<PAGE> 1
[APPLICATION INSIDE]
[AIM LOGO APPEARS HERE] THE AIM FAMILY OF FUNDS--REGISTERED TRADEMARK--
AIM ADVISOR FLEX 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
MARCH 3, 1998
This Prospectus contains information about the five 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 is to
achieve a high total return on investment through capital appreciation and
current income, without regard to federal income tax considerations. 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 March 3, 1998,
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. Additional information about the Funds may also be obtained on the
Web at http://www.aimfunds.com.
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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE> 2
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.................................. 2
THE FUNDS................................ 5
Table of Fees and Expenses............. 5
Financial Highlights................... 7
About the Funds........................ 12
Investment Programs.................... 12
Additional Risk Factors and Policies
Relevant to the Funds............... 16
Investment Restrictions................ 20
Management............................. 21
Capitalization......................... 26
Shareholder Reports.................... 26
Performance Information................ 26
Miscellaneous.......................... 27
INVESTOR'S GUIDE TO THE AIM FAMILY OF
FUNDS--Registered Trademark--..........
Introduction to The AIM Family of
Funds............................... A-1
How to Purchase Shares................. A-1
Terms and Conditions of Purchase of the
AIM Funds........................... A-2
Special Plans.......................... A-9
Exchange Privilege..................... A-11
How to Redeem Shares................... A-13
Determination of Net Asset Value....... A-17
Dividends, Distributions and Tax
Matters............................. A-18
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, Class B and Class C shares of AIM ADVISOR FLEX FUND ("Flex
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 is to achieve a
high total return on investment through capital appreciation and current income,
without regard to federal income tax considerations. 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 over 50 investment
company portfolios encompassing a broad range of investment objectives. 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 is 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 and the 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.
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. See "Management."
MULTIPLE DISTRIBUTION SYSTEM. Each of the Funds offers three classes of
shares, Class A, Class B and Class C. The three 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 the 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. The initial sales
charge may be waived or reduced in certain circumstances. 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 for a minimum of 18 months. See "How to Redeem Shares --
Contingent Deferred Sales Charge Program for Large Purchases."
Class B Shares -- Shares are offered at net asset value, without an
initial sales charge, and are subject to an ongoing service fee of 0.25%
and an ongoing distribution fee of 0.75% calculated at an annual rate on
the average daily net assets of the Fund's Class B shares. Class B shares
are subject to a maximum CDSC of 5.00% on certain redemptions made within
six years of
2
<PAGE> 3
the date on which a purchase was made. Class B shares automatically convert
to Class A shares of the Fund eight years following the end of the calendar
month in which a purchase was made. Class B shares are subject to higher
expenses than Class A shares.
Class C Shares -- 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 and are subject to an ongoing service fee of 0.25%
and an ongoing distribution fee calculated at an annual rate of 0.75% of
the 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 CDSC on Class B shares prior to conversion or on Class C shares would
be less than the initial sales charge and accumulated distribution fees on Class
A shares purchased at the same time, and to what extent such differential would
be offset by the higher return on Class A shares. To assist investors in making
this determination, the table under the caption "Table of Fees and Expenses"
sets forth examples of the charges applicable to each class of shares. Class A
shares will normally be more beneficial than Class B and Class C shares to the
investor who qualifies for reduced initial sales charges, as described below.
A I M Distributors, Inc. ("AIM Distributors") intends to reject any order for
purchase of more than $250,000 for Class B shares.
PURCHASING SHARES. Initial investments in any class of shares must be at least
$500 and additional investments must be at least $50. The minimum initial
investment is modified for investments through tax-qualified retirement plans
and accounts initially established with an Automatic Investment Plan. See "How
to Purchase Shares" and "Special Plans." The distributor of the Funds' shares is
AIM Distributors, P.O. Box 4739, Houston, Texas 77210-4739.
EXCHANGE PRIVILEGE. The Funds are among those mutual funds distributed by AIM
Distributors (collectively, "The AIM Family of Funds"). Class A, Class B and
Class C shares of the Funds may be exchanged for shares of other funds in The
AIM Family of Funds in the manner and subject to the policies and charges set
forth herein. See "Exchange Privilege -- Terms and Conditions of Exchanges" in
the Investor's Guide to this Prospectus.
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 CDSC of 1.00% if redeemed prior to
the shares being invested for a minimum of 18 months. See "How to Redeem
Shares -- Contingent Deferred Sales Charge Program for Large Purchases."
Class B Shares -- Holders of Class B shares may redeem all or a
portion of their shares at net asset value on any business day, less a CDSC
for redemptions made within six years following the date at which a
purchase was made. Class B shares redeemed after six years following the
date of purchase will not be subject to any CDSC. See "How to Redeem
Shares -- Multiple Distribution System." Class B shares automatically
convert to Class A shares of a Fund eight years following the end of the
calendar month in which a purchase was made. Class B shares are subject to
higher expenses than Class A shares.
Class C Shares -- A CDSC of 1.00% is applicable to shares redeemed
prior to the shares purchased being invested for a minimum of 12 full
months after purchase. 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. Class C shares are subject to higher
expenses than Class A shares.
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 each Fund to distribute to shareholders
of each Fund 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 intended 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. 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
3
<PAGE> 4
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. 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, 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 may purchase or sell options on futures, write purchase and
sell puts and calls and 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, AIM INSTITUTIONAL FUNDS, AIMFUNDS.COM, LA
FAMILIA AIM DE FONDOS AND LA FAMILIA AIM DE FONDOS AND DESIGN ARE REGISTERED
SERVICE MARKS AND INVEST WITH DISCIPLINE AND AIM BANK CONNECTION 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.
Except where noted, the fees and expenses set forth in the table are based on
the expenses of the Funds for the most recent fiscal year. The fees and expenses
for Class B 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 INTERNATIONAL AIM ADVISOR
FLEX FUND VALUE FUND LARGE CAP VALUE FUND
---------------------- ---------------------- ----------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B C A B C A B C
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales load imposed on
purchase of shares (as a %
of the offering
price)...................... 5.50% None None 5.50% None None 5.50% None None
Maximum sales load on
reinvested dividends........ None None None None None None None None None
Deferred sales load (as a % of
original purchase price or
redemption proceeds,
whichever is lower)......... None* 5.00% 1.00% None* 5.00% 1.00% None* 5.00% 1.00%
Redemption fees................ None None None None None None None None None
Exchange fee................... None None None None None None None None None
Annual Fund Operating Expenses
(as a % of average net assets)
Management fees................ 0.75% 0.75% 0.75% 1.00% 1.00% 1.00% 0.75% 0.75% 0.75%
Rule 12b-1 distribution plan
payments.................... 0.25%(2) 1.00% 1.00% 0.25%(2) 1.00% 1.00% 0.25%(2) 1.00% 1.00%
All other expenses(1).......... 0.45% 0.45% 0.45% 0.46% 0.46% 0.46% 0.46% 0.46% 0.46%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total fund operating
expenses............. 1.45% 2.20% 2.20% 1.71% 2.46% 2.46% 1.46% 2.21% 2.21%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
AIM ADVISOR AIM ADVISOR
MULTIFLEX FUND REAL ESTATE FUND
---------------------- ----------------------
CLASS CLASS CLASS CLASS CLASS CLASS
A B C A B C
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum sales load imposed on purchase of shares (as
a % of the offering price)....................... 5.50% None None 4.75% None None
Maximum sales load on reinvested dividends.......... None None None None None None
Deferred sales load (as a % of original purchase
price or redemption proceeds, whichever is
lower)........................................... None* 5.00% 1.00% None* 5.00% 1.00%
Redemption fees..................................... None None None None None None
Exchange fee........................................ None None None None None None
Annual Fund Operating Expenses (as a % of average net
assets)
Management fees..................................... 1.00% 1.00% 1.00% 0.90% 0.90% 0.90%
Rule 12b-1 distribution plan payments............... 0.25%(2) 1.00% 1.00% 0.25%(2) 1.00% 1.00%
All other expenses(1)............................... 0.42% 0.42% 0.42% 0.45% 0.45% 0.45%
---- ---- ---- ---- ---- ----
Total fund operating expenses............... 1.67% 2.42% 2.42% 1.60% 2.35% 2.35%
==== ==== ==== ==== ==== ====
</TABLE>
- ------------------------
(1) AIM has voluntarily agreed to limit the "Total fund 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. Had expenses not been limited, "All other expenses" would have
been 0.46% for all classes of the AIM ADVISOR FLEX FUND and 0.46% for all
classes of the AIM ADVISOR MULTIFLEX FUND. See "Management."
(2) AIM Distributors has voluntarily agreed to limit the Class A shares Rule
12b-1 distribution plan payments to 0.25% for three years beginning August
4, 1997. If these limitations were not in effect, the 12b-1 distribution
plan payments and total operating expenses of the Class A shares would be as
follows: 0.35% and 1.55% for AIM ADVISOR FLEX FUND, 0.35% and 1.81% for AIM
ADVISOR INTERNATIONAL VALUE FUND, 0.35% and 1.56% for AIM ADVISOR LARGE CAP
VALUE FUND, 0.35% and 1.77% for AIM ADVISOR MULTIFLEX FUND and 0.35% and
1.70% for AIM ADVISOR REAL ESTATE FUND. See "Management" and
"Management -- Distribution Plan."
* 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
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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 INTERNATIONAL LARGE CAP AIM ADVISOR REAL ESTATE
FLEX FUND VALUE FUND VALUE FUND MULTIFLEX FUND FUND
----------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
1 year.................................... $ 69 $ 71 $ 69 $ 71 $ 63
3 years................................... 98 106 99 105 96
5 years................................... 130 143 130 141 130
10 years.................................. 219 246 220 242 228
</TABLE>
The above examples assume payment of a sales charge at the time of purchase;
actual expenses may vary for purchases of $1 million or more, which are made at
net asset value and are subject to a contingent deferred sales charge for 18
months from the date such shares were purchased.
You would pay the following expenses on a $1,000 investment in Class B shares
of the Funds, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
AIM ADVISOR AIM ADVISOR AIM ADVISOR
AIM ADVISOR INTERNATIONAL LARGE CAP AIM ADVISOR REAL ESTATE
FLEX FUND VALUE FUND VALUE FUND MULTIFLEX FUND FUND
----------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
1 year.................................... $72 $75 $72 $75 $74
3 years................................... 99 107 99 105 103
</TABLE>
You would pay the following expenses on a $1,000 investment in Class B shares
of the Funds, assuming no redemption at the end of each time period:
<TABLE>
<CAPTION>
AIM ADVISOR AIM ADVISOR AIM ADVISOR
AIM ADVISOR INTERNATIONAL LARGE CAP AIM ADVISOR REAL ESTATE
FLEX FUND VALUE FUND VALUE FUND MULTIFLEX FUND FUND
----------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
1 year.................................... $22 $25 $22 $25 $24
3 years................................... 69 77 69 75 73
</TABLE>
You would pay the following expenses on a $1,000 investment in Class C shares
of the Funds, assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
AIM ADVISOR AIM ADVISOR AIM ADVISOR
AIM ADVISOR INTERNATIONAL LARGE CAP AIM ADVISOR REAL ESTATE
FLEX FUND VALUE FUND VALUE FUND MULTIFLEX FUND FUND
----------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
1 year.................................... $ 32 $ 35 $ 32 $ 35 $ 34
3 years................................... 69 77 69 75 73
5 years................................... 118 131 118 129 126
10 years.................................. 252 280 254 276 269
</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 INTERNATIONAL LARGE CAP AIM ADVISOR REAL ESTATE
FLEX FUND VALUE FUND VALUE FUND MULTIFLEX FUND FUND
----------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
1 year.................................... $ 22 $ 25 $ 22 $ 25 $ 24
3 years................................... 69 77 69 75 73
5 years................................... 118 131 118 129 126
10 years.................................. 253 280 254 276 269
</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, Class B
shares and Class C shares of the Funds, it is estimated that it would require a
substantial number of years to exceed the maximum permissible front-end sales
charges.
The above examples should not be considered to be representative of the Funds'
actual or future expenses, which may be greater or less than those shown. In
addition, while the examples assume a 5% annual return, each Fund's actual
performance will vary and may result in an actual return that is greater or less
than 5%. The examples assume reinvestment of all dividends and distributions and
that the percentage amounts for total fund operating expenses remain the same
for each year.
6
<PAGE> 7
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FINANCIAL HIGHLIGHTS
The following financial information for Class C shares for each of the Funds
for the five years ended December 31, 1997, 1996, 1995, 1994 and 1993, and the
financial information for Class A shares for each of the Funds for the period
ended December 31, 1997 have 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 1997 Annual Report to Shareholders and the Statement of Additional
Information. All of these materials are available without charge by contacting
AIM Distributors at the address or telephone number shown on the cover page of
this Prospectus. Financial information is not presented for Class B as no Class
B shares were publicly issued as of December 31, 1997. The investment advisor to
the Funds changed on August 4, 1997.
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR LARGE CAP VALUE FUND (FORMERLY, INVESCO ADVISOR EQUITY PORTFOLIO)
<TABLE>
<CAPTION>
CLASS C(a)(b)
------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 20.57 $ 17.60 $ 13.96 $ 14.90 $ 15.82 $ 15.85 $ 13.68
Income from investment
operations:
Net investment income....... 0.01(d) 0.05 0.1 0.09 0.1 0.15 0.16
Net gains on securities
(both realized and
unrealized)............... 6.21 2.97 4.11 0.32 1.35 0.61 4.41
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. 6.22 3.02 4.21 0.41 1.45 0.76 4.57
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income......... -- (0.05) (0.10) (0.09) (0.10) (0.14) (0.17)
Distributions from capital
gains..................... (2.71) -- (0.47) (1.26) (2.27) (0.65) (2.23)
-------- -------- -------- -------- -------- -------- --------
Total Distributions....... (2.71) (0.05) (0.57) (1.35) (2.37) (0.79) (2.40)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period...................... $ 24.08 $ 20.57 $ 17.60 $ 13.96 $ 14.90 $ 15.82 $ 15.85
======== ======== ======== ======== ======== ======== ========
Total return(e).............. 30.66% 17.17% 30.28% 2.69% 9.16% 4.84% 33.59%
======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)............ $172,228 $137,416 $113,573 $ 77,929 $ 86,659 $ 91,146 $ 81,732
======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average
net assets................ 2.21%(f) 2.26% 2.28% 2.25% 2.25%(g) 2.18% 2.22%
======== ======== ======== ======== ======== ======== ========
Ratio of net investment
income to average net
assets.................... 0.02%(f) 0.24% 0.64% 0.61% 0.62%(g) 0.90% 1.04%
======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate..... 34% 19% 17% 21% 47% 41% 47%
======== ======== ======== ======== ======== ======== ========
Average brokerage commission
rate paid(j).............. $ 0.0538 $ 0.0590 N/A N/A N/A N/A N/A
======== ======== ======== ======== ======== ======== ========
<CAPTION>
CLASS C(a)(b) CLASS A(a)
------------------------------- ----------
YEAR ENDED DECEMBER 31,
------------------------------- ----------
1990 1989 1988 1997(c)
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 15.50 $ 14.22 $ 13.54 $ 20.57
Income from investment
operations:
Net investment income....... 0.26 0.3 0.3 0.23(d)
Net gains on securities
(both realized and
unrealized)............... (0.85) 2.78 1.56 6.17
------- ------- ------- -------
Total from investment
operations.............. (0.59) 3.08 1.86 6.40
------- ------- ------- -------
Less distributions:
Dividends from net
investment income......... (0.30) (0.32) (0.31) (0.15)
Distributions from capital
gains..................... (0.93) (1.48) (0.87) (2.71)
------- ------- ------- -------
Total Distributions....... (1.23) (1.80) (1.18) (2.86)
------- ------- ------- -------
Net asset value, end of
period...................... $ 13.68 $ 15.50 $ 14.22 $ 24.11
======= ======= ======= =======
Total return(e).............. (3.75%) 21.81% 14.02% 31.66%
======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted)............ $69,279 $87,968 $92,983 $ 5,000
======= ======= ======= =======
Ratio of expenses to average
net assets................ 2.25%(h) 2.24% 2.21% 1.46%(h)(i)
======= ======= ======= =======
Ratio of net investment
income to average net
assets.................... 1.71%(h) 1.84% 1.81% 0.77%(h)(i)
======= ======= ======= =======
Portfolio turnover rate..... 12% 21% 10% 34%
======= ======= ======= =======
Average brokerage commission
rate paid(j).............. N/A N/A N/A $0.0538
======= ======= ======= =======
</TABLE>
- ---------------
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split effected in the form of a 300% stock dividend on November 7,
1997.
(b) Per share data has been adjusted to reflect a 25 share for 1 share stock
split which was effected on December 31, 1991.
(c) From January 1, 1997 (commencement of operations of Class A) to December
31, 1997.
(d) Calculated using average shares outstanding.
(e) Does not deduct sales charges.
(f) Ratios are based on average net assets of $156,522,171.
(g) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 2.25% and 0.62%, respectively for 1993 and 2.28% and
1.68%, respectively for 1990.
(h) Ratios are based on average net assets of $1,570,213.
(i) After fee waivers. Ratios of expenses and net investment income to average
net assets prior to fee waivers were 1.56% and 0.67%, respectively.
