, Inc.*............................ 12,700 276,225
Thermo Ecotek Corp.*................................... 600 9,150
</TABLE>
FS-7
<PAGE> 104
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR MULTIFLEX FUND (CONTINUED)
Tiffany & Co........................................... 6,200 $ 227,075
Transaction Systems Architects, Inc., Cl. A*........... 9,500 315,875
Tredegar Industries, Inc............................... 17,500 702,187
U. S. Bioscience, Inc.*................................ 18,100 228,513
U. S. Home Corp.*...................................... 10,800 280,800
UNC, Inc.*............................................. 21,600 259,200
United Stationers, Inc.*............................... 13,700 267,150
Universal Corp......................................... 11,300 363,012
Universal Health Services, Inc., Cl. B*................ 16,800 480,900
VideoServer, Inc.*..................................... 7,000 297,500
Waban, Inc.*........................................... 11,700 304,200
Washington National Corp............................... 16,900 464,750
Watson Pharmaceuticals, Inc.*.......................... 4,500 202,219
Werner Enterprises, Inc................................ 18,300 331,688
West Co., Inc.......................................... 19,100 539,575
WestAmerica Bancorp.................................... 15,500 895,125
Westpoint Stevens, Inc.*............................... 9,100 271,863
Wind River Systems*.................................... 1,800 85,275
Wisconsin Central Transportation Corp.*................ 4,800 190,200
Wolverine Tube , Inc.*................................. 5,200 183,300
World Fuel Services Corp............................... 28,200 627,450
Wynn's International, Inc.............................. 2,100 66,413
Yellow Corporation*.................................... 17,800 255,875
Zale Corp.*............................................ 9,400 179,775
20th Century Industries................................ 43,700 737,438
------------
64,515,776
------------
INTERNATIONAL EQUITIES 17.66%
ABN-AMRO Hldgs N.V., ADR............................... 12,000 779,771
AEGON N.V., ADR........................................ 30,000 1,897,500
Akzo Nobel N.V., ADR................................... 11,400 769,500
Amcor Ltd., ADR........................................ 25,000 637,500
Associated British Foods PLC, ADR...................... 115,000 953,488
Astra AB, ADR.......................................... 25,000 1,225,000
Banco Santander AS, ADR................................ 20,900 1,327,150
BASF AG, ADR........................................... 32,000 1,230,906
Bayer AG, ADR.......................................... 27,400 1,116,544
British Airways PLC, ADR............................... 10,000 1,027,500
British Telecommunications PLC, ADR.................... 10,000 686,250
Carlton Communications PLC, ADR........................ 20,000 890,000
Compagnie Cervecerias, ADR............................. 20,000 322,500
CRA Ltd., ADR.......................................... 15,000 941,100
CS Holding, ADR........................................ 30,000 768,030
Development Bank of Singapore, Ltd.,
ADR................................................... 8,000 432,320
Elsevier N.V., ADR..................................... 25,000 843,750
Empresa Nacional de Electridad AS, ADR................. 12,000 840,000
Fuji Photo Film Co., Ltd., ADR......................... 44,000 $ 1,452,000
Glaxo Wellcome PLC, ADR................................ 35,000 1,111,250
Groupe Danone, ADR*.................................... 18,000 500,659
Hitachi Ltd., ADR...................................... 12,000 1,110,000
Hong Kong Electric Holdings, ADR....................... 200,000 664,500
HSBC Holdings PLC, ADR................................. 5,000 1,069,813
Kirin Brewery Co., Ltd., ADR........................... 9,000 886,500
Konica Corp., ADR*..................................... 12,000 795,240
Koninklijke Ahold N.V., ADR............................ 27,300 1,685,775
LVMH (Moet-Hennessey Louis Vuitton), ADR............... 20,000 1,120,000
Marui Ltd., ADR........................................ 15,600 562,692
Matsushita Electric Industrial Co., Ltd., ADR.......... 6,000 979,500
National Australia Bank, Ltd., ADR..................... 25,000 1,471,875
Nestle AS, ADR......................................... 22,000 1,177,235
Novartis AG, ADR....................................... 26,666 1,522,095
Novo-Nordisk AS, ADR*.................................. 27,300 1,276,275
PowerGen PLC, ADR...................................... 20,000 790,000
Repsol AS, ADR......................................... 20,000 762,500
RWE Aktiengesellschaf AG, ADR.......................... 27,000 1,142,292
Sekisui House Ltd., ADR................................ 6,600 672,012
Shell Transport & Trading Co., ADR..................... 12,500 1,279,688
Societe Generale, ADR.................................. 30,000 647,463
South China Morning Post, ADR.......................... 150,000 620,550
Stet Societa Finanziaria Telefonica, ADR............... 15,000 665,625
Sun Hung Kai Properties, Ltd., ADR..................... 85,000 1,041,208
TDK Corp., ADR......................................... 12,100 795,575
Telefonica de Espana, ADR.............................. 15,000 1,038,750
Telefonos de Mexico, "L", ADR.......................... 15,000 495,000
Total, ADR............................................. 30,000 1,207,500
Toyota Motor Corp., ADR................................ 8,000 460,000
Unigate PLC, ADR....................................... 100,000 711,040
Unilever N.V........................................... 6,700 1,174,175
Vitro Sociedad Anonima, ADR............................ 1,160 6,380
------------
47,583,976
------------
REAL ESTATE EQUITIES 20.00%
American General Hospitality Corp...................... 58,400 1,387,000
Arden Realty Group, Inc................................ 77,400 2,147,850
Bay Apartment Communities, Inc......................... 55,300 1,990,800
Beacon Properties, Inc................................. 47,500 1,739,688
Cali Realty Corp....................................... 58,800 1,815,450
CarrAmerica Realty Corp................................ 38,400 1,123,200
CBL & Associates Properties, Inc....................... 62,400 1,614,600
Chelsea GCA Realty, Inc................................ 27,700 959,113
Duke Realty Investments, Inc........................... 46,600 1,794,100
Equity Residential Properties Trust--SBI............... 19,400 800,250
Essex Property Trust, Inc.............................. 36,100 1,060,438
FelCor Suite Hotels, Inc............................... 65,800 2,327,675
</TABLE>
FS-8
<PAGE> 105
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR MULTIFLEX FUND (CONTINUED)
First Industrial Realty Trust, Inc.................... 69,800 $ 2,120,175
Gables Residential Trust--SBI......................... 74,100 2,148,900
Highwoods Properties, Inc............................. 43,900 1,481,625
Horizon Group, Inc.................................... 40,320 801,360
JDN Realty Corp....................................... 50,000 1,381,250
JP Realty, Inc........................................ 28,700 742,612