(j) 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 and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
7
<PAGE> 8
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR FLEX FUND (FORMERLY, INVESCO ADVISOR FLEX PORTFOLIO)
<TABLE>
<CAPTION>
CLASS C(a)(b)
------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 16.63 $ 15.66 $ 12.63 $ 13.54 $ 12.76 $ 12.34 $ 10.57
Income from investment
operations:
Net investment income....... 0.30(e) 0.30 0.32 0.32 0.28 0.35 0.37
Net gains on securities
(both realized and
unrealized)............... 3.60 1.81 3.09 (0.23) 1.05 0.59 2.22
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations................ 3.90 2.11 3.41 0.09 1.33 0.94 2.59
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends (from net
investment income)........ (0.29) (0.29) (0.32) (0.31) (0.27) (0.34) (0.37)
Distributions from capital
gains..................... (0.50) (0.85) (0.06) (0.69) (0.28) (0.18) (0.45)
-------- -------- -------- -------- -------- -------- --------
Total Distributions......... (0.79) (1.14) (0.38) (1.00) (0.55) (0.52) (0.82)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period...................... $ 19.74 $ 16.63 $ 15.66 $ 12.63 $ 13.54 $ 12.76 $ 12.34
======== ======== ======== ======== ======== ======== ========
Total return(f).............. 23.64% 13.61% 27.30% 0.64% 10.48% 7.72% 24.80%
======== ======== ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period
(000s omitted)............ $603,179 $489,918 $399,162 $243,848 $274,349 $165,727 $104,204
======== ======== ======== ======== ======== ======== ========
Ratio of expenses to average
net assets................ 2.20%(g) 2.26% 2.28% 2.25% 2.25%(h) 2.17% 2.21%
======== ======== ======== ======== ======== ======== ========
Ratio of net investment
income to average net
assets.................... 1.59%(g) 1.81% 2.28% 2.32% 2.10%(h) 2.81% 3.12%
======== ======== ======== ======== ======== ======== ========
Portfolio turnover rate..... 17% 26% 5% 36% 27% 15% 24%
======== ======== ======== ======== ======== ======== ========
Average brokerage commission
rate paid(l).............. $ 0.0537 $ 0.0549 N/A N/A N/A N/A N/A
======== ======== ======== ======== ======== ======== ========
<CAPTION>
CLASS C(a)(b) CLASS A(a)
------------------------------- ----------
YEAR ENDED DECEMBER 31,
------------------------------- ----------
1990 1989 1988(c) 1997(d)
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 11.33 $ 10.10 $ 10.00 $ 16.63
Income from investment
operations:
Net investment income....... 0.41 0.43 0.22 0.41(e)
Net gains on securities
(both realized and
unrealized)............... (0.60) 1.29 0.10 3.63
------- -------- ------- -------
Total from investment
operations................ (0.19) 1.72 0.32 4.04
------- -------- ------- -------
Less distributions:
Dividends (from net
investment income)........ (0.44) (0.41) (0.22) (0.43)
Distributions from capital
gains..................... (0.13) (0.08) -- (0.50)
------- -------- ------- -------
Total Distributions......... (0.57) (0.49) (0.22) (0.93)
------- -------- ------- -------
Net asset value, end of
period...................... $ 10.57 $ 11.33 $ 10.10 $ 19.74
======= ======== ======= =======
Total return(f).............. (1.68)% 17.26% 4.45% 24.60%
======= ======== ======= =======
Ratios/supplemental data:
Net assets, end of period
(000s omitted)............ $96,772 $101,260 $54,941 $25,151
======= ======== ======= =======
Ratio of expenses to average
net assets................ 2.25% 2.33% 2.31%(i) 1.45%(j)(k)
======= ======== ======= =======
Ratio of net investment
income to average net
assets.................... 3.77% 4.08% 4.06%(i) 2.34%(j)(k)
======= ======== ======= =======
Portfolio turnover rate..... 31% 20% 2% 17%
======= ======== ======= =======
Average brokerage commission
rate paid(l).............. N/A N/A N/A $0.0537
======= ======== ======= =======
</TABLE>
- ---------------
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split effected in the form of a 300% stock dividend on November 7,
1997.
(b) Per share data has been adjusted to reflect a 25 share for 1 share stock
split which was effected on December 31, 1991.
(c) From February 24, 1988 (commencement of operations) to December 31, 1988.
(d) From January 1, 1997 (commencement of operations of Class A) to December 31,
1997.
(e) Calculated using average shares outstanding.
(f) Does not deduct sales charges and for periods less than one year are not
annualized.
(g) Ratios are based on average net assets of $556,338,988.
(h) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 2.26% and 2.09%, respectively, for 1993.
(i) Annualized.
(j) Ratios are based on average net assets of $10,010,061.
(k) After fee waivers. The ratios of expenses and net investment income to
average net assets prior to fee waivers were 1.55% and 2.24% respectively.
(l) 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 and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
8
<PAGE> 9
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR MULTIFLEX FUND (FORMERLY, INVESCO ADVISOR MULTIFLEX PORTFOLIO)
<TABLE>
<CAPTION>
CLASS C(a) CLASS A(a)
---------------------------------------------------- ----------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993(b) 1997(c)
-------- -------- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year...... $ 13.14 $ 11.68 $ 9.78 $ 10.04 $ 10.00 $ 13.14
Income from investment operations:
Net investment income................. 0.13 0.14 0.16 0.16 0.01 0.23
Net gains on securities (both realized
and unrealized)..................... 2.26 1.83 1.94 (0.26) 0.04 2.26
-------- -------- -------- -------- ------- ----------
Total from investment
operations................... 2.39 1.97 2.10 (0.10) 0.05 2.49
-------- -------- -------- -------- ------- ----------
Less Distributions:
Dividends from net investment
income.............................. (0.11) (0.13) (0.16) (0.16) (0.01) (0.22)
Distributions from capital gains...... (1.20) (0.38) (0.04) -- -- (1.20)
-------- -------- -------- -------- ------- ----------
Total Distributions............ (1.31) (0.51) (0.20) (0.16) (0.01) (1.42)
-------- -------- -------- -------- ------- ----------
Net asset value, end of period.......... $ 14.22 $ 13.14 $ 11.68 $ 9.78 $ 10.04 $ 14.21
======== ======== ======== ======== ======= ==========
Total return(d)......................... 18.55% 17.03% 21.58% (1.02)% 0.46% 19.40%
======== ======== ======== ======== ======= ==========
Ratios/supplemental data:
Net assets, end of period (000
omitted).............................. $376,804 $266,843 $174,592 $120,220 $12,241 $ 9,066
======== ======== ======== ======== ======= ==========
Ratio of expenses to average net
assets................................ 2.42%(e) 2.45% 2.50% 2.49% 2.50%(f) 1.67%(g)(h)
======== ======== ======== ======== ======= ==========
Ratio of net investment income to
average net assets.................... 0.92%(e) 1.16% 1.53% 2.01% 1.09%(f) 1.67%(g)(h)
======== ======== ======== ======== ======= ==========
Portfolio turnover rate................. 62% 62% 50% 81% 53% 62%
======== ======== ======== ======== ======= ==========
Average commission rate paid(i)......... $ 0.0592 $ 0.0577 N/A N/A N/A $ 0.0592
======== ======== ======== ======== ======= ==========
</TABLE>
- ---------------
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split effected in the form of a 300% stock dividend on November 7,
1997.
(b) From November 17, 1993 (commencement of operations) to December 31, 1993.
(c) From January 1, 1997 (commencement of operations of Class A) to December 31,
1997.
(d) Does not deduct sales charges and for periods less than one year are not
annualized.
(e) Ratios are based on average net assets of $325,274,785
(f) Annualized.
(g) Ratios are based on average net assets of $3,147,191.
(h) After fee waivers. The ratios of expenses and net investment income to
average net assets prior to fee waivers were 1.77% and 1.57%, respectively.
(i) 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 and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
9
<PAGE> 10
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR REAL ESTATE FUND (FORMERLY, INVESCO ADVISOR REAL ESTATE PORTFOLIO)
<TABLE>
<CAPTION>
CLASS C(a) CLASS A(a)
-------------------------------- ----------
YEAR ENDED DECEMBER 31,
-------------------------------- ----------
1997 1996 1995(b) 1997(c)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 14.19 $ 10.76 $10.00 $ 14.19
------- ------- ------ -------
Income from investment operations:
Net investment income................................ 0.36(d) 0.33 0.16 0.34(d)
Net gains on securities (both realized and
unrealized)........................................ 2.26 3.51 0.75 2.39
------- ------- ------ -------
Total from investment operations..................... 2.62 3.84 0.91 2.73
------- ------- ------ -------
Less distributions:
Dividends from net investment income)................ (0.33) (0.31) (0.15) (0.44)
Distributions from capital gains..................... (0.74) (0.10) -- (0.74)
------- ------- ------ -------
Total distributions.................................. (1.07) (0.41) (0.15) (1.18)
------- ------- ------ -------
Net asset value, end of period......................... $ 15.74 $ 14.19 $10.76 $ 15.74
======= ======= ====== =======
Total return(e)........................................ 18.88% 36.43% 9.12% 19.78%
======= ======= ====== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)............... $43,934 $20,566 $5,565 $16,507
======= ======= ====== =======
Ratio of expenses to average net assets................ 2.35%(f) 2.40% 2.40%(g) 1.60%(h)(i)
======= ======= ====== =======
Ratio of net investment income to average net assets... 2.54%(f) 3.21% 4.68%(g) 3.26%(h)(i)
======= ======= ====== =======
Portfolio turnover rate................................ 57% 25% 7% 57%
======= ======= ====== =======
Average brokerage commission rate paid(j).............. $0.0584 $0.0601 N/A $0.0584
======= ======= ====== =======
</TABLE>
- ---------------
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split effected in the form of a 300% stock dividend on November 7,
1997.
(b) From May 1, 1995 (commencement of operations) to December 31, 1995.
(c) From January 1, 1997 (commencement of operations of Class A) to December 31,
1997.
(d) Calculated using average shares outstanding.
(e) Does not deduct sales charges and for periods less than one year are not
annualized.
(f) Ratios are based on average net assets of $32,160,457.
(g) Annualized.
(h) Ratios are based on average net assets of $3,510,793.
(i) After fee waivers. The ratios of expenses and net investment income to
average net assets prior to fee waivers were 1.70% and 3.16%, respectively.
(j) 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 and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
10
<PAGE> 11
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM ADVISOR INTERNATIONAL VALUE FUND (FORMERLY, INVESCO ADVISOR INTERNATIONAL
VALUE PORTFOLIO)
<TABLE>
<CAPTION>
CLASS C(a) CLASS A(a)
-------------------------------- ----------
YEAR ENDED DECEMBER 31,
-------------------------------- ----------
1997 1996 1995(b) 1997(c)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 13.42 $ 11.13 $10.00 $ 13.42
------- ------- ------ -------
Income from investment operations:
Net investment income................................ 0.01(d) (0.01) -- 0.17(d)
Net gain on securities (both realized and
unrealized)........................................ 1.73 2.34 1.13 1.69
------- ------- ------ -------
Total from investment operations..................... 1.74 2.33 1.13 1.86
------- ------- ------ -------
Less distributions:
Dividends from net investment income................. (0.01) -- -- (0.07)
Distributions (from capital gains)................... (0.22) (0.04) -- (0.22)
------- ------- ------ -------
Total distributions.................................. (0.23) (0.04) -- (0.29)
------- ------- ------ -------
Net asset value, end of period......................... $ 14.93 $ 13.42 $11.13 $ 14.99
======= ======= ====== =======
Total return(e)........................................ 12.98% 20.99% 11.28% 13.84%
======= ======= ====== =======
Ratios/supplemental data:
Net assets, end of period (000's omitted)............ $93,162 $51,916 $9,467 $ 8,444
======= ======= ====== =======
Ratio of expenses to average net assets.............. 2.46%(f) 2.50% 2.50%(g) 1.71%(h)(i)
======= ======= ====== =======
Ratio of net investment income to average net
assets............................................. 0.08%(f) (0.16)% 0.03%(g) 0.83%(h)(i)
======= ======= ====== =======
Portfolio turnover rate.............................. 9% 5% 2% 9%
======= ======= ====== =======
Average brokerage commission rate paid(j)............ $0.0507 $0.0602 N/A $0.0507
======= ======= ====== =======
</TABLE>
- ---------------
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split effected in the form of a 300% stock dividend on November 7,
1997.
(b) From May 1, 1995 (commencement of operations) to December 31, 1995.
(c) From January 1, 1997 (commencement of operations of Class A) to December
31, 1997.
(d) Calculated using average shares outstanding.
(e) Does not deduct sales charges and for periods less than one year are not
annualized.
(f) Ratios are based on average net assets of $77,973,564.
(g) Annualized.
(h) Ratios are based on average net assets of $3,145,579.
(i) After fee waivers. The ratios of expenses and net investment income to
average net assets prior to fee waivers were 1.81% and 0.73%, respectively.
(j) 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 and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
11
<PAGE> 12
- --------------------------------------------------------------------------------
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 4, 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 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 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 each
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. 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.
Up to 10% of the LARGE CAP VALUE FUND'S total assets, measured at the time of
purchase, may be invested directly in foreign securities and unsponsored
American Depository Receipts ("ADRs"). Up to 25% of the LARGE CAP VALUE FUND'S
total assets, measured at the time of purchase, may be invested in securities of
Canadian issuers and sponsored ADRs.
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. 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.
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
fixed income securities in which FLEX FUND will invest will consist of those
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 undervalued (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.
12
<PAGE> 13
Fixed-income securities in which the FLEX 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 FLEX 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 the Appendix to
the Statement of Additional Information. 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 FLEX FUND may invest 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 FLEX 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 FLEX 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.
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. 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 the Appendix to the Statement of Additional Information.
ICM will attempt to limit fluctuations in the market value of the FLEX FUND by
adopting a more defensive posture during periods of economic difficulty. During
such periods the FLEX 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 the Appendix to the Statement of Additional Information.
Up to 10% of the FLEX FUND'S total assets, measured at the time of purchase,
may be invested directly in foreign securities and unsponsored ADRs. Up to 25%
of the FLEX FUND'S total assets, measured at the time of purchase, may be
invested in securities of Canadian issuers and sponsored ADRs.
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 foreign
securities (primarily 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 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
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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 short term 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 than higher-rated bonds. 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.
Foreign Securities. The MULTIFLEX FUND may invest in foreign 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 or unsponsored ADRs. 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 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.
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<PAGE> 15
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 the Appendix to the Statement of
Additional Information. Up to 10% of the REAL ESTATE FUND'S total assets, may be
invested directly in foreign securities and unsponsored ADRs. The Fund may also
invest in sponsored ADRs.
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. 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 the Appendix to the Statement of Additional Information.
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" and "-- Emerging Markets" below for a
discussion of the risks associated with such investments.
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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"
and the Statement of Additional Information.
- --------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND POLICIES RELEVANT TO THE FUNDS
REPURCHASE AGREEMENTS. Each of the Funds may engage in repurchase agreements.
A repurchase agreement, which may be considered a "loan" under the Investment
Company Act of 1940, as amended (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 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% 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. All of the Funds may invest directly in foreign securities
and ADRs. The MULTIFLEX FUND, INTERNATIONAL VALUE FUND and REAL ESTATE FUND may
also invest in foreign currency-denominated fixed income securities. Foreign
securities are securities issued by companies whose principal business
activities are outside the United States. These foreign securities may be
registered and traded in U.S. markets, traded in foreign markets or evidenced by
ADRs. Securities of Canadian issuers and sponsored ADRs are not included within
the limitations applicable to foreign securities. Investing in foreign
securities 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
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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 Funds 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, INTERNATIONAL VALUE FUND and REAL ESTATE
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 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 Funds 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 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 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 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 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
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purposes. When a Fund purchases a futures contract, an amount of liquid assets
equal to the fair market value less initial and variation margin of the futures
contract will be segregated 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. Each 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 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.
MORTGAGE-RELATED SECURITIES. As described under "Investment Objectives and
Policies," the FLEX FUND may invest in mortgage pass-through securities and
CMOs, and the MULTIFLEX FUND and REAL ESTATE 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.
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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.
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.
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<PAGE> 20
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 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 rating agencies
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
segregate liquid assets 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 segregated. 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 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.
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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 Restric-
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tions," 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 and FLEX FUND, these
diversification requirements are applied to 100% of the Fund's total assets.
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 policies different from the investment policies 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.
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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 and 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. Information concerning the Board of
Directors may be found in the Statement of Additional Information. For a
discussion of AIM Management and its subsidiaries' Year 2000 Compliance Project,
see "General Information -- Year 2000 Compliance Project."
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 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 Miami, Florida, and a marketing office in San Francisco,
California and has been engaged in the investment advisory business since 1979.
ICM 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). 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 predominately 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. As of
December 31, 1997, IRAI's portfolio contained 124 properties totalling over 35.5
million square feet of commercial real estate and 14,340 apartment units. IRAI
currently advises one other mutual fund, INVESCO Realty Fund.
The sub-advisor to INTERNATIONAL VALUE FUND is INVESCO Global Asset Management
Limited, 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.
AIM and ICM provide general investment advice and portfolio management to the
LARGE CAP VALUE 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, for-
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merly AMVESCO PLC. AMVESCAP PLC is a publicly-traded holding company that,
through its subsidiaries, is one of the largest independent investment
management businesses in the world.
Effective August 4, 1997, AIM became the investment advisor for the Funds
pursuant to an investment advisory agreement with terms substantially identical
to those of the company's prior investment advisory contracts with INVESCO
Services, Inc. ("ISI"). The sub-advisors did not change other than the
substitution of IGAM for ICM as sub-advisor to INTERNATIONAL VALUE FUND.
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.
For a discussion of AIM's brokerage allocation policies and practices, see
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information. In accordance with policies established by the Board of Directors,
AIM may take into account sales of shares of the Funds and other funds advised
by AIM in selecting broker-dealers to effect portfolio transactions on behalf of
the Funds.
PORTFOLIO 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
Michael C. Harhai, C.F.A.
Portfolio Manager Portfolio Manager, ICM (March 1993 to present);
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).
Chartered Financial Analyst. Trustee, Atlanta Society
of Financial Analysts. Mr. Harhai has managed the
LARGE CAP VALUE FUND since July 1993.
R. Terrence Irrgang, C.F.A.
Assistant Portfolio
Manager Portfolio Manager, ICM (April 1992 to present);
Consultant, Towers, Perrin, Forster & Crosby (Oct.
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.
FLEX FUND
Edward C. Mitchell, Jr.,
C.F.A.
Portfolio Manager Chairman and Director, ICM (March 1997 to present);
President and Director, ICM (Jan. 1992 to March
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,
CFA
Assistant Portfolio
Manager Portfolio Manager, ICM (July 1993-Present); Vice
President and Portfolio Manager, Sovran Capital
Management (July 1991-July 1993). Chartered Financial
Analyst. Atlanta Society of Financial Analysts. Ms.
Durkes has assisted in managing the FLEX FUND since
August 1997.
David S. Griffin, C.F.A.
Assistant Portfolio
Manager Portfolio Manager, ICM (March 1991 to present).
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
Portfolio Manager Senior Vice President, Director of Equities and
Portfolio Manager, IMR (June 1993 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 portfolio managers, each of whom
specializes in one of the asset classes in which the
Fund may invest. Each portfolio manager is also
responsible for the security selection in his asset
class within the overall
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<PAGE> 23
asset allocation parameters and security selection
methodologies established by IMR. Mr. Slotpole has
managed the MULTIFLEX FUND since July 1, 1994.
Daniel A. Kostyk
Assistant Portfolio
Manager Portfolio Manager and Quantitative Analyst, IMR (June
1995 to present); Engineering Economic Analyst, Fluor
Daniel Inc. (October 1984 to May 1995). Mr. Kostyk
has assisted in managing the MULTIFLEX FUND since
June 1995.
REAL ESTATE FUND
Joe V. Rodriguez, Jr.
Portfolio Manager Director of Real Estate Securities and Portfolio
Manager, IRAI (1990 to present). Certified Financial
Planner. Mr. Rodriguez is assisted by a team of
portfolio managers, each of whom specializes in
different REIT sectors. He has managed the REAL
ESTATE FUND since its commencement of operations on
May 1, 1995.
Todd A. Johnston
Portfolio Manager Portfolio Manager, IRAI (1995 to present), formerly
portfolio manager with IMR (1986 to 1995). Mr.
Johnston has assisted in managing the REAL ESTATE
FUND since its commencement of operations on May 1,
1995.
James W. Trowbridge
Portfolio Manager Portfolio Manager, IRAI (1989 to present). Mr.
Trowbridge has assisted in managing the Real Estate
fund since its commencement of operations on May 1,
1995.
INTERNATIONAL VALUE FUND
W. Lindsay Davidson
Portfolio Manager Portfolio Manager, IGAM (August 4, 1997 to present);
Portfolio Manager, ICM (April 1993 to August 4,
1997); 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.
Erik B. Granade, C.F.A.
Assistant Portfolio
Manager Portfolio Manager, IGAM (August 1997 to present);
Portfolio Manager, ICM (April 1996 to present);
Partner and Portfolio Manager, Cashman Farrell &
Associates (June 1994 to March 1996); Portfolio
Manager, Provident Capital Management (October 1990
to May 1994). Chartered Financial Analyst. Chartered
Investment Counselor. Mr. Granade has assisted in
managing the INTERNATIONAL VALUE FUND since 1997.
ADVISORY FEES. 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; and 1.00% of the average net
asset value of each of the MULTIFLEX FUND and INTERNATIONAL VALUE FUND. For the
period August 4, 1997 through December 31, 1997, AIM received total advisory
fees which represented 0.75% of the LARGE CAP VALUE FUND, 0.75% of the FLEX
FUND, 1.00% of the MULTIFLEX FUND, 0.90% of the REAL ESTATE FUND and 1.00%
of the INTERNATIONAL VALUE FUND, (annualized), respectively, of each Fund's
average daily net assets.
For services rendered to the LARGE CAP VALUE 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."
For the fiscal year ended December 31, 1997, the sub-advisory fee paid to ICM
was equal to 0.20% and 0.20% of the average net asset value of the Fund for
each of the LARGE CAP VALUE FUND and FLEX 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."
For the fiscal year ended December 31, 1997, the sub-advisory fee paid to IMR
was equal to 0.35% of average net assets of the Fund.
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." For the
fiscal year ended December 31, 1997, the sub-advisory fee paid to IRAI was equal
to 0.35% of average net assets of the Fund.
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<PAGE> 24
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. For the
period August 4, 1997 through December 31, 1997, IGAM received total
sub-advisory fees which represented 0.33% (annualized) of the Fund's average
daily net assets.
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 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, 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 Class A and Class C shares of the Funds for a period of
three years beginning August 4, 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.
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. The Company has entered into Distribution Agreements on behalf
of the Funds (the "Distribution Agreements") with AIM Distributors, a
registered broker-dealer and a wholly owned subsidiary of AIM, to act as the
distributor of Class A, Class B and Class C shares of the Funds. The address of
A I M Distributors, Inc. is P.O. Box 4739, Houston, Texas 77210-4739. Certain
directors and officers of the Company are affiliated with AIM Distributors.
The Distribution Agreements provide AIM Distributors with the exclusive right
to distribute shares of the Funds directly and through institutions with whom
AIM Distributors has entered into selected dealer agreements. Under the
Distribution Agreement for the Class B shares, AIM Distributors sells Class B
shares at net asset value subject to a contingent deferred sales charge
established by AIM Distributors. AIM Distributors is authorized to advance to
institutions through whom Class B shares are sold a sales commission under
schedules established by AIM Distributors. The Distribution Agreement for the
Class B shares provides that AIM Distributors (or its assignee or transferee)
will receive 0.75% (of the total 1.00% payable under the distribution plan
applicable to Class B shares) of each Fund's average daily net assets
attributable to Class B shares attributable to the sales efforts of AIM
Distributors. The Company (on behalf of any class of any Fund) or AIM
Distributors may terminate the Distribution Agreements on sixty (60) days'
written notice without penalty. The Distribution Agreements will terminate
automatically in the event of their assignment. In the event the Class B shares
Distribution Agreement is terminated, AIM Distributors would continue to receive
payments of asset based sales charges in respect of the outstanding Class B
shares attributable to AIM Distributors; provided, however, that a complete
termination of the Class B shares master distribution plan (as defined in the
plan) would terminate all payments to AIM Distributors. Termination of the Class
B shares distribution plan or Distribution Agreement does not affect the
obligation of Class B shareholders to pay contingent deferred sales charges.
AIM Distributors will be reimbursed for distribution-related expenses by each
of the Funds 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."
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, each Fund
has adopted plans of distribution for each Class.
Class A and Class C Distribution Plan. The Class A and Class C Distribution
Plan (the "Class A and Class C Plan") provides that each Fund 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 Class A and Class C
Plan provides that each Fund may make payments to AIM Distributors which may
not exceed a maximum daily rate of 1.00% of the Funds' average daily net assets
attributable to their respective Class C shares, to cover certain distribution
and shareholder service expenses.
24
<PAGE> 25
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 Class A and Class C Plan for such periods as they may determine.
Class B Distribution Plan. The Class B Distribution Plan (the "Class B Plan")
provides that each Fund may make payments to AIM Distributors which may not
exceed a maximum daily rate of 1.00% of the Funds' average daily net assets
attributable to their respective Class B shares, to cover certain distribution
and shareholder service expenses. This expense includes payment calculated at an
annual rate 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.
Both Plans. Activities that may be financed under the Class A and Class C
Plan and the Class B Plan (collectively, the "Plans") include, but are not
limited to: printing of prospectuses and statements of additional information
and reports for other than existing shareholders, overhead, preparation and
distribution of advertising material and sales literature, supplemental payments
to dealers and other institutions such as asset-based sales charges or as
payments of service fees under shareholder service arrangements, and the cost of
administering the Plans. These amounts payable by a Fund under the Plans need
not be directly related to the expenses actually incurred by AIM Distributors on
behalf of each Fund. Thus, even if AIM Distributors' actual expenses exceed the
fee payable to AIM Distributors thereunder at any given time, the Company will
not be obligated to pay more than that fee, and if AIM Distributors' expenses
are less than the fee it receives, AIM Distributors will retain the full amount
of the fee. Payments pursuant to the Plans are subject to any applicable
limitations imposed by the rules of the National Association of Securities
Dealers, Inc. ("NASD").
Each of the Plans may be terminated at any time by a vote of the majority of
those directors who are not "interested persons" of the Company or by a vote of
the holders of the majority of the outstanding shares of the applicable class.
Under the Plans, AIM Distributors may in its discretion from time to time
agree to waive voluntarily all or any portion of its fee that has not been
assigned or transferred, while retaining its ability to be reimbursed for such
fee prior to the end of each fiscal year.
Certain financial institutions which have entered into service agreements and
which sell shares of the Fund on an agency basis may receive payments from the
Funds pursuant to the respective Plans. AIM Distributors does not act as
principal, but rather as agent, for the Funds in making such payments. Financial
intermediaries and any other person entitled to receive compensation for selling
Fund shares may receive different compensation for selling shares of one class
over another.
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 $0.001 per share. The authorized capital
stock of the Company has been classified as 300,000,000 shares of each of the
Funds. Authorized shares of each Fund are divided among Class A, Class B and
Class C shares, as follows:
<TABLE>
<CAPTION>
FUND NAME CLASS A SHARES CLASS B SHARES CLASS C SHARES
--------- -------------- -------------- --------------
<S> <C> <C> <C>
LARGE CAP VALUE FUND...................................... 100,000,000 100,000,000 100,000,000
FLEX FUND................................................. 100,000,000 100,000,000 100,000,000
MULTIFLEX FUND............................................ 100,000,000 100,000,000 100,000,000
INTERNATIONAL VALUE FUND.................................. 100,000,000 100,000,000 100,000,000
REAL ESTATE FUND.......................................... 100,000,000 100,000,000 100,000,000
</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.
25
<PAGE> 26
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.
As of February 2, 1998, Merrill Lynch Pierce Fenner & Smith was the owner of
record of 60.18% of the outstanding Class A shares of FLEX FUND, and 53.95% of
the outstanding Class C shares of INTERNATIONAL VALUE FUND.
- --------------------------------------------------------------------------------
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.
Shareholders having any questions concerning any of the Funds may call AIM
Distributors. 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 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.
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, 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.
Additional performance information is contained in the Statement of Additional
Information and in the Company's Annual Report to Shareholders, both of which
are available upon request without charge.
FEE WAIVERS. In order to increase the yield to investors, AIM or its
affiliates may from time to time voluntarily waive or reduce advisory or
distribution fees, while retaining the ability to be reimbursed for such fees
prior to the end of each fiscal year. Fee waivers or reductions, other than
those which may be set forth in the Advisory Agreement, may be rescinded at any
time without notice to investors; provided, however, that the Board of Directors
of the Company will be notified of the discontinuance of each fee waiver or
reduction.
26
<PAGE> 27
- --------------------------------------------------------------------------------
MISCELLANEOUS
As stated above, the Funds are series of the Company. The Company, 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 (with proportionate voting for fractional shares), 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.
27
<PAGE> 28
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 FLEX FUND AIM GLOBAL UTILITIES FUND
AIM ADVISOR INTERNATIONAL VALUE FUND AIM GROWTH FUND
AIM ADVISOR LARGE CAP VALUE FUND AIM HIGH INCOME MUNICIPAL FUND
AIM ADVISOR MULTIFLEX FUND AIM HIGH YIELD FUND
AIM ADVISOR REAL ESTATE FUND AIM INCOME FUND
AIM AGGRESSIVE GROWTH FUND AIM INTERMEDIATE GOVERNMENT FUND
AIM ASIAN GROWTH FUND AIM INTERNATIONAL EQUITY FUND
AIM BALANCED FUND AIM LIMITED MATURITY TREASURY FUND
AIM BLUE CHIP FUND AIM MONEY MARKET FUND(*)
AIM CAPITAL DEVELOPMENT FUND AIM MUNICIPAL BOND FUND
AIM CHARTER FUND AIM TAX-EXEMPT BOND FUND OF CONNECTICUT
AIM CONSTELLATION FUND AIM TAX-EXEMPT CASH FUND(*)
AIM EUROPEAN DEVELOPMENT FUND AIM TAX-FREE INTERMEDIATE FUND
AIM GLOBAL AGGRESSIVE GROWTH FUND AIM VALUE FUND
AIM GLOBAL GROWTH FUND AIM WEINGARTEN FUND
AIM GLOBAL INCOME FUND
</TABLE>
(*) Class A shares of AIM TAX-EXEMPT CASH FUND and AIM Cash Reserve Shares of
AIM MONEY MARKET FUND are offered to investors at net asset value, without
payment of a sales charge, as described below. Other funds, including the
Class A, 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") or Roth IRA is $250.
There are no minimum initial investment requirements applicable to
money-purchase/profit-sharing plans, 401(k) plans, Simplified Employee Pension
("SEP") accounts, Salary Reduction ("SARSEP") accounts, Savings Incentive Match
Plans for Employee IRA ("SIMPLE IRA") accounts, 403(b) plans or 457 (state
deferred compensation) plans (except that the minimum initial investment for
salary deferrals for such plans is $25), or for investment of dividends and
distributions of any of the AIM Funds into any existing AIM Funds account.
AFS' mailing address is:
A I M Fund Services, Inc.
P.O. Box 4739
Houston, TX 77210-4739
AAA 03/03
A-1
<PAGE> 29
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.
INITIAL AND SUBSEQUENT 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>
HOW TO PURCHASE ADDITIONAL SHARES. Additional shares may be purchased directly
through AIM Distributors or through any dealer who has entered into an agreement
with AIM Distributors. 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.
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.
BY AIM BANK CONNECTION(SM): To purchase additional shares by electronic funds
transfer, please contact the Client Services Department of AFS for detail.
- --------------------------------------------------------------------------------
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 FLEX 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 ASIAN GROWTH FUND, AIM BALANCED FUND, AIM BLUE CHIP
FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND,
AIM EUROPEAN DEVELOPMENT FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL INCOME FUND, AIM GLOBAL UTILITIES FUND, AIM GROWTH FUND,
AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM LIMITED
MATURITY TREASURY FUND, AIM MONEY MARKET FUND, AIM MUNICIPAL BOND FUND, AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-FREE INTERMEDIATE FUND, AIM VALUE
FUND and AIM WEINGARTEN FUND, collectively (other than AIM AGGRESSIVE GROWTH
FUND, AIM LIMITED MATURITY TREASURY FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT and AIM TAX-FREE INTERMEDIATE FUND), the "Multiple Class Funds," may
be purchased at their respective net asset value plus a sales charge as
indicated below, except that Class A shares of AIM TAX-EXEMPT CASH FUND 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 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.
AAA 03/03
A-2
<PAGE> 30
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 ASIAN GROWTH FUND, AIM BLUE CHIP
FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND,
AIM EUROPEAN DEVELOPMENT 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: the Class A shares of each of AIM ADVISOR REAL ESTATE FUND,
AIM BALANCED FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND,
AIM GLOBAL INCOME FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM
INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM MUNICIPAL BOND FUND and AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT.
<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."
AAA 03/03
A-3
<PAGE> 31
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 the Class A shares of each of AIM LIMITED MATURITY TREASURY
FUND and AIM TAX-FREE INTERMEDIATE 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 $ 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 Class A shares of each of AIM LIMITED MATURITY TREASURY FUND and AIM
TAX-FREE INTERMEDIATE FUND as follows: 1% of the first $2 million of such
purchases, plus 0.80% of the next $1 million of such purchases, plus 0.50% of
the next $17 million of such purchases, plus 0.25% of amounts in excess of $20
million of such purchases. See "Contingent Deferred Sales Charge Program for
Large Purchases." AIM Distributors may make payments to dealers and institutions
who are dealers of record for purchases of $1 million or more of Class A shares
(or shares which normally involve payment of initial sales charges), and which
are sold at net asset value and are not subject to a contingent deferred sales
charge, in an amount up to 0.10% of such purchases of Class A shares of AIM
LIMITED MATURITY TREASURY FUND, and in an amount up to 0.25% of such purchases
of Class A shares of AIM TAX-FREE INTERMEDIATE FUND.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class B shares of the AIM Funds at the time of such sales. Payments with
respect to Class B shares will equal 4.00% of the purchase price of the Class B
shares sold by the dealer or institution, and will consist of a sales commission
equal to 3.75% of the purchase price of the Class B shares sold plus an advance
of the first year service fee of 0.25% with respect to such shares. The portion
of the payments to AIM Distributors under the Class B Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of such sales commissions plus financing costs.
AIM Distributors may pay sales commissions to dealers and institutions who
sell Class C shares of the AIM Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the dealer or institution, and will consist of a sales commission
of 0.75% of the purchase price of the Class C shares sold plus an advance of the
first year service fee of 0.25% with respect to such shares. AIM Distributors
will retain all payments received by it relating to Class C shares for the first
year after they are purchased. The portion of the payments to AIM Distributors
under the Class A and C Plan attributable to Class C shares which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, AIM Distributors will make such
payments quarterly to dealers and institutions based on the average net asset
value of Class C shares which are attributable to shareholders for whom the
dealers and institutions are designated as dealers of record. 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.
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TIMING OF PURCHASE ORDERS. Orders for the purchase of shares of an AIM Fund
(other than AIM MONEY MARKET FUND, as described below) received prior to the
close of the New York Stock Exchange ("NYSE"), which is generally 4:00 p.m.