Kimco Realty Corp..................................... 48,050 1,675,744
Koger Equity, Inc.*................................... 107,300 2,011,875
Liberty Property Trust--SBI........................... 63,300 1,629,975
Meditrust Inc.--SBI................................... 27,100 1,084,000
Meridian Industrial Trust, Inc........................ 64,800 1,360,800
Merry Land & Investment Co., Inc...................... 57,000 1,225,500
MGI Properties........................................ 67,500 1,485,000
Nationwide Health Properties, Inc..................... 70,900 1,719,325
OMEGA Healthcare Investors, Inc....................... 6,100 202,825
Patriot American Hospitality, Inc..................... 45,000 1,940,625
Public Storage, Inc................................... 98,000 3,038,000
Regency Realty Corp................................... 29,000 761,250
RFS Hotel Investors, Inc.............................. 88,500 1,747,875
Security Capital Industrial Trust..................... 26,500 566,437
Shurgard Storage Centers, Inc......................... 19,500 577,688
Simon DeBartolo Group, Inc............................ 51,100 1,584,100
Spieker Properties, Inc............................... 30,600 1,101,600
Starwood Lodging Trust................................ 18,900 1,041,862
Sun Communities, Inc.................................. 27,100 934,950
Winston Hotels, Inc................................... 56,500 769,813
------------
53,895,330
------------
TOTAL COMMON STOCKS
(Cost $166,441,000).................................. 212,388,937
------------
FIXED INCOME SECURITIES 15.72%
U.S. GOVERNMENT OBLIGATIONS 7.70%
U.S. TREASURY NOTES
5.625%, 08/31/1997................................... $ 1,080,000 1,078,313
5.500%, 09/30/1997................................... 2,400,000 2,394,000
5.750%, 09/30/1997................................... 1,550,000 1,549,031
5.375%, 05/31/1998................................... 2,500,000 2,481,250
5.875%, 08/15/1998................................... 2,500,000 2,496,875
5.875%, 10/31/1998................................... 2,500,000 2,496,875
6.875%, 07/31/1999................................... 800,000 816,250
7.750%, 12/31/1999................................... 1,655,000 1,730,509
6.250%, 05/31/2000................................... 900,000 903,938
6.250%, 02/15/2003................................... 1,525,000 1,523,571
8.750%, 05/15/2017................................... 2,695,000 3,286,216
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $20,603,728)................................... 20,756,828
------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS 4.05%
Federal Home Loan Bank
6.075%, 01/22/1999................................... $ 2,000,000 $ 1,999,062
Federal Home Loan Mortgage Corp., 1393-C PAC, 6.000%,
01/15/2004........................................... 1,000,000 996,540
Federal Home Loan Mortgage Corp., Pool #380070,
9.000%, 01/01/2005................................... 345,030 360,233
Federal Home Loan Mortgage Corp., FHR 185-E PAC,
9.000%, 08/15/2006................................... 1,000,000 1,030,790
Federal Home Loan Mortgage Corp., Pool #554938,
8.000%, 08/01/2017................................... 382,419 389,709
FHA/VA, Pool
#140283 6.500%, 08/01/2003........................... 422,337 418,351
Federal National Mortgage Assn., FHR 1992-152 J PAC,
7.000%, 05/25/2006................................... 810,000 817,306
Federal National Mortgage Corp.,
92-24 H PAC, 7.500%, 11/25/2006...................... 1,000,000 1,018,800
Federal National Mortgage Assn., Pool #337190, 6.000%,
04/01/2011........................................... 674,193 648,279
Federal National Mortgage Assn., Pool #190723, 6.000%,
04/01/2024........................................... 1,538,528 1,428,428
Government National Mortgage Assn., 1996-13 G, 7.000%,
01/16/2007........................................... 1,000,000 1,008,590
Government National Mortgage Assn., Pool #398551,
6.500%, 04/15/2026................................... 838,221 799,716
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $10,925,718)................................... 10,915,804
------------
ASSET BACKED SECURITIES 1.30%
ContiMortgage Home Equity Loan Trust, 1995-4 A4,
6.330%, 10/15/2010................................... 500,000 498,805
NationsBank Auto Owner Trust, 6.375%, 07/15/2006...... 1,000,000 1,006,260
Olympic Automobile Receivables Trust, 1996-AA3,
5.700%, 04/15/2000................................... 1,000,000 997,160
Premier Auto Trust,
1996-4 A3 6.200%, 11/06/2000......................... 1,000,000 1,003,140
------------
TOTAL ASSET BACKED SECURITIES
(Cost $3,492,617).................................... 3,505,365
------------
CORPORATE BONDS 2.67%
Associates Corp., 7.750%, 02/15/2005.................. 800,000 855,421
BellSouth Telecommunications,
5.850%, 11/15/2045................................... 1,000,000 987,282
Beneficial Corp., 8.400%, 05/15/2008.................. 1,000,000 1,135,272
General Electric Capital Corp., 5.800% (Variable
Rate), 04/01/2008.................................... 1,100,000 1,182,712
</TABLE>
FS-9
<PAGE> 106
<TABLE>
- - --------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR MULTIFLEX FUND (CONTINUED)
GTE Corp., 10.250%, 11/01/2020.......................... 620,000 $ 706,382
Motorola, Inc., 8.400%, 08/15/2031...................... 735,000 861,773
US West Capital Funding Corp., 6.310%, 11/01/2005....... 675,000 666,176
WMX Technologies, Inc., 6.220%, 04/30/2004.............. 750,000 801,366
------------
TOTAL CORPORATE BONDS
(Cost $7,061,450)...................................... 7,196,384
------------
TOTAL FIXED INCOME SECURITIES
(Cost $42,083,513)..................................... 42,374,381
------------
SHORT TERM INVESTMENTS 5.47%
United Missouri Bank, Money Market Fiduciary+ 4.900%.... 14,728,538 14,728,538
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $14,728,538)..................................... 14,728,538
------------
TOTAL INVESTMENTS
(100.00%) (Cost $223,253,051#)......................... $269,491,856
============
INVESCO ADVISOR INTERNATIONAL VALUE FUND
COMMON STOCKS 95.58%
BASIC MATERIALS 5.68%
BASF AG, ADR............................................ 30,000 $ 1,153,974
Cemex AS, "B", ADR...................................... 70,000 544,201
CRA Ltd., ADR........................................... 20,000 1,254,800
------------
2,952,975
------------
CONSUMER CYCLICAL 5.48%
Canon, Inc., ADR........................................ 8,000 880,000
Elsevier N.V., ADR...................................... 20,000 675,000
Marui Ltd., ADR......................................... 12,000 432,152
Toyota Motor Corp., ADR................................. 15,000 862,500
------------
2,849,652
------------
CONSUMER STAPLES 19.47%
Amcor Ltd., ADR......................................... 35,000 892,500
Associated British Foods PLC, ADR....................... 130,000 1,077,856
Dai Nippon Printing Co. Ltd., ADR....................... 5,000 874,472
Glaxo Wellcome PLC, ADR................................. 35,000 1,111,250
Groupe Danone, ADR*..................................... 20,000 556,288
J. Sainsbury PLC, ADR................................... 40,000 1,062,400