Eastern Time (and which is hereinafter referred to as "NYSE Close") on any
business day of an AIM Fund will be confirmed at the price next determined.
Orders received after NYSE Close will be confirmed at the price determined on
the next business day of the AIM Fund. It is the responsibility of the dealer to
ensure that all orders are transmitted on a timely basis to the Transfer Agent.
Any loss resulting from the dealer's failure to submit an order within the
prescribed time frame will be borne by that dealer. Please see "How to Purchase
Shares -- Purchases by Wire" for information on obtaining a reference number for
wire orders, which will facilitate the handling of such orders and ensure prompt
credit to an investor's account. A "business day" of an AIM Fund is any day on
which the NYSE is open for business. It is expected that the NYSE will be closed
during the next twelve months on Saturdays and Sundays and on the days on which
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
are observed by the NYSE.
An investor who uses a check to purchase shares will be credited with the full
number of shares purchased at the time of receipt of the purchase order, as
previously described. However, in the event of a redemption or exchange of such
shares, the investor may be required to wait up to ten business days before the
redemption proceeds are sent. This delay is necessary in order to ensure that
the check has cleared. If the check does not clear, or if any investment order
must be cancelled due to nonpayment, the investor will be responsible for any
resulting loss to an AIM Fund or to AIM Distributors.
SPECIAL INFORMATION RELATING TO MULTIPLE CLASS FUNDS. The Multiple Class Funds
currently offer two or more classes of shares through separate distribution
systems (the "Multiple Distribution System"). Although each class of shares of a
particular Multiple Class Fund represents an interest in the same portfolio of
investments, each class is subject to a different distribution structure and, as
a result, differing expenses. This Multiple Distribution System allows investors
to select the class that is best suited to the investor's needs and objectives.
In considering the options afforded by the Multiple Distribution System,
investors should consider both the applicable initial sales charge or contingent
deferred sales charge, as well as the ongoing expenses borne by each class of
shares and other relevant factors, such as whether his or her investment goals
are long-term or short-term.
CLASS A SHARES are sold subject to the initial sales charges described
above and are subject to the other fees and expenses described herein.
Class A shares of AIM MONEY MARKET FUND are designed to meet the needs of
an investor who wishes to establish a dollar cost averaging program,
pursuant to which Class A shares an investor owns may be exchanged at net
asset value for Class A shares of another Multiple Class Fund or shares of
another AIM Fund which is not a Multiple Class Fund, subject to the terms
and conditions described under the caption "Exchange Privilege -- Terms and
Conditions of Exchanges."
CLASS B SHARES are sold without an initial sales charge. Thus, the entire
purchase price of Class B shares is immediately invested in Class B shares.
Class B shares are subject, however, to Rule 12b-1 Plan payments of 1.00%
per annum on the average daily net assets of a Multiple Class Fund
attributable to Class B shares. See the discussion under the caption
"Management -- Distribution Plans." In addition, Class B shares redeemed
within six years from the date such shares were purchased are subject to a
contingent deferred sales charge ranging from 5% for redemptions made
within the first year to 1% for redemptions made within the sixth year. No
contingent deferred sales charge will be imposed if Class B shares are
redeemed after six years from the date such shares were purchased.
Redemptions of Class B shares and associated charges are further described
under the caption "How to Redeem Shares -- Multiple Distribution System."
Class B shares will automatically convert into Class A shares of the same
Multiple Class Fund (together with a pro rata portion of all Class B shares
acquired through the reinvestment of dividends and distributions) eight
years from the end of the calendar month in which the purchase of Class B
shares was made. Following such conversion of their Class B shares,
investors will be relieved of the higher Rule 12b-1 Plan payments
associated with Class B shares. See "Management -- Distribution Plans."
CLASS C SHARES are sold without an initial sales charge. Thus the entire
purchase price of Class C shares is immediately invested in Class C shares.
Class C shares are subject, however, to Rule 12b-1 Plan payments of 1.00%
per annum on the average daily net assets of a Multiple Class Fund
attributable to Class C shares. See the discussion under the caption
"Management -- Distribution Plans." In addition, Class C shares redeemed
within one year from the date such shares were purchased are subject to a
1.00% contingent deferred sales charge. No contingent deferred sales charge
will be imposed if Class C shares are redeemed after one year from the date
such shares were purchased. Redemptions of Class C shares and associated
charges are further described under the caption "How to Redeem
Shares -- Multiple Distribution System."
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; however, they are subject to the other fees and expenses described
in the prospectus for AIM MONEY MARKET FUND.
TIMING OF PURCHASE, EXCHANGE AND REDEMPTION ORDERS (AIM MONEY MARKET FUND
ONLY). Orders for purchases, exchanges and redemptions of shares of AIM MONEY
MARKET FUND received prior to 12:00 noon Eastern Time or NYSE Close on any
business day of the Fund will be confirmed at the price next determined. Net
asset value is normally determined at 12:00 noon Eastern Time and NYSE Close on
each business day of AIM MONEY MARKET FUND.
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SPECIAL INFORMATION RELATING TO AIM MONEY MARKET FUND AND AIM TAX-EXEMPT CASH
FUND (THE "MONEY MARKET FUNDS"). Because each Money Market Fund uses the
amortized cost method of valuing the securities it holds and rounds its per
share net asset value to the nearest whole cent, it is anticipated that the net
asset value of the shares of such funds will remain constant at $1.00 per share.
However, there is no assurance that each Money Market Fund can maintain a $1.00
net asset value per share. In order to earn dividends with respect to AIM MONEY
MARKET FUND on the same day that a purchase is made, purchase payments in the
form of federal funds must be received by the Transfer Agent before 12:00 noon
Eastern Time on that day. Purchases made by payments in any other form, or
payments in the form of federal funds received after such time but prior to NYSE
Close, will begin to earn dividends on the next business day following the date
of purchase. The Money Market Funds generally will not issue share certificates
but will record investor holdings in noncertificate form and regularly advise
the shareholder of his ownership position.
SHARE CERTIFICATES. Share certificates for all AIM Funds will be issued upon
written request by a shareholder to AIM Distributors or the Transfer Agent.
Otherwise, such shares will be held on the shareholder's behalf by the
applicable AIM Fund(s) and be recorded on the books of such fund(s). See
"Exchange Privilege -- Exchanges by Telephone" and "How to Redeem
Shares -- Redemptions by Telephone" for restrictions applicable to shares issued
in certificate form. Please note that certificates will not be issued for shares
held in prototype retirement plans.
MINIMUM ACCOUNT BALANCE. If (1) an account opened in a fund has been in effect
for at least one year and the shareholder has not made an additional purchase in
that account within the preceding six calendar months and (2) the value of such
account drops below $500 for three consecutive months as a result of redemptions
or exchanges, the fund has the right to redeem the account, after giving the
shareholder 60 days' prior written notice, unless the shareholder makes
additional investments within the notice period to bring the account value up to
$500. If a fund determines that a shareholder has provided incorrect information
in opening an account with a fund or in the course of conducting subsequent
transactions with the fund related to such account, the fund may, in its
discretion, redeem the account and distribute the proceeds of such redemption to
the shareholder.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charge tables
(quantity discounts) apply to purchases of shares of the AIM Funds that are
otherwise subject to an initial sales charge, provided that such purchases are
made by a "purchaser" as hereinafter defined. Purchases of Class A shares of AIM
TAX-EXEMPT CASH FUND, 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, Roth 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"), a Savings Incentive Match
Plans for Employees IRA ("SIMPLE IRA") where the employer has notified AIM
Distributors in writing that all of its related employee SEP, SARSEP or
SIMPLE IRA accounts should be linked;
- 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 vir-
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tue of the foregoing definition, to the reduced sales charge. No person or
entity may distribute shares of the AIM Funds without payment of the applicable
sales charge other than to persons or entities who qualify for a reduction in
the sales charge as provided herein.
(1) LETTERS OF INTENT. A purchaser, as previously defined, may pay reduced
initial sales charges by completing the appropriate section of the account
application and by fulfilling a Letter of Intent ("LOI"). The LOI privilege is
also available to holders of the Connecticut General Guaranteed Account,
established for tax qualified group annuities, for contracts purchased on or
before June 30, 1992. The LOI confirms such purchaser's intention as to the
total investment to be made in shares of the AIM Funds (except for
(i) Class A shares of AIM TAX-EXEMPT CASH FUND, and AIM Cash Reserve Shares of
AIM MONEY MARKET FUND and (ii) Class B and Class C shares of the Multiple Class
Funds) within the following 13 consecutive months. By marking the LOI section on
the account application and by signing the account application, the purchaser
indicates that he understands and agrees to the terms of the LOI and is bound by
the provisions described below.
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI. At any time during the 13-month
period after meeting the original obligation, a purchaser may revise his
intended investment amount upward by submitting a written and signed request.
Such a revision will not change the original expiration date. By signing an LOI,
a purchaser is not making a binding commitment to purchase additional shares,
but if purchases made within the 13-month period do not total the amount
specified, the investor will pay the increased amount of sales charge as
described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The Transfer Agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the initial
purchase (or subsequent purchases if necessary) the Transfer Agent will escrow
in the form of shares an appropriate dollar amount (computed to the nearest full
share). All dividends and any capital gain distributions on the escrowed shares
will be credited to the purchaser. All shares purchased, including those
escrowed, will be registered in the purchaser's name. If the total investment
specified under this LOI is completed within the 13-month period, the escrowed
shares will be promptly released. If the intended investment is not completed,
the purchaser will pay the Transfer Agent the difference between the sales
charge on the specified amount and the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration date, he
irrevocably constitutes and appoints the Transfer Agent as his attorney to
surrender for redemption any or all shares, to make up such difference within 60
days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes to
cancel the agreement, he must give written notice to AIM Distributors. If at any
time before completing the LOI Program the purchaser requests the Transfer Agent
to liquidate or transfer beneficial ownership of his total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
(2) RIGHTS OF ACCUMULATION. A "purchaser," as previously defined, may also
qualify for reduced initial sales charges based upon such purchaser's existing
investment in shares of any of the AIM Funds (except for (i) Class A shares of
AIM TAX-EXEMPT CASH FUND and AIM Cash Reserve Shares of AIM MONEY MARKET FUND
and (ii) Class B and Class C shares of the Multiple Class Funds) at the time of
the proposed purchase. Rights of Accumulation are also available to holders of
the Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992. To determine
whether or not a reduced initial sales charge applies to a proposed purchase,
AIM Distributors takes into account not only the money which is invested upon
such proposed purchase, but also the value of all shares of the AIM Funds
(except for (i) Class A shares of AIM TAX-EXEMPT CASH FUND and AIM Cash Reserve
Shares of AIM MONEY MARKET FUND and (ii) Class B and Class C shares of the
Multiple Class Funds) owned by such purchaser, calculated at their then current
public offering price. If a purchaser so qualifies for a reduced sales charge,
the reduced sales charge applies to the total amount of money then being
invested by such purchaser and not just to the portion that exceeds the
breakpoint above which a reduced sales charge applies. For example, if a
purchaser already owns qualifying shares of any AIM Fund with a value of $20,000
and wishes to invest an additional $20,000 in a fund with a maximum 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,
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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; (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; and (i) employees of
Triformis Inc.
In addition, shares of any AIM Fund may be purchased at net asset value,
without payment of a sales charge, by pension, profit-sharing or other employee
benefit plans created pursuant to a plan qualified under Section 401 of the Code
or plans under Section 457 of the Code, or employee benefit plans created
pursuant to Section 403(b) of the Code and sponsored by nonprofit organizations
defined under Section 501(c)(3) of the Code. Such plans will qualify for
purchases at net asset value provided that (1) the total amount invested in the
plan is at least $1,000,000, (2) the sponsor signs a $1,000,000 LOI, (3) such
shares are purchased by an employer-sponsored plan with at least 100 eligible
employees, or (4) all of the plan's transactions are executed through a single
financial institution or service organization who has entered into an agreement
with AIM Distributors with respect to their use of the AIM Funds in connection
with such accounts. Section 403(b) plans sponsored by public educational
institutions will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees.
Participants in such plans will be eligible for reduced sales charges based
solely on the aggregate value of their individual investments in the applicable
AIM Fund. PLEASE NOTE THAT TAX-EXEMPT FUNDS ARE NOT APPROPRIATE INVESTMENTS FOR
SUCH PLANS. AIM Distributors may pay investment dealers or other financial
service firms for share purchases of the Load Funds (as defined on page A-10
herein) sold at net asset value to an employee benefit plan in accordance with
this paragraph as follows: 1% of the first $2 million of such purchases, plus
0.80% of the next $1 million of such purchases, plus 0.50% of the next $17
million of such purchases, plus 0.25% of amounts in excess of $20 million of
such purchases and up to 0.10% of the net asset value of any Class A shares of
AIM LIMITED MATURITY TREASURY FUND sold at net asset value to an employee
benefit plan in accordance with this paragraph.
Class A shares of AIM WEINGARTEN FUND and AIM CONSTELLATION FUND may be
deposited at net asset value, without payment of a sales charge, in G/SET series
unit investment trusts, whose portfolios consist exclusively of Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND and stripped United States
Treasury issued notes or bonds bearing no current interest ("Treasury
Obligations"). Class A shares of such funds may also be purchased at net asset
value by other unit investment trusts approved by the Board of Directors of AIM
Equity Funds, Inc. Unit holders of such trusts may elect to invest cash
distributions from such trusts in Class A shares of AIM WEINGARTEN FUND or AIM
CONSTELLATION FUND at net asset value, including: (a) distributions of any
dividend income or other income received by such trusts; (b) distributions of
any net capital gains received in respect of Class A shares of AIM WEINGARTEN
FUND or AIM CONSTELLATION FUND and proceeds of the sale of Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND used to redeem units of such trusts;
and (c) proceeds from the maturity of the Treasury Obligations at the
termination dates of such trusts. Prior to the termination dates of such trusts,
a unit holder may invest the proceeds from the redemption or repurchase of his
units in Class A shares of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND at net
asset value, provided: (a) that the investment in Class A shares of AIM
WEINGARTEN FUND or AIM CONSTELLATION FUND is effected within 30 days of such
redemption or repurchase; and (b) that the unit holder or his dealer provides
AIM Distributors with a letter which: (i) identifies the name, address and
telephone number of the dealer who sold to the unit holder the units to be
redeemed or repurchased; and (ii) states that the investment in Class A shares
of AIM WEINGARTEN FUND or AIM CONSTELLATION FUND is being funded exclusively by
the proceeds from the redemption or repurchase of units of such trusts.
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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 shares which are not subject to a contingent deferred sales charge, can
arrange for monthly, quarterly or annual amounts (but not less than $50) to be
drawn against the balance of his account in the designated AIM Fund.
Shareholders who own shares subject to a contingent deferred sales charge, can
only arrange for monthly or quarterly withdrawals under a Systematic Withdrawal
Plan. Payment of this amount can be made on any day of the month the shareholder
specifies, except the thirtieth or thirty-first day of each month in which a
payment is to be made. A minimum account balance of $5,000 is required to
establish a Systematic Withdrawal Plan, but there is no requirement thereafter
to maintain any minimum investment. With respect to shares subject to a
contingent deferred sales charge (all classes) no contingent deferred sales
charge will be imposed on withdrawals made under a Systematic Withdrawal Plan,
provided that the amounts withdrawn under such a plan do not exceed on an annual
basis 12% of the account value at the time the shareholder elects to participate
in the Systematic Withdrawal Plan. Systematic Withdrawal Plans with respect to
shares subject to a contingent deferred sales charge that exceed on an annual
basis 12% of such account will be subject to a contingent deferred sales charge
on the amounts exceeding 12% of the account value at the time the shareholder
elects to participate in the Systematic Withdrawal Plan.
Under a Systematic Withdrawal Plan, all shares are to be held by the Transfer
Agent and all dividends and distributions are reinvested in shares of the
applicable AIM Fund by the Transfer Agent. To provide funds for payments made
under the Systematic Withdrawal Plan, the Transfer Agent redeems sufficient full
and fractional shares at their net asset value in effect at the time of each
such redemption.
Payments under a Systematic Withdrawal Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of shares
(other than Class B or Class C Shares of the Multiple Class Funds and AIM Cash
Reserve Shares of AIM MONEY MARKET 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 regular systematic
investments may establish an Automatic Investment Plan. Under this plan
withdrawal is made on the shareholder's bank account in the amount specified by
the shareholder (minimum $50 per investment, per account) and on a day or
date(s) specified by the shareholder. The proceeds are invested in shares of the
designated AIM Fund at the applicable offering price determined on the date of
the withdrawal. 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
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<PAGE> 37
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 HIGH INCOME
MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM
TAX-EXEMPT CASH 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; Roth IRA plans;
SARSEP plans; SEP plans; and SIMPLE IRA plans (collectively, "retirement
accounts"). Information concerning these plans, including the custodian's fees
and the forms necessary to adopt such plans, can be obtained by calling or
writing the AIM Funds or AIM Distributors. Shares of the AIM Funds are also
available for investment through existing 401(k) plans (for both individuals and
employers) adopted under the Code. The plan custodian currently imposes an
annual $10 maintenance fee with respect to each retirement account for which it
serves as the custodian. This fee is generally charged in December. Each AIM
Fund and/or the custodian reserve the right to change this maintenance fee and
to initiate an establishment fee (not to exceed its cost).
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- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
TERMS AND CONDITIONS OF EXCHANGES. Shareholders of the AIM Funds may
participate in an exchange privilege as described below. The exchange privilege
is also available to holders of the Connecticut General Guaranteed Account,
established for tax-qualified group annuities, for contracts purchased on or
before June 30, 1992. AIM Distributors acts as distributor for the AIM Funds,
which represent a range of different investment objectives and policies. As set
forth under the caption "Terms and Conditions of Purchase of the AIM
Funds -- Sales Charges and Dealer Concessions," shares of certain of the AIM
Funds, including the Class A shares of the Multiple Class Funds, listed below
and referred to herein as the "Load Funds," are sold at a public offering price
that includes a maximum sales charge of 5.50% or 4.75% of the public offering
price of such shares; Class A shares (or shares which normally involve the
payment of initial sales charges) of certain of the AIM Funds, listed below and
referred to herein as the "Lower Load Funds," are sold at a public offering
price that includes a maximum sales charge of 1.00% of the public offering price
of such shares; and Class A shares or shares of certain other funds, listed
below and referred to herein as the "No Load Funds," are sold at net asset
value, without payment of a sales charge.
<TABLE>
<S> <C> <C>
LOAD FUNDS: LOWER LOAD FUNDS:
AIM ADVISOR FLEX FUND -- AIM GLOBAL GROWTH AIM LIMITED MATURITY TREASURY FUND
CLASS A FUND -- CLASS A -- CLASS A
AIM ADVISOR INTERNATIONAL AIM GLOBAL INCOME AIM TAX-FREE INTERMEDIATE FUND
VALUE FUND -- CLASS A FUND -- CLASS A -- CLASS A
AIM ADVISOR LARGE CAP AIM GLOBAL UTILITIES NO LOAD FUNDS:
VALUE FUND -- CLASS A FUND -- CLASS A
AIM ADVISOR MULTIFLEX AIM GROWTH FUND -- CLASS A AIM MONEY MARKET FUND
FUND -- CLASS A AIM HIGH INCOME MUNICIPAL -- AIM CASH RESERVE SHARES
AIM ADVISOR REAL ESTATE FUND -- CLASS A AIM TAX-EXEMPT CASH FUND -- CLASS A
FUND -- CLASS A AIM HIGH YIELD FUND -- CLASS A
AIM AGGRESSIVE GROWTH AIM INCOME FUND -- CLASS A
FUND -- CLASS A AIM INTERMEDIATE GOVERNMENT
AIM ASIAN GROWTH FUND -- CLASS A FUND -- CLASS A
AIM BALANCED FUND -- CLASS A AIM INTERNATIONAL EQUITY
AIM BLUE CHIP FUND -- CLASS A FUND -- CLASS A
AIM CAPITAL DEVELOPMENT AIM MONEY MARKET
FUND -- CLASS A FUND -- CLASS A
AIM CHARTER FUND -- CLASS A AIM MUNICIPAL BOND
AIM CONSTELLATION FUND -- CLASS A
FUND -- CLASS A AIM TAX-EXEMPT BOND FUND
AIM EUROPEAN DEVELOPMENT OF CONNECTICUT -- CLASS A
FUND -- CLASS A AIM VALUE FUND -- CLASS A
AIM GLOBAL AGGRESSIVE GROWTH AIM WEINGARTEN FUND -- CLASS A
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 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 may be exchanged for Class A shares, (iv) Class B
shares may be exchanged only for Class B shares; (v) Class C shares may only be
exchanged for Class C shares; and (vi) AIM Cash Reserve Shares of AIM MONEY
MARKET FUND may not be exchanged for Class A shares of AIM MONEY MARKET FUND or
for Class B or Class C shares.
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DEPENDING UPON THE FUND FROM WHICH AND INTO WHICH AN EXCHANGE IS BEING MADE,
SHARES BEING ACQUIRED IN AN EXCHANGE MAY BE ACQUIRED AT THEIR OFFERING PRICE OR
AT THEIR NET ASSET VALUE (WITHOUT PAYMENT OF A SALES CHARGE) AS SET FORTH IN THE
TABLE BELOW FOR SHARES INITIALLY PURCHASED PRIOR TO MAY 1, 1994:
<TABLE>
<CAPTION>
MULTIPLE CLASS FUNDS:
LOWER LOAD NO LOAD ------------------------------
FROM: TO: LOAD FUNDS FUNDS FUNDS CLASS B CLASS C
----- -------------- ----------------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Load Funds....... Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Lower Load Net Asset Value Net Asset Value Net Asset Value Not Applicable Not Applicable
Funds..........
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 Net Asset Value if shares were Net Asset Value Net Asset Value Not Applicable Not Applicable
Funds.......... acquired upon exchange of any
Load Fund. Otherwise, difference
in sales charge will apply.
No Load Funds.... Offering Price if No Load shares 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,
apply if No Load shares were Offering 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, Class B, or Class C 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
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<PAGE> 40
after NYSE Close will result in the redemption of shares at their net asset
value at NYSE Close on the next business day. See "Terms and Conditions of
Purchase of the AIM Funds -- Timing of Purchase, Exchange and Redemption Orders
(AIM MONEY MARKET FUND only)" for information regarding the timing of exchange
orders for AIM MONEY MARKET FUND. Normally, shares of an AIM Fund to be acquired
by exchange are purchased at their net asset value or applicable offering price,
as the case may be, determined on the date that such request is received, but
under unusual market conditions such purchases may be delayed for up to five
business days if it is determined that a fund would be materially disadvantaged
by an immediate transfer of the proceeds of the exchange. If a shareholder is
exchanging into a fund paying daily dividends (See "Dividends, Distributions and
Tax Matters -- Dividends and Distributions," below), and the release of the
exchange proceeds is delayed for the foregoing five-day period, such shareholder
will not begin to accrue dividends until the sixth business day after the
exchange. Shares purchased by check may not be exchanged until it is determined
that the check has cleared, which may take up to ten business days from the date
that the check is received. See "Terms and Conditions of Purchase of the AIM
Funds -- Timing of Purchase Orders."
In the event of unusual market conditions, AIM Distributors reserves the right
to reject any exchange request, if, in the judgment of AIM Distributors, the
number of requests or the total value of the shares that are the subject of the
exchange places a material burden on a fund. For example, the number of
exchanges by investment managers making market timing exchanges may be limited.
EXCHANGES BY MAIL. Investors exchanging their shares by mail should send a
written request to AFS. The request should contain the account registration and
account number, the dollar amount or number of shares to be exchanged, and the
names of the funds from which and into which the exchange is to be made. The
request should comply with all of the requirements for redemption by mail,
except those required for redemption of IRAs. See "How to Redeem Shares."
EXCHANGES BY TELEPHONE. Shareholders or their agents may request an exchange
by telephone. If a shareholder does not wish to allow telephone exchanges by any
person in his account, he should decline that option on the account application.
AIM Distributors has made arrangements with certain dealers and investment
advisory firms to accept telephone instructions to exchange shares between any
of the AIM Funds. AIM Distributors reserves the right to impose conditions on
dealers or investment advisors who make telephone exchanges of shares of the
funds, including the condition that any such dealer or investment advisor enter
into an agreement (which contains additional conditions with respect to
exchanges of shares) with AIM Distributors. To exchange shares by telephone, a
shareholder, dealer or investment advisor who has satisfied the foregoing
conditions must call AFS at (800) 959-4246. If a shareholder is unable to reach
AFS by telephone, he may also request exchanges by telegraph or use overnight
courier services to expedite exchanges by mail, which will be effective on the
business day received by the Transfer Agent as long as such request is received
prior to NYSE Close. The Transfer Agent and AIM Distributors will not be liable
for any loss, expense or cost arising out of any telephone exchange request that
they reasonably believe to be genuine, but may in certain cases be liable for
losses due to unauthorized or fraudulent transactions if they do not follow
reasonable procedures for verification of telephone transactions. Such
reasonable procedures may include recordings of telephone transactions
(maintained for six months), requests for confirmation of the shareholder's
Social Security Number and current address, and mailings of confirmations
promptly after the transaction.
EXCHANGES OF CLASS B AND CLASS C SHARES. A contingent deferred sales charge
will not be imposed in connection with exchanges among Class B shares or among
Class C shares. For purposes of determining a shareholder's holding period of
Class B or Class C shares in the calculation of the applicable contingent
deferred sales charge, the period of time during which Class B or Class C shares
were held prior to an exchange will be added to the holding period of the
applicable Class B or Class C shares acquired in an exchange.
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Shares of the AIM Funds may be redeemed directly through AIM Distributors or
through any dealer who has entered into an agreement with AIM Distributors. In
addition to the obligation of the fund(s) named on the cover page to redeem
shares, AIM Distributors also repurchases shares. Although a contingent deferred
sales charge may be applicable to certain redemptions, as described below, there
is no redemption fee imposed when shares are redeemed or repurchased; however,
dealers may charge service fees for handling repurchase transactions.
MULTIPLE DISTRIBUTION SYSTEM. Class B shares. Class B shares purchased under
the Multiple Distribution System may be redeemed on any business day of a
Multiple Class Fund at the net asset value per share next determined following
receipt of the redemption order, as described under the caption "Timing and
Pricing of Redemption Orders," less the applicable contingent deferred sales
charge shown in the table below. No deferred sales charge will be imposed (i) on
redemptions of Class B shares following six years from the date such shares were
purchased, (ii) on Class B shares acquired through reinvestments of dividends
and distributions attrib-
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<PAGE> 41
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 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).
Waivers. Contingent deferred sales charges on Class B and Class C shares will
be waived on redemptions (1) following the death or post-purchase disability, as
defined in Section 72(m)(7) of the Code, of a shareholder or a settlor of a
living trust (provided AIM Distributors is notified of such death or
post-purchase disability at the time of the redemption request and is provided
with satisfactory evidence of such death or post-purchase disability), (2) in
connection with certain distributions from individual retirement accounts,
custodial accounts maintained pursuant to Code Section 403(b), deferred
compensation plans qualified under Code Section 457 and plans qualified under
Code Section 401 (collectively, "Retirement Plans"), (3) pursuant to a
Systematic Withdrawal Plan, provided that amounts withdrawn under such plan do
not exceed on an annual basis 12% of the value of the shareholder's investment
in Class B or Class C shares at the time the shareholder elects to participate
in the Systematic Withdrawal Plan, (4) effected pursuant to the right of a
Multiple Class Fund to liquidate a shareholder's account if the aggregate net
asset value of shares held in the account is less than the designated minimum
account size described in the prospectus of such Multiple Class Fund, (5)
effected by AIM of its investment in Class B or Class C shares and (6) of Class
C shares where such investor's dealer of record, due to the nature of the
investor's account, notifies AIM Distributors prior to the time of investment
that the dealer waives the payment otherwise payable to the dealer described in
the fifth paragraph under the caption "Terms and Conditions of Purchase of the
AIM Funds -- All Groups of AIM Funds."
Waiver category (1) above applies only to redemptions of Class B or Class C
shares held at the time of death or initial determination of post-purchase
disability.
Waiver category (2) above applies only to redemptions resulting from:
(i) required minimum distributions to plan participants or
beneficiaries who are age 70-1/2 or older, and only with respect to that
portion of such distributions which does not exceed 12% annually of the
participant's or beneficiary's account value in a particular AIM Fund;
(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.
AAA 03/03
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<PAGE> 42
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 or AIM Cash Reserve Shares of AIM MONEY MARKET FUND which were acquired
through an exchange of shares which previously were subject to the 1% contingent
deferred sales charge will be credited with the period of time such exchanged
shares were held, and (ii) shares of any Load Fund which are subject to the 1%
contingent deferred sales charge and which were acquired through an exchange of
shares of a Lower Load Fund or a No Load Fund which previously were not subject
to the 1% contingent deferred sales charge will not be credited with the period
of time such exchanged shares were held. The charge will be waived in the
following circumstances: (1) redemptions of shares by employee benefit plans
("Plans") qualified under Sections 401 or 457 of the Code, or Plans created
under Section 403(b) of the Code and sponsored by nonprofit organizations as
defined under Section 501(c)(3) of the Code, where shares are being redeemed in
connection with employee terminations or withdrawals, and (a) the total amount
invested in a Plan is at least $1,000,000, (b) the sponsor of a Plan signs a
letter of intent to invest at least $1,000,000 in one or more of the AIM Funds,
or (c) the shares being redeemed were purchased by an employer-sponsored Plan
with at least 100 eligible employees; provided, however, that Plans created
under Section 403(b) of the Code which are sponsored by public educational
institutions shall qualify under (a), (b) or (c) above on the basis of the value
of each Plan participant's aggregate investment in the AIM Funds, and not on the
aggregate investment made by the Plan or on the number of eligible employees;
(2) redemptions of shares following the death or post-purchase disability, as
defined in Section 72(m)(7) of the Code, of a shareholder or a settlor of a
living trust; (3) redemptions of shares purchased at net asset value by private
foundations or endowment funds where the initial amount invested was at least
$1,000,000; (4) redemptions of shares purchased by an investor in amounts of
$1,000,000 or more where such investor's dealer of record, due to the nature of
the investor's account, notifies AIM Distributors prior to the time of
investment that the dealer waives the payments otherwise payable to the dealer
as described in the third paragraph under the caption "Terms and Conditions of
Purchase of the AIM Funds -- All Groups of AIM Funds"; and (5) pursuant to a
Systematic Withdrawal Plan, provided that amounts withdrawn under such plan do
not exceed on an annual basis 12% of the value of the shareholder's investment
in Class A shares at the time the shareholder elects to participate in the
Systematic Withdrawal Plan.
REDEMPTIONS BY MAIL. Redemption requests must be in writing and sent to the
Transfer Agent. Upon receipt of a redemption request in proper form, payment
will be made as soon as practicable, but in any event will normally be made
within seven days after receipt. However, in the event of a redemption of shares
purchased by check, the investor may be required to wait up to ten business days
before the redemption proceeds are sent. See "Terms and Conditions of Purchase
of the AIM Funds -- Timing of Purchase Orders."
Requests for redemption must include: (a) original signatures of each
registered owner exactly as the shares are registered; (b) the Fund and the
account number of shares to be redeemed; (c) share certificates, either properly
endorsed or accompanied by a duly executed stock power, for the shares to be
redeemed if such certificates have been issued and the shares are not in the
custody of the Transfer Agent; (d) signature guarantees, as described below; and
(e) any additional documents that may be required for redemption by
corporations, partnerships, trusts or other entities. The burden is on the
shareholder to inquire as to whether any additional documentation is required.
Any request not in proper form may be rejected and in such case must be renewed
in writing.
In addition to these requirements, shareholders who have invested in a fund to
establish an IRA, should include the following information along with a written
request for either partial or full liquidation of fund shares: (a) a statement
as to whether or not the shareholder has attained age 59-1/2; and (b) a
statement as to whether or not the shareholder elects to have federal income tax
withheld from the proceeds of the liquidation.
REDEMPTIONS BY TELEPHONE. Shareholders may request a redemption by telephone.
If a shareholder does not wish to allow telephone redemptions by any person in
his account, he should decline that option on the account application. The
telephone redemption feature can be used only if: (a) the redemption proceeds
are to be mailed to the address of record or transferred electronically or wired
to the pre-authorized bank account; (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 in the appropriate form if they reasonably believe such request to be gen-
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uine, but may in certain cases be liable for losses due to unauthorized or
fraudulent transactions if they do not follow reasonable procedures for
verification of telephone transactions. Such reasonable procedures may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transaction.
EXPEDITED REDEMPTIONS (AIM MONEY MARKET FUND ONLY). If a redemption order is
received prior to 11:30 a.m. Eastern Time, the redemption will be effective on
that day and AIM MONEY MARKET FUND will endeavor to transmit payment on that
same business day. If the redemption order is received after 11:30 a.m. and
prior to NYSE Close, the redemption will be made at the next determined net
asset value and payment will generally be transmitted on the next business day.
REDEMPTIONS BY CHECK (AIM TAX-EXEMPT CASH FUND 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
and the AIM Cash Reserve Shares of AIM MONEY MARKET FUND. This privilege does
not apply to retirement accounts or qualified plans. Checks may be drawn in any
amount of $250 or more. Checks drawn against insufficient shares in the account,
against shares held less than ten business days, or in amounts of less than the
applicable minimum will be returned to the payee. The payee of the check may
cash or deposit it in the same way as an ordinary bank check. When a check is
presented to the Transfer Agent for payment, the Transfer Agent will cause a
sufficient number of shares of such fund to be redeemed to cover the amount of
the check. Shareholders are entitled to dividends on the shares redeemed through
the day on which the check is presented to the Transfer Agent for payment.
TIMING AND PRICING OF REDEMPTION ORDERS. Shares of the various AIM Funds
(other than AIM MONEY MARKET FUND) are redeemed at their net asset value next
computed after a request for redemption in proper form (including signature
guarantees and other required documentation for written redemptions) is received
by the Transfer Agent, except that shares that are subject to a contingent
deferred sales charge, may be subject to the imposition of deferred sales
charges that will be deducted from the redemption proceeds. See "Multiple
Distribution System" and "Contingent Deferred Sales Charge Program for Large
Purchases." Orders for the redemption of shares received in proper form prior to
NYSE Close on any business day of an AIM Fund will be confirmed at the price
determined as of the close of that day. Orders received after NYSE Close will be
confirmed at the price determined on the next business day of an AIM Fund.
Redemptions of shares of AIM MONEY MARKET FUND received prior to 12:00 noon or
NYSE Close on any business day of the Fund will be confirmed at the price next
determined. It is the responsibility of the dealer to ensure that all orders are
transmitted on a timely basis. Any resulting loss from the dealer's failure to
submit a request for redemption within the prescribed time frame will be borne
by that dealer. Telephone redemption requests must be made by NYSE Close on any
business day of an AIM Fund and will be confirmed at the price determined as of
the close of that day. No AIM Fund will accept requests which specify a
particular date for redemption or which specify any special conditions.