Kirin Brewery Co., Ltd., ADR............................ 8,000 788,000
Koninklijke Ahold N.V., ADR............................. 10,000 617,500
LVMH (Moet-Hennessey Louis Vuitton), ADR................ 20,000 1,120,000
Nestle AS, ADR......................................... 18,000 $ 963,193
Unilever N.V........................................... 6,000 1,051,500
------------
10,114,959
------------
DIVERSIFIED 14.55%
Bayer AG, ADR.......................................... 30,000 1,222,494
Elf Aquitaine, ADR..................................... 25,000 1,131,250
Kyocera Corp., ADR..................................... 7,000 854,000
Norsk Hydro AS, ADR.................................... 25,000 1,340,625
Novo-Nordisk AS, ADR*.................................. 25,000 1,168,750
RWE Aktiengesellschaf AG, ADR.......................... 21,000 888,449
Swire Pacific Ltd., ADR................................ 100,000 953,450
------------
7,559,018
------------
ENERGY 4.14%
Repsol AS, ADR......................................... 25,000 953,125
Royal Dutch Petroleum Co............................... 7,000 1,195,250
------------
2,148,375
------------
ELECTRONICS 7.60%
Carlton Communications PLC, ADR........................ 25,000 1,112,500
Fuji Photo Film Co., Ltd., ADR......................... 30,000 990,000
Hitachi Ltd., ADR...................................... 10,000 925,000
TDK Corp., ADR......................................... 14,000 920,500
------------
3,948,000
------------
FINANCE 15.96%
AEGON N.V., ADR........................................ 20,000 1,265,000
Banco Santander AS, ADR................................ 15,000 952,500
Development Bank of Singapore, ADR..................... 20,000 1,080,800
Den Danske Bank, ADR................................... 10,000 805,233
HSBC Holdings PLC, ADR................................. 5,000 1,069,813
ING Groep N.V., ADR.................................... 30,000 1,078,776
National Australia Bank, Ltd., ADR..................... 20,000 1,177,500
Societe Generale Paris, ADR............................ 40,000 863,285
------------
8,292,907
------------
PHARMACEUTICALS 5.49%
Astra AB, ADR.......................................... 25,000 1,225,000
Novartis AG, ADR*...................................... 28,466 1,624,996
------------
2,849,996
------------
REAL ESTATE & HOUSING 3.73%
Sekisui House Ltd., ADR................................ 7,000 711,639
Sun Hung Kai Properties Ltd., ADR...................... 100,000 1,224,950
------------
1,936,589
------------
TELECOMMUNICATIONS 7.60%
British Telecommunications PLC, ADR.................... 15,000 1,029,375
Stet Societa Finanziaria Telefonica, ADR............... 25,000 1,109,375
Telefonica de Espana, ADR.............................. 19,000 1,315,750
Telefonos de Mexico, "L", ADR.......................... 15,000 495,000
------------
3,949,500
------------
</TABLE>
FS-10
<PAGE> 107
<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR INTERNATIONAL VALUE FUND (CONTINUED)
TRANSPORTATION & SERVICES 1.98%
British Airways PLC, ADR............................... 10,000 $ 1,027,500
------------
UTILITIES 3.90%
Empresa Nacional de Electridad AS, ADR................. 12,000 840,000
PowerGen PLC, ADR...................................... 30,000 1,185,000
------------
2,025,000
------------
TOTAL COMMON STOCKS
(Cost $42,538,247).................................... 49,654,471
------------
SHORT TERM INVESTMENTS 4.42%
United Missouri Bank, Money Market Fiduciary+ 4.900%... $ 2,294,787 2,294,787
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $2,294,787)..................................... 2,294,787 2,294,787
------------
TOTAL INVESTMENTS
(100.00%) (Cost $44,833,034#)......................... $ 51,949,258
============
</TABLE>
The Fund's Portfolio of Investments at December 31, 1996, was concentrated in
the following countries:
<TABLE>
<CAPTION>
% OF MARKET
COUNTRY INVESTMENT VALUE
- - --------------------------------------------------------------------------------
<S> <C> <C>
Australia................................................ 6.40% $ 3,324,800
Denmark.................................................. 2.25% 1,168,750
France................................................... 7.07% 3,670,823
Germany.................................................. 6.28% 3,264,917
Great Britain............................................ 16.70% 8,675,694
Hong Kong................................................ 3.91% 2,034,250
Italy.................................................... 2.14% 1,109,375
Japan.................................................... 18.22% 9,463,213
Mexico................................................... 0.95% 495,000
Netherlands.............................................. 12.87% 6,688,259
Norway................................................... 2.58% 1,340,625
Spain.................................................... 8.87% 4,605,576
Sweden................................................... 2.36% 1,225,000
Switzerland.............................................. 4.98% 2,588,189
United States............................................ 4.42% 2,294,787
------ -----------
TOTAL.................................................... 100.0% $51,949,258
====== ===========
</TABLE>
<TABLE>
<S> <C> <C>
INVESCO ADVISOR REAL ESTATE FUND
COMMON STOCKS 94.95%
DIVERSIFIED 4.78%
Glenborough Realty Trust, Inc........................... 23,000 $ 405,375
MGI Properties.......................................... 26,000 572,000
------------
977,375
------------
HEALTHCARE 4.35%
Meditrust, Inc.--SBI.................................... 6,000 240,000
Nationwide Health Properties, Inc....................... 26,800 649,900
------------
889,900
------------
INDUSTRIAL 12.94%
Duke Realty Investments, Inc............................ 15,250 587,125
First Industrial Realty Trust, Inc...................... 24,900 756,338
Liberty Property Trust--SBI............................. 23,150 596,112
Meridian Industrial Trust, Inc.......................... 24,400 512,400
Security Capital Industrial Trust....................... 9,000 192,375
------------
2,644,350
------------
OFFICE 20.30%
Arden Realty Group, Inc................................. 30,800 854,700
Beacon Properties, Inc.................................. 22,050 807,581
Brandywine Realty Trust--SBI............................ 1,800 35,100
Cali Realty Corp........................................ 26,700 824,363
CarrAmerica Realty Corp................................. 12,000 351,000
Highwoods Properties, Inc............................... 9,050 305,437
Koger Equity, Inc.*..................................... 29,600 555,000
Spieker Properties, Inc................................. 11,600 417,600
------------
4,150,781
------------
RECREATION 17.42%
American General Hospitality Corp....................... 28,500 676,875
FelCor Suite Hotels, Inc................................ 21,300 753,488
Patriot American Hospitality, Inc....................... 15,800 681,375
RFS Hotel Investors, Inc................................ 36,100 712,975
Starwood Lodging Trust.................................. 7,200 396,900
Winston Hotels, Inc..................................... 24,900 339,263
------------
3,560,876
------------
RESIDENTIAL 15.26%
Bay Apartment Communities, Inc.......................... 19,500 702,000
Equity Residential Properties Trust--SBI................ 6,400 264,000
Essex Property Trust, Inc............................... 22,200 652,125
Gables Residential Trust--SBI........................... 25,250 732,250
Merry Land & Investment Co., Inc........................ 25,800 554,700
Sun Communities, Inc.................................... 6,200 213,900
------------
3,118,975
------------
RETAIL 14.23%
CBL & Associates Properties, Inc........................ 18,550 479,981
Chelsea GCA Realty, Inc................................. 6,200 214,675
</TABLE>
FS-11
<PAGE> 108
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Shares or
Principal
Description Amount Value
- - -------------------------------------------------------------------------------
<S> <C> <C>
INVESCO ADVISOR REAL ESTATE FUND (CONTINUED)
Horizon Group, Inc................................ 19,400 $ 385,575
JDN Realty Corp................................... 13,600 375,700
JP Realty, Inc.................................... 10,400 269,100
Kimco Realty Corp................................. 9,450 329,569
Regency Realty Corp............................... 10,600 278,250
Simon DeBartolo Group, Inc........................ 18,600 576,600
------------
2,909,450
------------
SELF-STORAGE 5.67%
Public Storage, Inc............................... 29,700 920,700
Shurgard Storage Centers, Inc..................... 8,050 238,481
------------
1,159,181
------------
TOTAL COMMON STOCKS
(Cost $15,036,894)............................... 19,410,888
------------
SHORT TERM INVESTMENTS 5.05%
United Missouri Bank, Money Market Fiduciary+
4.900%........................................... $ 1,031,486 1,031,486
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $1,031,486)................................ 1,031,486
------------
TOTAL INVESTMENTS
(100.00%) (Cost $16,068,380#).................... $ 20,442,374
============
INVESCO ADVISOR INCOME FUND
FIXED INCOME SECURITIES 98.45%
U.S. GOVERNMENT OBLIGATIONS 70.14%
U.S. TREASURY NOTES
8.500%, 07/15/1997............................... $ 2,000,000 $ 2,028,750
6.125%, 03/31/1998............................... 2,100,000 2,104,595
8.000%, 08/15/1999............................... 1,000,000 1,047,188
6.375%, 01/15/2000............................... 2,000,000 2,017,500
7.500%, 11/15/2001............................... 1,750,000 1,842,423
6.375%, 08/15/2002............................... 1,600,000 1,610,501
6.250%, 02/15/2003............................... 1,900,000 1,898,219
10.750%, 08/15/2005.............................. 1,250,000 1,603,125
9.375%, 02/15/2006............................... 1,000,000 1,203,125
9.250%, 02/15/2016............................... 1,200,000 1,522,500
7.250%, 08/15/2022............................... 1,100,000 1,163,594
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $18,091,484)............................... 18,041,520
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 18.03%
FEDERAL HOME LOAN MORTGAGE CORP.
Pool #20009, 12.000%, 04/01/2000 ................ 6,709 $ 7,198
Gold Pool #G50362, 6.500%, 07/01/2001 ........... 487,688 486,929
Gold Pool #G10518, 8.000%, 10/01/2010 ................ $ 733,508 $ 754,826
------------
1,248,953
------------
FEDERAL NATIONAL MORTGAGE ASSN.
6.000%, 01/01/2009 Pool #50973........................ 71,753 68,995
6.000%, 04/01/2024 Pool #190723....................... 91,580 85,026
------------
154,021
------------
GOVERNMENT NATIONAL MORTGAGE ASSN.
6.500%, 10/15/2008 Pool #354668....................... 807,652 797,051
6.000%, 10/15/2008 Pool #360191....................... 490,314 473,460
7.000%, 10/15/2008 Pool #366622....................... 786,011 789,205
6.000%, 11/15/2008 Pool #370907....................... 352,466 340,350
7.500%, 03/15/2026 Pool #417287....................... 834,587 835,109
------------
3,235,175
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $4,743,781)..................................... 4,638,149
------------
CORPORATE BONDS 10.28%
FINANCE 3.83%
Commercial Credit Co., 5.550%, 02/15/2001.............. 500,000 481,460
National City Corp., 7.200%, 05/15/2005................ 500,000 503,742
------------
985,202
------------
INDUSTRIAL 6.45%
Waste Management, Inc., 6.375%, 07/01/1997............. 500,000 501,788
Ford Motor Credit Co., 9.250%, 06/15/1998.............. 35,000 36,486
Ford Motor Credit Co., 7.500%, 11/15/1999.............. 500,000 513,443
Rockwell International, Inc., 6.625%, 06/01/2005....... 500,000 492,494
GTE Corp., 10.250%, 11/01/2020......................... 100,000 113,933
------------
1,658,144
------------
TOTAL CORPORATE BONDS
(Cost $2,676,145)..................................... 2,643,346
------------
TOTAL FIXED INCOME SECURITIES
(Cost $25,511,410).................................... 25,323,015
------------
SHORT TERM INVESTMENTS 1.55%
United Missouri Bank, Money Market Fiduciary+ 4.900%... 397,689 397,689
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $397,689)....................................... $ 397,689
------------
TOTAL INVESTMENTS
(100.00%) (Cost $25,909,099#)......................... $ 25,720,704
============
</TABLE>
FS-12
<PAGE> 109
<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 95.37%
St. Paul Cos., Inc. 01/02/1997....................... 6.500 700,000 $ 699,874
Exxon Imperial, Inc. 01/06/1997...................... 5.270 900,000 899,341
Great Lakes Chemical Corp. 01/06/1997................ 5.350 500,000 499,628
Temple-Inland, Inc. 01/06/1997....................... 5.430 900,000 899,321
Disney (Walt) Co. 01/06/1997......................... 5.250 900,000 899,344
Cargill, Inc. 01/07/1997............................. 5.400 720,000 719,352
General Electric Co. 01/07/1997...................... 5.300 900,000 899,205
Idaho Power Co. 01/07/1997........................... 5.400 900,000 899,190
Motorola, Inc. 01/07/1997............................ 5.300 900,000 899,205
Ford Motor Credit Co. 01/09/1997..................... 5.360 900,000 898,928
Questar Corp. 01/09/1997............................. 5.700 504,000 503,362
Greenwich Funding Corp. 01/10/1997................... 5.450 900,000 898,774
Southern California Edison Co. 01/10/1997............ 5.270 900,000 898,814
Chubb Capital Corp. 01/13/1997....................... 5.370 900,000 898,389
Siemens Corp. 01/14/1997............................. 5.350 900,000 898,261
Monsanto Co. 01/16/1997.............................. 5.300 900,000 $ 898,013
Minnesota Mining & Manufacturing Co. 01/17/1997...... 5.290 900,000 897,884
Questar Corp. 01/17/1997............................. 5.350 300,000 299,287
DuPont (E.I.) de Nemours Co. 01/22/1997.............. 5.260 900,000 897,238
-----------
TOTAL COMMERCIAL PAPER
(Cost $15,303,410).................................. 15,303,410
----------
OTHER SECURITIES 4.63%
United Missouri Bank, Money Market Fiduciary+
(Cost $742,317)..................................... 4.900% 742,317 742,317
----------
TOTAL INVESTMENTS
(100.00%) (Cost $16,045,727#)....................... $16,045,727
===========
</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.