Payment of the proceeds of redeemed shares is normally made 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 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 or electronic funds transfer 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
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the surety coverage amount indicated on the medallion. For information regarding
whether a particular institution or organization qualifies as an "eligible
guarantor institution," an investor should contact the Client Services
Department of AFS.
REINSTATEMENT PRIVILEGE (CLASS A SHARES ONLY). Within 90 days of a redemption,
a shareholder may invest all or part of the redemption proceeds in Class A
shares of any AIM 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 Class A shares of either AIM LIMITED MATURITY TREASURY
FUND or AIM TAX-FREE INTERMEDIATE FUND, the reinvested proceeds will be subject
to the difference in sales charge between the shares redeemed and the shares the
proceeds are reinvested in. The shareholder must ask the Transfer Agent for such
privilege at the time of reinvestment. A realized gain on the redemption is
taxable, and reinvestment may alter any capital gains payable. If there has been
a loss on the redemption and shares of the same fund are repurchased, all of the
loss may not be tax deductible, depending on the timing and amount reinvested.
Under the Code, if the redemption proceeds of fund shares on which a sales
charge was paid are reinvested in (or exchanged for) shares of another AIM Fund
at a reduced sales charge within 90 days of the payment of the sales charge, the
shareholder's basis in the fund shares redeemed may not include the amount of
the sales charge paid, thereby reducing the loss or increasing the gain
recognized from the redemption; however, the shareholder's basis in the fund
shares purchased will include the sales charge. Each AIM Fund may amend, suspend
or cease offering this privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation. This privilege may only be
exercised once each year by a shareholder with respect to each AIM Fund.
Shareholders who are assessed a contingent deferred sales charge in connection
with the redemption of Class A shares and who subsequently reinvest a portion or
all of the value of the redeemed shares in Class A shares of any AIM Fund within
90 days after such redemption may do so at net asset value if such privilege is
claimed at the time of reinvestment. Such reinvested proceeds will not be
subject to either a front-end sales charge at the time of reinvestment or an
additional contingent deferred sales charge upon subsequent redemption. In order
to exercise this reinvestment privilege, the shareholder must notify the
Transfer Agent of his or her intent to do so at the time of reinvestment. This
reinvestment privilege does not apply to Class B or Class C shares.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each AIM Fund is determined
as of 4:00 p.m. Eastern Time (12:00 noon Eastern Time and NYSE Close with
respect to AIM MONEY MARKET FUND), on each "business day" of a fund as
previously defined. In the event the NYSE closes early (i.e. before 4:00 p.m.
Eastern Time) on a particular day, the net asset value of an AIM Fund's share
will be determined as of the close of the NYSE on such day. For purposes of
determining net asset value per share, futures and options contracts generally
will be valued 15 minutes after the close of trading of the NYSE.The net asset
value per share is calculated by subtracting a class' liabilities from its
assets and dividing the result by the total number of class shares outstanding.
The determination of net asset value per share is made in accordance with
generally accepted accounting principles. Among other items, liabilities include
accrued expenses and dividends payable, and total assets include portfolio
securities valued at their market value, as well as income accrued but not yet
received. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the supervision of
the fund's officers and in accordance with methods which are specifically
authorized by its governing Board of Directors or Trustees. Short-term
obligations with maturities of 60 days or less, and the securities held by the
Money Market Funds, are valued at amortized cost as reflecting fair value. AIM
HIGH INCOME MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF
CONNECTICUT and AIM TAX-FREE INTERMEDIATE FUND value variable rate securities
that have an unconditional demand or put feature exercisable within seven days
or less at par, which reflects the market value of such securities.
Generally, trading in foreign securities, corporate bonds, U.S. Government
securities and money market instruments is substantially completed each day at
various times prior to the close of the NYSE. The values of such securities used
in computing the net asset value of an AIM Fund's shares are determined as of
such times. Foreign currency exchange rates are also generally determined prior
to the close of the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which the
values of the securities are determined and the close of the NYSE which will not
be reflected in the computation of an AIM Fund's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities will be valued at their fair value as determined in good faith
by or under the supervision of the Board of Directors or Trustees of the
applicable AIM Fund.
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- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
Each AIM Fund's policy regarding the payment of dividends and distributions is
set forth below.
<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
OF NET OF NET
DIVIDENDS FROM REALIZED REALIZED
NET INVESTMENT SHORT-TERM LONG-TERM
FUND INCOME CAPITAL GAINS CAPITAL GAINS
---- -------------- ------------- -------------
<S> <C> <C> <C>
AIM ADVISOR FLEX FUND..................... declared and paid quarterly quarterly annually
AIM ADVISOR INTERNATIONAL VALUE FUND...... declared and paid annually annually annually
AIM ADVISOR LARGE CAP VALUE FUND.......... declared and paid quarterly quarterly annually
AIM ADVISOR MULTIFLEX FUND................ declared and paid quarterly quarterly annually
AIM ADVISOR REAL ESTATE FUND.............. declared and paid quarterly quarterly annually
AIM AGGRESSIVE GROWTH FUND................ declared and paid annually annually annually
AIM ASIAN 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 DEVELOPMENT 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 INCOME MUNICIPAL FUND............ declared daily; paid monthly 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 FUND........ 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 FUND............ 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 (iii) dividends and distributions attributable
to Class A shares may not be reinvested in 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 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. Dividends on all 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
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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 HIGH INCOME MUNICIPAL FUND, AIM
MUNICIPAL BOND FUND, AIM TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT
CASH FUND, and AIM TAX-FREE INTERMEDIATE FUND (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 INTERNATIONAL VALUE FUND, AIM ADVISOR REAL ESTATE
FUND, AIM ASIAN GROWTH FUND, AIM EUROPEAN DEVELOPMENT FUND, AIM GLOBAL
AGGRESSIVE GROWTH FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL INCOME FUND, AIM HIGH
INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE
GOVERNMENT FUND, AIM INTERNATIONAL EQUITY FUND, AIM LIMITED MATURITY TREASURY
FUND, 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 FUND 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 and
return of capital distributions. Under applicable treaty law, residents of
treaty countries may qualify for a reduced rate of withholding or a withholding
exemption.
DISTRIBUTIONS MAY BE SUBJECT TO TREATMENT UNDER FOREIGN, STATE OR LOCAL TAX
LAWS THAT DIFFERS FROM THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED HEREIN.
ADDITIONAL INFORMATION ABOUT TAXES IS SET FORTH IN THE STATEMENT OF ADDITIONAL
INFORMATION.
TAX-EXEMPT FUNDS -- SPECIAL TAX INFORMATION. Shareholders will not be required
to include the "exempt-interest" portion of dividends paid by the Tax-Exempt
Funds in their gross income for federal income tax purposes. However,
shareholders will be required to report the receipt of exempt-interest dividends
and other tax-exempt interest on their federal income tax returns. Moreover,
exempt-interest dividends from the Tax-Exempt Funds may be subject to state
income taxes, may give rise to a federal alternative minimum tax liability, may
affect the amount of social security benefits subject to federal income tax, may
affect the deductibility of interest on certain indebtedness of the shareholder,
and may have other collateral federal income tax consequences. The Tax-Exempt
Funds may invest in Municipal Securities the interest on which will constitute
an item of tax preference and which therefore could give rise to a federal
alternative minimum tax liability for shareholders, and may invest up to 20% of
their net assets in such securities and
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<PAGE> 47
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
FUND -- 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 ASIAN GROWTH FUND, AIM EUROPEAN
DEVELOPMENT 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 HIGH INCOME
MUNICIPAL FUND, AIM MUNICIPAL BOND FUND, AIM LIMITED MATURITY TREASURY FUND, AIM
TAX-EXEMPT BOND FUND OF CONNECTICUT, AIM TAX-EXEMPT CASH FUND and AIM TAX-FREE
INTERMEDIATE FUND, for which The Bank of New York, 90 Washington Street, 11th
Floor, New York, New York 10286, serves as custodian. Chase Bank of Texas, N.A.,
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, LLP,
Philadelphia, Pennsylvania, serves as counsel to the AIM Funds and passes upon
legal matters.
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.
YEAR 2000 COMPLIANCE PROJECT. In providing services to the AIM Funds, AIM
Management and its subsidiaries rely on both internal software systems as well
as external software systems provided by third parties. Many software systems in
use today are unable to distinguish between the year 2000 from the year 1900.
This defect if not cured will likely adversely affect the services that AIM
Management, its subsidiaries and other service providers provide the AIM Funds
and their shareholders.
To address this issue, AIM Management and its subsidiaries, together with
independent technology consultants, are undertaking a comprehensive Year 2000
Compliance Project (the "Project"). The Project consists of three phases, namely
(i) inventorying every software application in use at AIM Management and its
subsidiaries, as well as remote, third party software systems on which AIM
Management and its subsidiaries rely, (ii) identifying those applications that
may not function properly after December 31, 1999, and (iii) correcting and
subsequently testing those applications that may not function properly after
December 31, 1999. Phases (i) and (ii) are complete and phase (iii) has
commenced. The Project is scheduled to be completed during the fourth quarter of
1998. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm Year 2000 compliance
upon installation.
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<PAGE> 48
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.
AAA 03/03
A-21
<PAGE> 49
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-AAF-02/98
B-1
<PAGE> 50
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. 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").
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 redemptions must be effected in writing by the investor (see the
applicable Fund's prospectus under the caption "How to Redeem
Shares -- Redemptions by Mail").
MCF-AAF-02/98
B-2
<PAGE> 51
[AIM LOGO APPEARS HERE] 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
950 Seventeenth Street, Suite 2500
Denver, Colorado 80202
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> 52
STATEMENT OF
ADDITIONAL INFORMATION
AIM ADVISOR FLEX 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, TX 77210-4739
OR BY CALLING (800) 347-4246
_____________________________
Statement of Additional Information Dated: March 3, 1998
Relating to the Prospectus Dated: March 3, 1998
<PAGE> 53
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Options on Futures Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risks as to Futures Contracts and Related Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Securities Issued on a When-Issued or Delayed Delivery Basis . . . . . . . . . . . . . . . . . . . . . . . . . 5
Swap Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Mortgage-Related Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PORTFOLIO SECURITIES LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Remuneration of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
AIM Funds Retirement Plan for Eligible Directors/Trustees . . . . . . . . . . . . . . . . . . . . . . . . . 16
Deferred Compensation Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
THE ADVISORY AND SUB-ADVISORY AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
OPERATING SERVICES AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
THE DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Class A and Class C Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Class B Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
DISTRIBUTIONS AND TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Federal Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Options, Futures and Foreign Currency Forward Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Swap Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Currency Fluctuations -- "Section 988" Gains or Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Investment in Passive Foreign Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Debt Securities Acquired at a Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
i
<PAGE> 54
<TABLE>
<S> <C>
Disposition of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Backup Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Other Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
General Brokerage Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Allocation of Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 28(e) Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Brokerage Commissions Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Computation of Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
The Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS
</TABLE>
ii
<PAGE> 55
INTRODUCTION
AIM Advisor Funds, Inc. (INVESCO Advisor Funds, Inc. prior to August
4, 1997) (the "Company") is a series mutual fund. The rules and regulations of
the United States Securities and Exchange Commission (the "SEC") require all
mutual funds to furnish prospective investors certain information concerning
the activities of the fund being considered for investment. This information,
which relates to the following portfolios of the Company: AIM ADVISOR FLEX
FUND (formerly, INVESCO Advisor Flex Portfolio), AIM ADVISOR INTERNATIONAL
VALUE FUND (formerly, INVESCO Advisor International Value Portfolio), AIM
ADVISOR LARGE CAP VALUE FUND (formerly, INVESCO Advisor Equity Portfolio), AIM
ADVISOR MULTIFLEX FUND (formerly, INVESCO Advisor MultiFlex Portfolio), and AIM
ADVISOR REAL ESTATE FUND (formerly, INVESCO Advisor Real Estate Portfolio)
(individually, a "Fund" and collectively, the "Funds"), is included in a
Prospectus, dated March 3, 1998 (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 five separate portfolios: AIM ADVISOR FLEX
FUND (the "Flex 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 Class A, Class B and Class C shares. This Statement of
Additional Information and the associated Prospectus relate solely to the
Funds.
Effective August 4, 1997, A I M Advisors, Inc. ("AIM" or "Advisor")
became the investment advisor for the Funds pursuant to an investment advisory
agreement with terms substantially identical to those of the company's prior
investment advisory contracts with INVESCO Services, Inc. ("ISI"). The
sub-advisors did not change other than the substitution of INVESCO Global Asset
Management Limited for INVESCO Capital Management, Inc. as sub-advisor to
INTERNATIONAL VALUE FUND.
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.
<PAGE> 56
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 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 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 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.
2
<PAGE> 57
COMBINED OPTION POSITIONS
Each 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 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 liquid assets, 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.
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
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<PAGE> 58
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. 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 may also use futures contracts to hedge the risk of changes in
the exchange rate of foreign currencies. A foreign currency futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a foreign currency at a specified price and time.
OPTIONS ON FUTURES CONTRACTS
Each 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.
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
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<PAGE> 59
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 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 liquid assets in an amount equal to the
when-issued commitment. If the market value of such securities declines,
additional liquid assets 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 liquid assets 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 liquid assets.
SWAP AGREEMENTS
Each 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
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<PAGE> 60
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 segregating
liquid assets, 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 "Distributions and Tax Information."
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 Fannie Mae (formerly, the Federal
National Mortgage Association ("FNMA") and 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
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<PAGE> 61
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 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 Funds 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.
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<PAGE> 62
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.
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.
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(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 and FLEX 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.
(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 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 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
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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.
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, FLEX FUND and REAL ESTATE FUND,
invest more than 10% of the value of the applicable Fund's total assets
directly in foreign securities, including unsponsored ADRs. Up to 25% of the
total assets of the LARGE CAP VALUE FUND and FLEX FUND may be invested in
securities of Canadian issuers and sponsored ADRs. The MULTIFLEX FUND may
invest up to 40% of total assets in securities of foreign issuers. Securities
of Canadian issuers and securities purchased by means of sponsored ADRs are not
subject to this 40% limitation. The INTERNATIONAL VALUE FUND may invest up to
100% of its total assets in securities of foreign issuers.
(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) Engage in arbitrage transactions.
PORTFOLIO SECURITIES LOANS
Each of the Funds 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 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
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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. Unless otherwise
indicated, the address of each director and officer is 11 Greenway Plaza, Suite
100, Houston, Texas 77046.
<TABLE>
<CAPTION>
Positions Held Principal Occupation During, At Least, the
Name, Address and Age with Registrant Past 5 Years
--------------------- --------------- ------------
<S> <C> <C>
*CHARLES T. BAUER (78) Director and Chairman of the Board of Directors,
Chairman A I M Management Group Inc., A I M Advisors,
Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M 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 (73) 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.
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<TABLE>
<CAPTION>
Positions Held Principal Occupation During, At Least, the
Name, Address and Age with Registrant Past 5 Years
--------------------- --------------- ------------
<S> <C> <C>
JACK FIELDS (45) Director Chief Executive Officer, Texana Global, Inc. (foreign trading company)
Jetero Plaza, Suite E Formerly, Member of the U. S. House of
8810 Will Clayton Parkway Representatives.
Humble, TX 77338
- --------------------------------------------------------------------------------------------------------------------------------
**CARL FRISCHLING (61) 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 (51) Director and Director, President and Chief Executive
President Officer, A I M Management Group Inc.;
Director and President, A I M Advisors, Inc.;
Director and Senior Vice President,
A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund
Services, Inc. and Fund Management Company;
Director, AMVESCAP PLC.
- --------------------------------------------------------------------------------------------------------------------------------
</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> 67
<TABLE>
<CAPTION>
Positions Held Principal Occupation During, At Least, the
Name, Address and Age with Registrant Past 5 Years
--------------------- --------------- ------------
<S> <C> <C>
JOHN F. KROEGER (73) 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).
- -----------------------------------------------------------------------------------------------------------------------------
LEWIS F. PENNOCK (55) 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 (58) 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
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 68
<TABLE>
<CAPTION>
Positions Held Principal Occupation During, At Least, the
Name, Address and Age with Registrant Past 5 Years
--------------------- --------------- ------------
<S> <C> <C>
***JOHN J. ARTHUR (53) Senior Vice Director, Senior Vice President and
President and Treasurer, A I M Advisors, Inc.; and Vice
Treasurer President and Treasurer, A I M Management
Group Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund
Services, Inc. and Fund Management Company.
- -----------------------------------------------------------------------------------------------------------------------------
GARY T. CRUM (50) Senior Vice Director and President, A I M Capital
President Management, Inc.; Director and Senior Vice
President, A I M Management Group Inc. and
A I M Advisors, Inc.; and Director,
A I M Distributors, Inc. and AMVESCAP PLC.
- -----------------------------------------------------------------------------------------------------------------------------
***CAROL F. RELIHAN (43) Senior Vice Director, Senior Vice President, General
President and Counsel and Secretary, A I M Advisors, Inc.;
Secretary Vice President, General Counsel and
Secretary, A I M Management Group Inc.;
Director, Vice President and General Counsel,
Fund Management Company; General Counsel and
Vice President, A I M Fund Services, Inc.;
and Vice President, A I M Capital Management,
Inc. and A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
DANA R. SUTTON (39) Vice President Vice President and Fund Controller,
and Assistant A I M Advisors, Inc.; and Assistant Vice
Treasurer President and Assistant Treasurer, Fund
Management Company.