FS-13
<PAGE> 110
INVESCO Advisor Funds, Inc.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<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................ $379,090,739 $ 93,898,241 $223,253,051 $44,833,034 $16,068,380 $25,909,099 $16,045,727
==============================================================================================
At value............... $486,981,472 $137,410,415 $269,491,856 $51,949,258 $20,442,374 $25,720,704 $16,045,727
Cash.................... 0 0 14,768 23,855 0 0 321
Receivables:
Investment securities
sold.................. 0 0 3,821,193 0 0 0 0
Fund shares sold....... 591,018 33,357 166,376 343,698 21,320 0 1,997
Dividends and interest. 3,634,366 274,377 1,165,328 83,278 147,982 528,260 1,478
Other assets............ 14,718 4,387 7,091 0 0 1,193 273
----------------------------------------------------------------------------------------------
TOTAL ASSETS............ 491,221,574 137,722,536 274,666,612 52,400,089 20,611,676 26,250,157 16,049,796
----------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Distributions to share-
holders............... 0 0 0 0 0 0 16,957
Investment securities
purchased............. 0 0 7,099,507 268,125 0 0 0
Fund shares repur-
chased................ 361,860 38,977 184,532 114,882 8,035 52,404 68,680
Other.................. 941,776 267,813 539,441 101,106 37,160 35,443 17,854
----------------------------------------------------------------------------------------------
TOTAL LIABILITIES....... 1,303,636 306,790 7,823,480 484,113 45,195 87,847 103,491
----------------------------------------------------------------------------------------------
NET ASSETS.............. $489,917,938 $137,415,746 $266,843,132 $51,915,976 $20,566,481 $26,162,310 $15,946,305
==============================================================================================
NET ASSETS
Paid-in capital......... $382,140,492 $ 89,619,897 $217,280,424 $44,726,424 $16,117,181 $27,320,347 $15,947,317
Accumulated
undistributed
(overdistributed) net
investment income...... 69,809 (22,215) 124,138 (48,513) 34,884 (39,504) 101
Accumulated net realized
gain (loss) on
investments............ (183,096) 4,305,890 3,199,765 121,841 40,422 (930,138) (1,113)
Unrealized net
appreciation
(depreciation) of
investments............ 107,890,733 43,512,174 46,238,805 7,116,224 4,373,994 (188,395) 0
----------------------------------------------------------------------------------------------
NET ASSETS.............. $489,917,938 $137,415,746 $266,843,132 $51,915,976 $20,566,481 $26,162,310 $15,946,305
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Shares outstanding...... 7,365,743 1,669,958 5,078,700 967,118 362,274 535,290 15,946,646
NET ASSET VALUE PER
SHARE.................. $ 66.51 $ 82.29 $ 52.54 $ 53.68 $ 56.77 $ 48.87 $ 1.00
===============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-14
<PAGE> 111
INVESCO Advisor Funds, Inc.
STATEMENT OF OPERATIONS
December 31, 1996
<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............... $ 8,280,626 $ 2,895,255 $ 4,940,321 $ 660,894 $ 603,303 $ 0 $ 0
Interest................ 9,912,811 256,332 2,874,260 78,241 34,432 1,967,886 1,036,089
Miscellaneous........... 8,533 0 0 0 0 1,250 0
---------------------------------------------------------------------------------------
TOTAL INCOME........... 18,201,970 3,151,587 7,814,581 739,135 637,735 1,969,136 1,036,089
---------------------------------------------------------------------------------------
EXPENSES
Investment advisory fees
(Note 2)............... 3,351,899 946,203 2,164,778 314,843 102,386 188,085 95,995
Distribution fees (Note
2)..................... 4,469,198 1,261,604 2,164,778 314,843 113,762 173,616 0
Directors fees & ex-
penses (Note 2)........ 38,516 10,958 17,123 1,252 0 2,806 7,493
Operating services fees
(Note 2)............... 2,233,908 630,611 965,775 157,351 56,854 144,644 95,973
---------------------------------------------------------------------------------------
TOTAL EXPENSES......... 10,093,521 2,849,376 5,312,454 788,289 273,002 509,151 199,461
Less: Advisory fee waiv-
er..................... 0 0 0 0 0 (72,341) 0
---------------------------------------------------------------------------------------
NET EXPENSES............ 10,093,521 2,849,376 5,312,454 788,289 273,002 436,810 199,461
---------------------------------------------------------------------------------------
NET INVESTMENT INCOME
(LOSS)................. 8,108,449 302,211 2,502,127 (49,154) 364,733 1,532,326 836,628
---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENT SECURITIES
Net realized gain (loss)
on investments......... 23,531,236 5,485,198 10,629,068 226,482 177,126 893,589 (22)
Change in unrealized net
appreciation
(depreciation) of
investments............ 26,214,708 14,241,394 23,172,870 6,597,676 4,153,030 (2,884,993) 0
---------------------------------------------------------------------------------------
NET GAIN (LOSS) ON IN-
VESTMENTS.............. 49,745,944 19,726,592 33,801,938 6,824,158 4,330,156 (1,991,404) (22)
---------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $57,854,393 $20,028,803 $36,304,065 $6,775,004 $4,694,889 $ (459,078) $ 836,606
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
FS-15
<PAGE> 112
INVESCO Advisor Funds, Inc.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FLEX FUND EQUITY FUND MULTIFLEX FUND
--------------------------- -------------------------- --------------------------
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss)................. $ 8,108,449 $ 7,271,892 $ 302,211 $ 616,253 $ 2,502,127 $ 2,175,820
Net realized gain (loss)
on investments......... 23,531,236 1,499,336 5,485,198 1,719,762 10,629,068 2,369,562
Change in unrealized net
appreciation (deprecia-
tion) of investments... 26,214,708 65,472,709 14,241,394 22,774,563 23,172,870 23,626,272
------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS FROM OP-
ERATIONS............... 57,854,393 74,243,937 20,028,803 25,110,578 36,304,065 28,171,654
------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income... (8,041,627) (7,268,905) (326,780) (619,651) (2,400,549) (2,154,064)
Net realized gain on in-
vestments.............. (23,712,747) (1,500,921) 0 (2,931,042) (7,382,073) (631,064)
------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS..... (31,754,374) (8,769,826) (326,780) (3,550,693) (9,782,622) (2,785,128)
------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from sale of
shares................. 107,726,947 128,403,068 19,738,118 25,972,895 80,727,974 58,897,010
Exchange for Net Assets
of Relative Return Bond
Fund................... 0 0 0 0 0 0
Reinvestment of distri-
butions................ 27,317,233 7,435,346 248,270 2,779,410 8,779,155 2,475,012
------------------------------------------------------------------------------------
135,044,180 135,838,414 19,986,388 28,752,305 89,507,129 61,372,022
Amount paid for repur-
chase of shares........ (70,387,939) (45,998,840) (15,845,974) (14,667,568) (23,777,288) (32,386,988)
------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS FROM CAP-
ITAL SHARE TRANSAC-
TIONS.................. 64,656,241 89,839,574 4,140,414 14,084,737 65,729,841 28,985,034
------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................. 90,756,260 155,313,685 23,842,437 35,644,622 92,251,284 54,371,560
NET ASSETS
Beginning of period..... 399,161,678 243,847,993 113,573,309 77,928,687 174,591,848 120,220,288
------------------------------------------------------------------------------------
End of period........... $489,917,938 $399,161,678 $137,415,746 $113,573,309 $266,843,132 $174,591,848
====================================================================================
Accumulated
undistributed
(overdistributed) net
investment income
included in net assets
at end of period....... $ 69,809 $ 2,987 $ (22,215) $ 2,354 $ 124,138 $ 22,560
- - --------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Shares sold............. 1,649,247 2,219,650 263,161 404,616 1,650,164 1,379,512
Shares issued due to
exchange for net assets
of Relative Return Bond
Fund................... 0 0 0 0 0 0
Shares issued from rein-
vestment of distribu-
tions.................. 414,833 126,030 3,271 40,134 173,184 56,127
------------------------------------------------------------------------------------
2,064,080 2,345,680 266,432 444,750 1,823,348 1,435,639
Shares repurchased...... (1,070,366) (802,409) (209,472) (227,468) (482,083) (770,268)
------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN CAPITAL SHARES...... 993,714 1,543,271 56,960 217,282 1,341,265 665,371
====================================================================================
</TABLE>
* For the period from May 1, 1995 (commencement of operations) through December
31, 1995.