- -----------------------------------------------------------------------------------------------------------------------------
ROBERT G. ALLEY (49) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
__________________________________
*** Mr. Arthur and Ms. Relihan are married to each other.
14
<PAGE> 69
<TABLE>
<CAPTION>
Positions Held Principal Occupation During, At Least, the
Name, Address and Age with Registrant Past 5 Years
--------------------- --------------- ------------
<S> <C> <C>
STUART W. COCO (42) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance
Officer, A I M Advisors, Inc., A I M Capital
Management, Inc., A I M Distributors, Inc.,
A I M Fund Services, Inc. and Fund Management
Company.
- -----------------------------------------------------------------------------------------------------------------------------
KAREN DUNN KELLEY (37) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
JONATHAN C. SCHOOLAR (36) Vice President Senior Vice President, A I M Capital
Management, Inc.; and Vice 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.
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.
15
<PAGE> 70
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.
Set forth below is information regarding compensation paid or accrued
for each director of the Company:
<TABLE>
<CAPTION>
TOTAL
RETIREMENT COMPENSATION
Estimated BENEFITS FROM ALL
COMPENSATION ACCRUED BY ALL AIM
Director FROM COMPANY(1) AIM FUNDS(2) FUNDS(3)
-------- --------------- -------------------------- -----------------------
<S> <C> <C> <C>
Charles T. Bauer $ 0 $ 0 $ 0
Bruce L. Crockett 3,736 67,774 84,000
Owen Daly II 3,736 103,542 84,000
Jack Fields 3,736 0 71,000
Carl Frischling(4) 3,736 96,520 84,000
Robert H. Graham 0 0 0
John F. Kroeger 3,607 94,132 82,500
Lewis F. Pennock 3,736 55,777 84,000
Ian W. Robinson 3,736 85,912 84,000
Louis S. Sklar 3,693 84,370 83,500
</TABLE>
________________
(1) The total amount of compensation deferred by all directors of the
Company during the period August 4, 1997, to December 31, 1997, including
interest earned thereon, was $14,712.
(2) During the period August 4, 1997, to December 31, 1997, the total
amount of expenses allocated to the Company in respect of such retirement
benefits was $9,486. Data reflects compensation for the calendar year ended
December 31, 1997.
(3) Each Director serves as director or trustee of the eleven registered
investments companies advised by AIM (comprised of over 45 portfolios). Data
reflect total compensation earned during the calendar year ended December 31,
1997. Does not include accrued retirement benefits or earnings on deferred
compensation.
16
<PAGE> 71
(4) The Company paid the law firm of Kramer, Levin, Naftalis & Frankel
$3,259 in legal fees for services provided to the Funds, during the period
August 4, 1997, to December 31, 1997. Mr. Frischling is a partner in such
firm.
AIM FUNDS RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Under the terms of the AIM Funds Retirement Plan for Eligible
Directors/Trustees (the "Plan"), each 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 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 the retainer amount
reflected below and various years of service. The estimated credited years of
service for Messrs. Crockett, Daly, Fields, Frischling, Kroeger, Pennock,
Robinson and Sklar are 10, 11, 0, 20, 20, 16, 10 and 8 years, respectively.
ESTIMATED BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
Number of Years of Service Annual Retainer
with the AIM Funds Paid by all
AIM Funds
<S> <C>
$80,000
10 $60,000
9 $54,000
8 $48,000
7 $42,000
6 $36,000
5 $30,000
</TABLE>
17
<PAGE> 72
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.
THE ADVISORY AND SUB-ADVISORY AGREEMENTS
The investment advisor to the Company is A I M Advisors, Inc., 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 and FLEX FUND is INVESCO
Capital Management, Inc., a Delaware corporation ("ICM"), which has its
principal office at 1315 Peachtree Street, N. E., Atlanta, Georgia 30309. ICM
also has an advisory office in Miami, 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 predominantly 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. IRAI was established in 1983
as a registered investment adviser and qualified professional asset manager.
As of December 31, 1997, IRAI's portfolio contained 124 properties totaling
over 35.5 million square feet of commercial real estate and 14,340 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's responsibilities include
analyzing global economic trends and establishing AMVESCAP PLC's global
investment asset allocation for AMVESCAP PLC affiliates.
ICM, IMR, IRAI and IGAM are indirect wholly owned subsidiaries of
AMVESCAP (formerly, AMVESCO PLC and INVESCO PLC). AMVESCAP, a publicly-traded
holding company that, through its subsidiaries, engages in the business of
investment management on an international basis, is one of the largest
independent investment management businesses in the world.
18
<PAGE> 73
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.
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").
Rule 18f-3 under the 1940 Act ("Rule 18f-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
has adopted a multiple class plan pursuant to Rule 18f-3, which provides that
advisory and operating services fees (see "Operating Services Agreement") are
expenses of a particular Fund and are not attributable to a particular class of
the Fund ("Fund Expenses") and, therefore, 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").
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.
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. 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 and
1.00% of the average net asset value of each of the MULTIFLEX FUND and
INTERNATIONAL VALUE 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.
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; 0.35% 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
19
<PAGE> 74
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 4, 1997, for an initial two-year period. Thereafter, the Agreements
will each continue in effect from year to year provided such continuance is
specifically 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, 1997, 1996 and 1995, the
aggregate amounts of the advisory fees paid to AIM (or INVESCO Services, Inc.,
the prior advisor) by the Funds, were as follows:
<TABLE>
<CAPTION>
Aug. 4 Jan. 1
to Dec. 31 to Aug. 3
Fund 1997* 1997 1996 1995
---- ------- -------- ---- ----
<S> <C> <C> <C> <C>
LARGE CAP VALUE FUND . . . . . $ 698,693 $ 486,185 $ 946,203 $ 725,315
FLEX FUND . . . . . . . . . . . 2,511,884 1,732,896 3,351,899 2,387,908
MULTIFLEX FUND . . . . . . . . 2,126,222 1,153,820 2,164,778 1,424,150
REAL ESTATE FUND . . . . . . . 229,632 90,122 102,386 13,012
INTERNATIONAL VALUE FUND . . . 536,578 272,940 314,843 24,906
</TABLE>
*Effective August 4, 1997, AIM became advisor to the Funds.
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. See "Operating Services
Agreement" below regarding expense limitations.
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
20
<PAGE> 75
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.
THE DISTRIBUTOR
Information concerning AIM Distributors and the continuous offering of
the Funds' shares is set forth in the Prospectus under the heading "How to
Purchase Shares" and "Terms and Conditions of Purchases" of the AIM Funds. 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
pursuant to the provisions of the Company's plans of distribution described
under "Distribution of Shares." Prior to August 4, 1997, INVESCO Services,
Inc. (the "Prior Distributor") was the principal underwriter of the Company.
The Company (on behalf of any class of any Fund) or AIM Distributors
may terminate the Distribution Agreements on sixty (60) days' written notice
without penalty. The Distribution Agreements will terminate automatically in
the event of their assignment. In the event the Class B shares Distribution
Agreement is terminated, AIM Distributors would continue to receive payments of
asset-based distribution fees in respect of the outstanding Class B shares
attributable to the distribution efforts of AIM Distributors; provided, however,
that a complete termination of the Class B Plan (as defined in such Plan) would
terminate all payments to AIM Distributors. Termination of the Class B Plan or
the Distribution Agreement for Class B shares would not affect the obligation
of a Fund and its Class B shareholders to pay contingent deferred sales charges.
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by AIM
Distributors for the period August 4, 1997 to December 31, 1997, and the amount
retained by the Prior Distributor for the period January 1, 1997 to August 3,
1997:
<TABLE>
<CAPTION>
JANUARY 1, 1997 AUGUST 4, 1997
TO TO
AUGUST 3, 1997 DECEMBER 31, 1997
-------------- -----------------
AMOUNT SALES AMOUNT
RETAINED CHARGES RETAINED
-------- ------- --------
<S> <C> <C> <C>
LARGE CAP VALUE FUND . . . . . . . . . $ 999 $ 50,144 $ 7,461
FLEX FUND . . . . . . . . . . . . . . . 6,860 80,657 11,729
MULTIFLEX FUND . . . . . . . . . . . . 7,203 200,181 30,382
REAL ESTATE FUND . . . . . . . . . . . 1,424 356,286 54,138
INTERNATIONAL VALUE FUND . . . . . . . 8,333 113,771 16,464
</TABLE>
The following chart reflects the contingent deferred sales charges paid
by Class A and Class C shareholders for the period August 4, 1997 to December
31, 1997, and the amount paid by Class C shareholders to the Prior Distributor
for the period January 1, 1997 to August 3, 1997:
<TABLE>
<CAPTION>
JANUARY 1, 1997 AUGUST 4, 1997
TO TO
AUGUST 3, 1997 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Large Cap Value Fund........................... $ 8,692 $ 570
Flex Fund...................................... 18,877 18,422
Multiflex Fund................................. 12,043 10,269
Real Estate Fund............................... 1,935 2,643
International Value Fund....................... 8,692 13,392
</TABLE>
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 with
respect to each Fund by the directors of the 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 Plan and Agreement of Distribution ("Distribution Plan") applicable to
Class C shares was approved by shareholders of the LARGE CAP VALUE FUND and
FLEX FUND. On November 8, 1993, the Distribution Plan
21
<PAGE> 76
applicable to Class C shares was approved by the sole shareholder of the
MULTIFLEX FUND. On April 10, 1995, the Distribution Plan applicable to Class C
shares was approved by the sole shareholder of each of the REAL ESTATE FUND and
INTERNATIONAL VALUE FUND. The Distribution Plan for Class A shares 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 Distribution Plan for Class A shares, effective January 1, 1997,
to convert the Distribution Plan to a compensation type Rule 12b-1 plan. This
amendment of the Distribution Plan did not result in increasing the amount of
any Fund's payments thereunder. The Master Distribution Plan for Class B
shares was approved by the board of directors of the Company at its September
20, 1997 Board meeting.
CLASS A AND CLASS C DISTRIBUTION PLAN. The Company has adopted a Plan and
Agreement of Distribution pursuant to Rule 12b-1 under the 1940 Act relating to
the Class A and Class C shares of the Funds (the "Class A and C Plan''). The
Class A and C 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 and 1.00% of the
average net assets attributable to Class C Shares. For both Class A and Class
C, shares, this expense includes the payment of 0.25% of average annual net
assets to broker-dealers and other qualifying financial institutions as a
"service fee" for providing account maintenance or personal service to existing
shareholders.
Under the Class A and C Plan, broker-dealers selling Company shares may
be paid fees for selling shares and maintaining Company assets. For Class A
shares, 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.
For Class C shares, 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 1.00% per annum, 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 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 B DISTRIBUTION PLAN. The Company has also adopted a Master Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares of
the Funds. Under the Class B Plan, the Funds pay compensation to AIM
Distributors at an annual rate of 1.00% of the average daily net assets
attributable to Class B shares. Of such amount, the Funds pay a service fee of
0.25% of the average daily net assets attributable to Class B shares to
selected dealers and other institutions which furnish continuing personal
shareholder services to their customers who purchase and own Class B shares.
Amounts paid in accordance with the Class B Plan may be used to finance any
activity primarily intended to result in the sale of Class B shares, including,
but not limited to, printing of prospectuses and statements of additional
information and reports for other than existing shareholders; overhead;
preparation and distribution of advertising material and sales literature;
expenses of organizing and conducting sales seminars; supplemental payments to
dealers and other institutions such as asset-based sales charges or as payments
of service fees under shareholder service arrangements; and costs of
administering the Class B Plan. AIM Distributors may transfer and sell its
right under the Class B Plan in order to finance distribution expenditures in
respect of Class B shares.
22
<PAGE> 77
BOTH PLANS. Pursuant to an incentive program, AIM Distributors may enter into
agreements ("Shareholder Service Agreements") with investment dealers selected
from time to time by AIM Distributors for the provision of distribution
assistance in connection with the sale of the Funds' shares to such dealers'
customers, and for the provision of continuing personal shareholder services to
customers who may from time to time directly or beneficially own shares of the
Funds. The distribution assistance and continuing personal shareholder services
to be rendered by dealers under the Shareholder Service Agreements may include,
but shall not be limited to, the following: distributing sales literature;
answering routine customer inquiries concerning the Funds; assisting customers
in changing dividend options, account designations and addresses, and in
enrolling in any of several special investment plans offered in connection with
the purchase of the Fund's shares; assisting in the establishment and
maintenance of customer accounts and records and in the processing of purchase
and redemption transactions; investing dividends and any capital gains
distributions automatically in the Fund's shares; and providing such other
information and services as the Funds or the customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements
authorizing payments to selected dealers, banks may enter into Shareholder
Service Agreements authorizing payments under the Plans to be made to banks
which provide services to their customers who have purchased shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding the Funds
and the Company; performing sub-accounting; establishing and maintaining
shareholder accounts and records; processing customer purchase and redemption
transactions; providing periodic statements showing a shareholder's account
balance and the integration of such statements with those of other transactions
and balances in the shareholder's other accounts serviced by the bank;
forwarding applicable prospectuses, proxy statements, reports and notices to
bank clients who hold shares of the Funds; and such other administrative
services as the Funds reasonably may request, to the extent permitted by
applicable statute, rule or regulation. Similar agreements may be permitted
under the Plans for institutions which provide recordkeeping for and
administrative services to 401(k) plans.
The Company may also enter into Variable Group Annuity Contractholder
Service Agreements ("Variable Contract Agreements") on behalf of the Funds
authorizing payments to selected insurance companies offering variable annuity
contracts to employers as funding vehicles for retirement plans qualified under
Section 401(a) of the Internal Revenue Code. Services provided pursuant to such
Variable Contract Agreements may include some or all of the following:
answering inquiries regarding the Fund and the Company; performing
sub-accounting; establishing and maintaining Contractholder accounts and
records; processing and bunching purchase and redemption transactions;
providing periodic statements of contract account balances; forwarding such
reports and notices to Contractholders relative to the Fund as deemed
necessary; generally, facilitating communications with Contractholders
concerning investments in a Fund on behalf of Plan participants; and performing
such other administrative services as deemed to be necessary or desirable, to
the extent permitted by applicable statute, rule or regulation to provide such
services.
Financial intermediaries and any other person entitled to receive
compensation for selling shares of the Funds may receive different compensation
for selling shares of one particular class over another.
Under a Shareholder Service Agreement, the Funds agree to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement generally will be calculated at the end of each payment
period for each business day of the Funds during such period at the annual rate
of 0.25% of the average daily net asset value of the Funds' shares purchased or
acquired through exchange. Fees calculated in this manner shall be paid only to
those selected dealers or other institutions who are dealers or institutions of
record at the close of
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<PAGE> 78
business on the last business day of the applicable payment period for the
account in which the Funds' shares are held.
The Plans are subject to any applicable limitations imposed from time
to time by rules of the National Association of Securities Dealers, Inc.
AIM Distributors does not act as principal, but rather as agent for
the Funds, in making dealer incentive and shareholder servicing payments under
the Plans. These payments are an obligation of the Funds and not of AIM
Distributors.
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.
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<PAGE> 79
An estimate by category of actual fees paid by each of the Funds under
the Plan for Class A shares for the period August 4, 1997 through December 31,
1997, were allocated as follows:
<TABLE>
<CAPTION>
LARGE CAP MULTIFLEX REAL INTERNATIONAL
VALUE FUND FLEX FUND FUND ESTATE FUND VALUE FUND
---------- --------- ---- ----------- -------------
<S> <C> <C> <C> <C> <C>
CLASS A
Advertising . . . . . $ 20 $ 247 $ 41 $ 5 $ 439
Printing and mailing
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders) . . . . . 2 16 3 1 21
Seminars . . . . . . . 0 44 0 1 0
Compensation to
Underwriters to partially
offset other marketing
expenses . . . . . . . 0 0 0 0 0
Compensation to
Dealers including
finder's fees . . . . . 3,047 19,474 5,696 7,460 6,070
Compensation to
Sales Personnel . . . . 0 0 0 0 0
Annual Report Total . . 3,069 19,781 5,740 7,467 6,530
</TABLE>
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<PAGE> 80
An estimate by category of actual fees paid by each of the Funds under the
Plan for Class C shares for the period August 4, 1997 through December 31,
1997, were allocated as follows:
<TABLE>
<CAPTION>
LARGE CAP MULTIFLEX REAL INTERNATIONAL
VALUE FUND FLEX FUND FUND ESTATE FUND VALUE FUND
---------- --------- ---- ----------- -------------
<S> <C> <C> <C> <C> <C>
CLASS C
Advertising . . . . . $58,378 $318,080 $292,003 $32,622 $76,215
Printing and mailing
prospectuses, semi-
annual reports and
annual reports
(other than to current
shareholders) . . . . . 5,076 26,952 24,521 2,727 6,555
Seminars . . . . . . . 9,401 52,080 44,073 5,050 9,932
Compensation to
Underwriters to partially
offset other marketing
expenses . . . . . . . 512,760 1,822,551 1,112,232 121,193 278,104
Compensation to
Dealers including
finder's fees . . . . . 98,064 210,405 10,147 0 0
Compensation to
Sales Personnel . . . . 0 0 0 0 0
Annual Report Total . . 683,679 2,430,068 1,482,976 161,592 370,806
</TABLE>
For the fiscal year ended December 31, 1997, each Fund paid the Prior
Distributor and AIM Distributors the following amounts with respect to each
class of shares under the Distribution Plans:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS C SHARES
----------------------------------------- -----------------------------------
PRIOR AIM PRIOR AIM
DISTRIBUTOR(1) DISTRIBUTORS(2) DISTRIBUTOR(1) DISTRIBUTORS(2)
<S> <C> <C> <C> <C>
LARGE CAP VALUE FUND . . . . . . . $ 823 $ 3,069 $ 880,591 $ 683,679
FLEX FUND . . . . . . . . . . . . . 5,072 19,781 3,130,225 2,430,068
MULTIFLEX FUND . . . . . . . . . . 2,066 5,740 1,766,758 1,482,976
REAL ESTATE FUND . . . . . . . . . 1,145 7,467 159,285 161,592
INTERNATIONAL VALUE FUND . . . . . 1,276 6,530 407,798 370,806
</TABLE>
(1) For the period January 1, 1997 to August 3, 1997
(2) For the period August 4, 1997 to December 31, 1997
Class B shares had not commenced operation as of December 31, 1997.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
It is the intention of each of the Funds 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 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
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<PAGE> 81
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 distribute 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.