The accompanying notes are an integral part of these financial statements.
FS-16
<PAGE> 113
<TABLE>
<CAPTION>
INTERNATIONAL
VALUE FUND REAL ESTATE FUND INCOME FUND CASH MANAGEMENT FUND
------------------------- ------------------------- -------------------------- --------------------------
1996 1995* 1996 1995* 1996 1995 1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (49,154) $ 641 $ 364,733 $ 67,605 $ 1,532,326 $ 1,331,872 $ 836,628 $ 839,549
226,482 (1,923) 177,126 (2,531) 893,589 210,848 (22) (211)
6,597,676 518,548 4,153,030 220,964 (2,884,993) 3,759,174 0 0
-------------------------------------------------------------------------------------------------------------
6,775,004 517,266 4,694,889 286,038 (459,078) 5,301,894 836,606 839,338
-------------------------------------------------------------------------------------------------------------
0 0 (332,659) (64,794) (1,549,005) (1,346,768) (836,527) (839,549)
(102,718) 0 (134,173) 0 0 0 0 0
-------------------------------------------------------------------------------------------------------------
(102,718) 0 (466,832) (64,794) (1,549,005) (1,346,768) (836,527) (839,549)
-------------------------------------------------------------------------------------------------------------
37,650,713 9,018,319 10,888,988 5,311,714 4,592,854 9,199,486 35,844,336 33,538,456
0 0 0 0 0 3,327,189 0 0
52,532 0 421,963 56,654 1,278,365 1,098,969 487,618 522,425
-------------------------------------------------------------------------------------------------------------
37,703,245 9,018,319 11,310,951 5,368,368 5,871,219 13,625,644 36,331,954 34,060,881
(1,926,238) (72,902) (537,387) (28,752) (9,686,365) (11,062,245) (40,824,498) (28,833,413)
-------------------------------------------------------------------------------------------------------------
35,777,007 8,945,417 10,773,564 5,339,616 (3,815,146) 2,563,399 (4,492,544) 5,227,468
-------------------------------------------------------------------------------------------------------------
42,449,293 9,462,683 15,001,621 5,560,860 (5,823,229) 6,518,525 (4,492,465) 5,227,257
9,466,683 4,000 5,564,860 4,000 31,985,539 25,467,014 20,438,770 15,211,513
-------------------------------------------------------------------------------------------------------------
$51,915,976 $ 9,466,683 $ 20,566,481 $ 5,564,860 $ 26,162,310 $ 31,985,539 $ 15,946,305 $ 20,438,770
=============================================================================================================
$ (48,513) $ 641 $ 34,884 $ 2,810 $ (39,504) $ (22,825) $ 101 $ 0
-------------------------------------------------------------------------------------------------------------
793,073 214,356 235,928 128,705 92,901 188,718 35,844,336 33,538,456
0 0 0 0 0 64,390 0 0
1,093 0 8,603 1,340 26,073 22,453 487,618 522,425
-------------------------------------------------------------------------------------------------------------
794,166 214,356 244,531 130,045 118,974 275,561 36,331,954 34,060,881
(39,722) (1,682) (11,611) (691) (196,204) (224,859) (40,824,498) (28,833,413)
-------------------------------------------------------------------------------------------------------------
754,444 212,674 232,920 129,354 (77,230) 50,702 (4,492,544) 5,227,468
=============================================================================================================
</TABLE>
FS-17
<PAGE> 114
INVESCO Advisor Funds, Inc.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. The INVESCO Advi-
sor 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 manage-
ment investment company. The Fund consists of seven separate investment port-
folios, INVESCO Advisor Flex Fund ("Flex"), INVESCO Advisor Equity Fund ("Eq-
uity"), INVESCO Advisor MultiFlex Fund ("MultiFlex"), INVESCO Advisor Interna-
tional 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 consid-
ered 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 aggregating $851,788 of which $29,229
was received 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.
FS-18
<PAGE> 115
INVESCO Advisor Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- For Equity, Flex, MultiFlex,
Income, Real Estate and International Value dividends and distributions are
recorded by these investment portfolios 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 began to offer a
second class of shares, Class A shares. Class A shares are identical to
Class C shares, except for class specific 12b-1 fees. Income, other ex-
penses 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.
On December 31, 1996, 100 Class A shares of each Fund were issued and out-
standing to INVESCO Services, Inc.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Services, Inc.
("ISI"), serves as each investment portfolio's investment adviser. As compen-
sation for its services to each investment portfolio, ISI receives an invest-
ment 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 In-
come, 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 portfo-
lio 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 ex-
cess of $500 million. In addition, ISI has entered into a sub-advisory agree-
ment 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, ISI receives annual
fees of 1.00% of average daily net assets for Equity, Flex, MultiFlex, Real
Estate, International Value and 0.60% of average daily net assets for Income.
ISI advised the Fund that for the year ended December 31, 1996, it received
approximately $4,449, $36,838, $816, $1,722, $21,071, $4,747 and $1,789 in
contingent deferred sales charges ("CDSC") from certain shareholder redemp-
tions 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
FS-19
<PAGE> 116
INVESCO Advisor Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
combined effect of the advisory agreements, distribution plans and operating
services agreements of each investment portfolio is to place a cap or ceiling
on the total expenses of each investment portfolio, other than brokerage com-
missions, interest, taxes, litigation, directors' fees and expenses, and other
extraordinary expenses.
Effective December 31, 1996, if in any calendar year, the average daily net
assets of Equity or Flex are less than $500 million, expenses shall not exceed
2.20%; on the next $500 million of average daily net assets, expenses shall
not exceed 2.15%; on the next $1 billion of average daily net assets, expenses
shall not exceed 2.10%; and on all average daily net assets over $2 billion,
expenses shall not exceed 2.05%. If in any calendar year, the average daily
net assets of MultiFlex or International Value are less than $100 million, ex-
penses shall not exceed 2.45%; on the next $400 million of average daily net
assets, expenses shall not exceed 2.40%; on the next $500 million of average
daily net assets, expenses shall not exceed 2.35%; on the next $1 billion of
average daily net assets, expenses shall not exceed 2.30%; and on all average
daily net assets over $2 billion, expenses shall not exceed 2.25%. In any cal-
endar year the expenses of Income may not exceed l.70% of the average daily
net assets. ISI has agreed to reimburse Income for a three-year period begin-
ning October 1, 1995, so that the expenses shall not exceed l.45% per annum of
average daily net assets. In any calendar year the expenses of Cash Management
may not exceed .95% of average daily net assets. If in any calendar year, the
average daily net assets of the Real Estate are less than $500 million, ex-
penses shall not exceed 2.35%; on the next $500 million of net assets, ex-
penses shall not exceed 2.30%; and on all assets over $1 billion, expenses
shall not exceed 2.25%.
At December 31, 1996, 39.07% of the outstanding capital shares of Cash Man-
agement were owned by affiliated parties.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended
December 31, 1996, the aggregate cost of purchases and proceeds from sales of
U.S. Government Securities were:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------------------
<S> <C> <C>
Flex................................................... $ 98,570,099 $55,204,463
MultiFlex.............................................. 58,345,906 45,751,991
Income................................................. 9,359,281 11,764,288
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................................................... $ 74,726,121 $58,780,727
Equity................................................. 24,762,475 22,510,239
MultiFlex.............................................. 128,170,806 81,956,782
International Value.................................... 35,358,541 1,406,306
Real Estate............................................ 12,918,821 2,700,851
</TABLE>
FS-20
<PAGE> 117
INVESCO Advisor Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- UNREALIZED APPRECIATION AND DEPRECIATION. At December 31, 1996, the
gross unrealized appreciation and depreciation of securities for federal in-
come tax purposes was as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
-------------------------------------------
<S> <C> <C> <C>
Flex................................. $114,039,147 $(6,148,414) $107,890,733
Equity............................... 44,898,484 (1,386,310) 43,512,174
MultiFlex............................ 48,937,373 (2,698,568) 46,238,805
International Value.................. 7,825,291 (709,067) 7,116,224
Real Estate.......................... 4,395,850 (21,856) 4,373,994
Income............................... 308,609 (497,004) (188,395)
</TABLE>
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.
Of such shares, 10 million have been allocated to each of the Equity, Income,
Real Estate and International Value, 20 million to Flex, 15 million to
MultiFlex, and 10 billion to Cash Management.
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 spe-
cial risks and considerations not typically associated with those of U.S. ori-
gin. These risks include, but are not limited to re-evaluation of currencies,
adverse political, social and economic developments and less reliable informa-
tion about issuers. Moreover, securities of many foreign companies and markets
may be less liquid and their prices more volatile than those of U. S. compa-
nies 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. Bene-
fits under this plan are based on an annual rate equal to 25% of the retainer
fee (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, Income and Cash Management for
the year ended December 31, 1996 of $3,900, $1,138, $1,665, $313 and $551, re-
spectively, are included in Directors' Fees and Expenses in the Statement of
Operations. Unfunded accrued pension costs for Flex, Equity, MultiFlex and In-
come Funds of $14,718, $4,387, $7,091, $1,193, respectively, and $273 for Cash
Management, and pension liabilities of $25,815, $7,751, $12,033 and $2,220,
respectively, and $824 for Cash Management, are included in other assets and
liabilities in the Statement of Assets and Liabilities. There were no pension
expenses for International Value and Real Estate Funds.
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; com-
bined net assets were $31,571,199 as of the merger date. Shareholders of Rela-
tive 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.
FS-21
<PAGE> 118
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a capital share outstanding
throughout each year presented.
<TABLE>
<CAPTION>
FLEX FUND
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................ $ 62.64 $ 50.50 $ 54.16 $ 51.04 $ 49.35
--------------------------------------------------
INVESTMENT OPERATIONS
Net investment income........ 1.18 1.29 1.26 1.10 1.39
Net gain (loss) on securities
(both realized and
unrealized)................. 7.25 12.38 (0.91) 4.22 2.37
--------------------------------------------------
Total from investment opera-
tions....................... 8.43 13.67 0.35 5.32 3.76
--------------------------------------------------
DISTRIBUTIONS
Dividends (from net invest-
ment income)................ (1.17) (1.29) (1.25) (1.09) (1.35)
Distributions (from capital
gains)...................... (3.39) (0.24) (2.76) (1.11) (0.72)
--------------------------------------------------
Total distributions.......... (4.56) (1.53) (4.01) (2.20) (2.07)
--------------------------------------------------
Net asset value, end of year. $ 66.51 $ 62.64 $ 50.50 $ 54.16 $ 51.04
==================================================
TOTAL RETURN(1).............. 13.61% 27.30% 0.64% 10.48% 7.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
000's)...................... $489,918 $399,162 $243,848 $274,349 $165,727
Ratio of expenses to average
net assets*................. 2.26% 2.28% 2.25% 2.25% 2.17%
Ratio of net investment in-
come to average net assets*. 1.81% 2.28% 2.32% 2.10% 2.81%
Portfolio turnover rate...... 26% 5% 36% 27% 15%
Average commission rate paid. $ 0.0549 -- -- -- --
</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 $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%.
The accompanying notes are an integral part of these financial statements.
FS-22
<PAGE> 119
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
The table below sets forth financial data for a capital share outstanding
throughout each year presented.
<TABLE>
<CAPTION>
EQUITY FUND
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................... $ 70.41 $ 55.83 $ 59.61 $ 63.27 $ 63.38
----------------------------------------------
INVESTMENT OPERATIONS
Net investment income........... 0.18 0.41 0.36 0.41 0.60
Net gain on securities
(both realized and unrealized). 11.90 16.44 1.26 5.40 2.44
----------------------------------------------
Total from investment opera-
tions.......................... 12.08 16.85 1.62 5.81 3.04
----------------------------------------------
DISTRIBUTIONS
Dividends (from net investment
income)........................ (0.20) (0.41) (0.36) (0.41) (0.57)
Distributions (from capital
gains)......................... 0.00 (1.86) (5.04) (9.06) (2.58)
----------------------------------------------
Total distributions............. (0.20) (2.27) (5.40) (9.47) (3.15)
----------------------------------------------
Net asset value, end of year.... $ 82.29 $ 70.41 $ 55.83 $ 59.61 $ 63.27
==============================================
TOTAL RETURN(1)................. 17.17% 30.28% 2.69% 9.16% 4.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
000's)......................... $137,416 $113,573 $77,929 $86,659 $91,146
Ratio of expenses to average net
assets*........................ 2.26% 2.28% 2.25% 2.25% 2.18%
Ratio of net investment income
to average net assets*......... 0.24% 0.64% 0.61% 0.62% 0.90%
Portfolio turnover rate......... 19% 17% 21% 47% 41%
Average commission rate paid.... $0.0590 -- -- -- --
</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 $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% .
The accompanying notes are an integral part of these financial statements.
FS-23
<PAGE> 120
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
The table below sets forth financial data for a capital share outstanding
throughout each year presented.
<TABLE>
<CAPTION>
MULTIFLEX FUND
FOR THE PERIOD
YEAR ENDED DECEMBER 31, NOV. 17, 1993(2) TO
------------------------------ DEC. 31, 1993
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, begin-
ning of year........... $ 46.71 $ 39.13 $ 40.16 $ 40.00
-----------------------------------------------------
INVESTMENT OPERATIONS
Net investment income... 0.55 0.64 0.62 0.02
Net gain (loss) on secu-
rities (both realized
and unrealized)........ 7.31 7.75 (1.03) 0.16
-----------------------------------------------------
Total from investment
operations............. 7.86 8.39 (0.41) 0.18
-----------------------------------------------------
DISTRIBUTIONS
Dividends (from net in-
vestment income)....... (0.53) (0.64) (0.62) (0.02)
Distributions (from cap-
ital gains)............ (1.50) (0.17) 0.00 0.00
-----------------------------------------------------
Total distributions..... (2.03) (0.81) (0.62) (0.02)
-----------------------------------------------------
Net asset value, end of
year................... $ 52.54 $ 46.71 $ 39.13 $ 40.16
=====================================================
TOTAL RETURN(1)......... 17.03% 21.58% (1.02%) 0.46%#
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(in 000's)............. $266,843 $174,592 $120,220 $12,241
Ratio of expenses to av-
erage net assets....... 2.45% 2.50% 2.49% 2.50%*
Ratio of net investment
income to average net
assets................. 1.16% 1.53% 2.01% 1.09%*
Portfolio turnover rate. 62% 50% 81% 0.53%#
Average commission rate
paid................... $ 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.
FS-24
<PAGE> 121
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
The table below sets forth financial data for a capital share outstanding
throughout each year presented.
<TABLE>
<CAPTION>
INTERNATIONAL VALUE AND REAL ESTATE FUNDS
INTERNATIONAL VALUE FUND REAL ESTATE FUND
--------------------------- ------------------------------
YEAR ENDED FOR THE PERIOD YEAR ENDED FOR THE PERIOD
DECEMBER 31, MAY 1, 1995(2) DECEMBER 31, MAY 1, 1995(2) TO
1996 DEC. 31, 1995 1996 DEC. 31, 1995
--------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net asset value, begin-
ning of year........... $ 44.51 $40.00 $ 43.02 $40.00
--------------------------- ------------------------------
INVESTMENT OPERATIONS
Net investment income
(loss)................. (0.05) 0.00 1.30 0.64
Net gain on securities
(both realized and
unrealized)............ 9.37 4.51 14.06 3.00
--------------------------- ------------------------------
Total from investment
operations............. 9.32 4.51 15.36 3.64
--------------------------- ------------------------------
DISTRIBUTIONS
Dividends (from net in-
vestment income)....... 0.00 0.00 (1.23) (0.62)
Distributions (from cap-
ital gains)............ (0.15) 0.00 (0.38) 0.00
--------------------------- ------------------------------
Total distributions..... (0.15) 0.00 (1.61) (0.62)
--------------------------- ------------------------------
Net asset value, end of
year................... $ 53.68 $44.51 $ 56.77 $43.02
=========================== ==============================
TOTAL RETURN(1)......... 20.99% 11.28%# 36.43% 9.12%#
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (in 000's)........ $51,916 $9,467 $20,566 $5,565
Ratio of expenses to av-
erage net assets....... 2.50% 2.50%* 2.40% 2.40%*
Ratio of net investment
income (loss) to aver-
age net assets......... (0.16%) 0.03%* 3.21% 4.68%*
Portfolio turnover rate. 5% 2%# 25% 7%#
Average commission rate
paid................... $0.0602 -- $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.
FS-25
<PAGE> 122
INVESCO Advisor Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
The table below sets forth financial data for a capital share outstanding
throughout each year presented.
<TABLE>
<CAPTION>
INCOME FUND
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................... $ 52.22 $ 45.33 $ 48.60 $ 47.41 $ 47.77
----------------------------------------------
INVESTMENT OPERATIONS
Net investment income........... 2.61 2.44 2.40 2.28 2.57
Net gain (loss) on securities
(both realized and unrealized). (3.31) 6.91 (3.27) 1.20 (0.37)
----------------------------------------------
Total from investment opera-
tions.......................... (0.70) 9.35 (0.87) 3.48 2.20
----------------------------------------------
DISTRIBUTIONS
Dividends (from net investment
income)........................ (2.65) (2.46) (2.40) (2.29) (2.56)
----------------------------------------------
Total distributions............. (2.65) (2.46) (2.40) (2.29) (2.56)
----------------------------------------------
Net asset value, end of year.... $ 48.87 $ 52.22 $ 45.33 $ 48.60 $ 47.41
==============================================
TOTAL RETURN(1)................. (1.23%) 21.12% (1.80%) 7.39% 4.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
000's)......................... $26,162 $31,986 $25,467 $42,872 $47,096
Ratio of expenses to average net
assets*........................ 1.51% 2.19% 2.25% 2.25% 2.25%
Ratio of net investment income
to average net assets*......... 5.30% 4.94% 5.09% 4.56% 5.48%
Portfolio turnover rate......... 34% 24% 59% 92% 16%
</TABLE>
* INVESCO Capital Management, Inc. voluntarily absorbed certain expenses of
the Fund aggregating $72,341, $17,720 and $17,632, for 1996, 1995 and 1993,
respectively. If such expenses had not been absorbed, the ratio of expenses
to average net assets would have been 1.76%, 2.25% and 2.29%, for 1996, 1995
and 1993, respectively. The ratio of net investment income to average net
assets would have been 5.05%, 4.88% and 4.52%, for 1996, 1995 and 1993,
respectively.
<TABLE>
<CAPTION>
CASH MANAGEMENT FUND
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------
INVESTMENT OPERATIONS
Net investment income............. 0.04 0.05 0.03 0.02 0.03
--------------------------------------------
DISTRIBUTIONS
Dividends (from net investment in-
come)............................ (0.04) (0.05) (0.03) (0.02) (0.03)
--------------------------------------------
Net asset value, end of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================
TOTAL RETURN(1)................... 4.48% 5.04% 3.30% 2.20% 3.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in
000's)........................... $15,946 $20,439 $15,212 $13,827 $20,431
Ratio of expenses to average net
assets*.......................... 1.04% 1.00% 1.00% 0.95% 0.73%
Ratio of net investment income to
average net assets*.............. 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.
The accompanying notes are an integral part of these financial statements.
FS-26