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. (See "Special Plans- Automatic Dividend Investment Plan" in
the Prospectus.)
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; and (b) 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. For purposes of excise tax, a
fund (1) shall offset a net ordinary loss (but not below the net capital gain)
for any calendar year in determining its capital gain net income for the
one-year period ending on October 31 of such calendar year and (2) exclude
foreign currency gains and losses incurred after October 31 of any year in
determining the amount of ordinary taxable income for the current calendar year
(and instead, to include gains and losses in the succeeding year). To avoid
application of the
27
<PAGE> 82
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 (taxable at 20%)
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 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.
Transactions that may be engaged in by certain of the Funds (such as
short sales "against the box", offsetting notional principal contracts or
futures or forward contracts) may be treated as "constructive sales" which
would require the Fund to recognize gain on any "appreciated financial
position" as if they were sold, assigned, or otherwise terminated at their fair
market value on the date of such transactions sale (and to take into account
any gain in the taxable year which includes such date).
Because application of any of the foregoing rules governing Section
1256 contracts, constructive sales and straddles may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected investment or 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.
SWAP AGREEMENTS
Each 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
( the "IRS") 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
28
<PAGE> 83
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 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 one such election (the "QEF Election") 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. For taxable years beginning after
December 31, 1997, each Fund will alternatively be able to make an election to
mark any shares of PFIC stock that it holds to market (the "Section 1296
Election"). If the Section 1296 Election is made with respect to any PFIC
stock, a Fund will recognize ordinary income to the extent that the fair market
value of such PFIC stock at the close of any taxable year exceeds its adjusted
basis and will also recognize ordinary income in the event that it disposes of
any shares of such PFIC stock at a gain. In each case, such ordinary income
will be treated as dividend income for purposes of the Income Requirement. A
Fund making the Section 1296 Election with respect to any PFIC stock will
similarly recognize a deductible ordinary loss to the extent that the adjusted
basis of such PFIC stock exceeds its fair market value at the close of any
taxable year and will also recognize a deductible ordinary loss in the event
that it disposes of such PFIC stock at a loss. However, the amount of any
ordinary loss recognized by a Fund making a Section 1296 Election with respect
to any PFIC stock may not exceed the amount of ordinary income previously
recognized by such Fund by reason of marking such PFIC stock to market. If
either the QEF Election or the Section 1296 Election is made, the special
rules, discussed above, relating to the taxation of excess distributions, would
not apply. A Fund's intention to qualify annually as a regulated investment
company may limit its ability to invest and hold PFIC shares.
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<PAGE> 84
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 amount, 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.
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 in accordance with the guidance that has been provided
by the IRS.
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.
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<PAGE> 85
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. 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. Except to the extent otherwise
provided in future Treasury regulations, any long-term capital gain recognized
by a non-corporate shareholder will be subject to tax at a maximum rate of 20%
if the shares sold or redeemed were held for more than 18 months. 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 than 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 IRS all distributions and
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 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 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.
31
<PAGE> 86
PORTFOLIO TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
The Advisor or sub-advisor make decisions to buy and sell securities for
each Fund, selects broker-dealers, effects the Funds' investment portfolio
transactions, allocates brokerage fees in such transactions, and where
applicable, negotiates commissions and spreads on transactions. AIM's primary
consideration in effecting a security transaction is to obtain the most
favorable execution of the order, which includes the best price on the security
and a low commission rate. While AIM seeks reasonably competitive commission
rates, the Funds may not pay the lowest commission or spread available. See
"Section 28(e) Standards" below.
Some of the securities in which the Funds invest are traded in
over-the-counter markets. In such transactions, a Fund deals directly with
dealers who make markets in the securities involved, except when better prices
are available elsewhere. Portfolio transactions placed through dealers who are
primary market makers are effected at net prices without commissions, but which
include compensation in the form of a mark up or mark down.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas
stock markets have adopted a system of negotiated rates, a number of markets
maintain an established schedule of minimum commission rates.
AIM may determine target levels of commission business with various
brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the broker; (2) the research
services provided by the broker; and (3) the broker's interest in mutual funds
in general and in the Funds and other mutual funds advised by AIM or A I M
Capital Management, Inc. (collectively, the "AIM Funds") in particular,
including sales of the Funds and of the other AIM Funds. In connection with
(3) above, the Funds' trades may be executed directly by dealers that sell
shares of the AIM Funds or by other broker-dealers with which such dealers have
clearing arrangements. AIM will not use a specific formula in connection with
any of these considerations to determine the target levels.
AIM will seek, whenever possible, to recapture for the benefit of a Fund
any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which AIM can recapture are
the soliciting dealer fees on the tender of a Fund's portfolio securities in a
tender or exchange offer.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of a Fund, provided the conditions of an exemptive order received by
the Funds from the SEC are met. In addition, a Fund may purchase or sell a
security from or to another AIM Fund provided the Funds follow procedures
adopted by the Board of Directors/Trustees of the various AIM Funds, including
the Company. These inter-fund transactions do not generate brokerage
commissions but may result in custodial fees or taxes or other related
expenses.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage several other investment accounts. Some
of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another Fund or one or more of these investment accounts.
However, the position of each account in the same securities and the length of
time that each account may hold its investment in the same securities may vary.
The timing and amount of purchase by each account will also be determined by
its cash position. If the purchase or sale of securities is consistent with
the investment policies of the Fund(s) and one or more of these accounts, and
is considered at or about the same time, AIM will fairly allocate transactions
in such securities among the Fund(s) and these accounts. AIM may combine such
transactions, in accordance with applicable laws and regulations, to obtain the
most favorable execution. Simultaneous transactions could, however, adversely
affect a Fund's ability to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Sometimes the procedure for allocating portfolio transactions among
the various investment accounts advised by AIM could have an adverse effect on
the price or amount of securities available to a Fund. In making such
allocations, AIM considers the investment objectives and policies of its
advisory clients, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the judgments of the persons
responsible for recommending the investment.
32
<PAGE> 87
SECTION 28(E) STANDARDS
Section 28(e) of the Securities Exchange Act of 1934 provides that AIM,
under certain circumstances, lawfully may cause an account to pay a higher
commission than the lowest available. Under Section 28(e), AIM must make a
good faith determination that the commissions paid are "reasonable in relation
to the value of the brokerage and research services provided ... viewed in
terms of either that particular transaction or AIM's overall responsibilities
with respect to the accounts as to which it exercises investment discretion."
The services provided by the broker also must lawfully and appropriately assist
AIM in the performance of its investment decision-making responsibilities.
Accordingly, in recognition of research services provided to it, a Fund may pay
a broker higher commissions than those available from another broker.
Research services received from broker-dealers supplement AIM's own
research (and the research of its affiliates), and may include the following
types of information: statistical and background information on the U.S. and
foreign economies, industry groups and individual companies; forecasts and
interpretations with respect to the U.S. and foreign economies, securities,
markets, specific industry groups and individual companies; information on
federal, state, local and foreign political developments; portfolio management
strategies; performance information on securities, indexes and investment
accounts; information concerning prices of securities; and information supplied
by specialized services to AIM and to the Company's directors with respect to
the performance, investment activities, and fees and expenses of other mutual
funds. Broker-dealers may communicate such information electronically, orally
or in written form. Research services may also include the providing of
custody services, as well as the providing of equipment used to communicate
research information, the providing of specialized consultations with AIM
personnel with respect to computerized systems and data furnished to AIM as a
component of other research services, the arranging of meetings with management
of companies, and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the
broker-dealers used by AIM tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, the research provides
AIM with a diverse perspective on financial markets. Research services
provided to AIM by broker-dealers are available for the benefit of all accounts
managed or advised by AIM or by its affiliates. Some broker-dealers may
indicate that the provision of research services is dependent upon the
generation of certain specified levels of commissions and underwriting
concessions by AIM's clients, including the Funds. However, the Funds are not
under any obligation to deal with any broker-dealer in the execution of
transactions in portfolio securities.
In some cases, the research services are available only from the
broker-dealer providing them. In other cases, the research services may be
obtainable from alternative sources in return for cash payments. AIM believes
that the research services are beneficial in supplementing AIM's research and
analysis and that they improve the quality of AIM's investment advice. The
advisory fee paid by the Funds is not reduced because AIM receives such
services. However, to the extent that AIM would have purchased research
services had they not been provided by broker-dealers, the expenses to AIM
could be considered to have been reduced accordingly.
BROKERAGE COMMISSIONS PAID
For the fiscal years ended December 31, 1997, 1996 and 1995, the LARGE
CAP VALUE FUND paid total brokerage commissions of , $75,469 and $86,189,
respectively. For the fiscal year ended December 31, 1997, AIM allocated certain
of Large Cap Value Fund's brokerage transactions to certain broker-dealers that
provide AIM with certain research, statistical and other information. Such
transactions amounted to $1,201,023 and the related commissions were $975. For
the fiscal years ended December 31, 1997,1996 and 1995, the FLEX FUND paid total
brokerage commissions of $166,653, $193,286 and $116,550, respectively. For the
fiscal year ended December 31, 1997, AIM allocated certain of Flex Fund's
brokerage transactions to certain broker-dealers that provide AIM with certain
research, statistical and other information. Such transactions amounted to
$4,809,270 and the related commissions were $10,000. For the fiscal years ended
December 31, 1997, 1996 and 1995, the MULTIFLEX FUND paid total brokerage
commissions of $455,949, $400,646 and $247,023, respectively. For the fiscal
year ended December 31, 1997, AIM allocated certain of MultiFlex Fund's
brokerage transactions to certain broker-dealers that provide AIM with certain
research, statistical and other information. Such transactions amounted to
$55,271,981 and the related commissions were $112,965. For the fiscal year ended
December 31, 1997, and the period ended December 31, 1996, the REAL ESTATE FUND
paid total brokerage commissions of $115,951 and $40,353, respectively. For the
fiscal year ended December 31, 1997, AIM allocated certain of Real Estate Fund's
brokerage transactions to certain broker-dealers that provide AIM with certain
research, statistical and other information. Such transactions amounted to
$12,026,555 and the related commissions were $26,500. For the fiscal year ended
December 31, 1997, and the period ended December 31, 1996, the INTERNATIONAL
VALUE FUND paid total brokerage commissions of $44,731 and $21,872,
respectively. For the fiscal year ended December 31, 1997, AIM allocated certain
of International Value Fund's brokerage transactions to certain broker-dealers
that provide AIM with certain research, statistical and other information. Such
transactions amounted to $791,500 and the related commissions were $900. The
REAL ESTATE FUND and INTERNATIONAL VALUE FUND commenced
33
<PAGE> 88
operations on May 1, 1995. There were no brokerage commissions paid to
affiliated broker-dealers during the fiscal years ended December 31, 1997, 1996
and 1995, by any of the Funds.
At December 31, 1997, 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, 1997
- ---- ---------------- --------------------
<S> <C> <C>
INTERNATIONAL VALUE FUND HSBC Securities, Inc. $ 2,465,067
Deutsche Bank Capital Corp. 2,472,130
Smith Barney Inc. 2,527,605
LARGE CAP VALUE FUND Dean Witter Reynolds 3,609,581
Smith Barney Inc. 4,839,870
FLEX FUND Dean Witter Reynolds 10,731,188
Smith Barney Inc. 3,519,858
MULTIFLEX FUND Bear Stearns & Co. Inc. 999,900
HSBC Securities, Inc. 1,972,054
Dean Witter Reynolds 878,006
Deutsche Bank Capital Corp. 2,118,969
Lehman Brothers Inc. 1,000,260
Smith Barney Inc. 17,376,851
REAL ESTATE FUND Smith Barney Inc. 3,915,909
</TABLE>
During the fiscal years ended December 31, 1997, 1996 and 1995, the
LARGE CAP VALUE FUND'S portfolio turnover rates were 34%, 19% and 17%,
respectively; the FLEX FUND'S portfolio turnover rates were 17%, 26%, and 5%,
respectively; and the MULTIFLEX FUND'S portfolio turnover rates were 62%, 62%
and 50%, respectively. For the fiscal years ended December 31, 1997 and 1996,
and the period ended December 31, 1995, the REAL ESTATE FUND'S portfolio
turnover rates were 57%, 25% and 7%, respectively. For the fiscal years ended
December 31, 1997 and 1996, and the period ended December 31, 1995, the
INTERNATIONAL VALUE FUND'S portfolio turnover rates were 9%, 5% and 2%,
respectively. The REAL ESTATE FUND and INTERNATIONAL VALUE FUND commenced
operations on May 1, 1995.
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 has made an election under Rule 18f-1 under the 1940 Act, which
obligates the Fund 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
ALL FUNDS
All Funds 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:
34
<PAGE> 89
<TABLE>
<S> <C>
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.
</TABLE>
For the 30-day period ended December 31, 1997, the yield for Class A
shares and Class C shares of REAL ESTATE FUND were 1.38% and 0.70%,
respectively.
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 short-term 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 yield for the 30-day period ended December 31, 1997, for
Class A shares and Class C shares of REAL ESTATE FUND were 2.80% and 2.10%,
respectively.
The distribution (including income and short-term capital gains
distributions) yield for the 365-day period ended December 31, 1997, for Class
A shares and Class C shares of REAL ESTATE FUND were 4.96% and 4.26%,
respectively.
Class B shares had not commenced operation as of December 31, 1997;
therefore, no yield information is available for the period ended December 31,
1997, as quoted above.
Total Return
Funds 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.
The average annual total return as of December 31, 1997, for Class A
shares of each of the following Funds for the periods listed below are as
follows:
35
<PAGE> 90
<TABLE>
<CAPTION>
Fund Since Inception*
---- ---------------
<S> <C>
LARGE CAP VALUE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.43%
FLEX FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.73%
MULTIFLEX FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.88%
REAL ESTATE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.11%
INTERNATIONAL VALUE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.58%
- ------------
</TABLE>
* From 01-01-97 (commencement of operations) (12 months).
The average annual total return as of December 31, 1997, for shares now
designated as Class C shares of each of the following Funds for the periods
listed below are as follows:
<TABLE>
<CAPTION>
Since
Fund 1 Year 5 Years 10 Years Inception
- ---- ------ ------- -------- ---------
<S> <C> <C> <C> <C>
LARGE CAP VALUE FUND . . . . . . . . 29.66% 17.46% 15.39% 14.72%
FLEX FUND . . . . . . . . . . . . . 22.64% 14.74% N/A 12.50%*
MULTIFLEX FUND . . . . . . . . . . . 17.55% N/A N/A 13.37%**
REAL ESTATE FUND . . . . . . . . . . 17.88% N/A N/A 23.86%***
INTERNATIONAL VALUE FUND . . . . . . 11.98% N/A N/A 17.02%***
</TABLE>
_______________________
* From 02-24-88 (commencement of operations) (9.10 years).
** From 11-17-93 (commencement of operations) (4.1 years).
*** From 05-01-95 (commencement of operations) (2.7 years).
Class B shares had not commenced operations as of December 31, 1997;
therefore, no total return information is available for the period ended
December 31, 1997.
The following tables illustrate performance of shares of each Fund for
Class A shares and Class C shares. (Class B shares were not offered during the
periods illustrated.)
<TABLE>
<CAPTION>
Class A Class C
----------------- ---------------------------------
One Five Ten
Since Inception* Year Years Years
----------------- ----- ----- -----
<S> <C> <C> <C> <C>
LARGE CAP VALUE 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, 1997) . . . . . . . . . . $1,244 $1,297 $2,236 $4,186
You could have expected the following
values assuming no redemption at the
end of each time period
(December 31, 1997) . . . . . . . . . . . . . . $1,317 $1,307 $2,336 $4,186
</TABLE>
__________
* Class A Shares commenced operations on January 1, 1997.
36
<PAGE> 91
<TABLE>
<CAPTION>
Class A Class C
---------------------------
One Five
Since Inception* Year Years
--------------- ---- -----
<S> <C> <C> <C>
FLEX 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, 1997) . . . . . . . $1,177 $1,226 $1,988
You could have expected the following values
assuming no redemption at the end of each time
period (December 31, 1997) . . . . . . . . . . . . . . . . . $1,246 $1,236 $1,988
</TABLE>
_____________
* Class A shares commenced operations on January 1, 1997.
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. 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.
The following table provides the actual total rates of return for
Class C shares of the indicated Funds for the fiscal years ended December 31,
1997, 1996, 1995, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
LARGE REAL INTERNATIONAL
CAP VALUE FLEX MULTIFLEX ESTATE VALUE
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1997 29.66% 22.64% 17.55% 17.88% 11.98%
1996 17.17% 13.61% 17.03% 36.43% 20.99%
1995 30.28% 27.30% 21.58% 9.12%** 11.28%**
1994 2.69% 0.64% -1.02% N/A N/A
1993 9.16% 10.48% 0.46%* N/A N/A
1992 4.84% 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.
The following are the actual total rates of return, as of December 31,
1997 (period January 1, 1997 (commencement of operations) through December 31,
1997), for the Class A shares of each Fund: LARGE CAP VALUE FUND 24.43%, FLEX
FUND 17.73%, MULTIFLEX FUND 12.88%, REAL ESTATE FUND 14.11% and INTERNATIONAL
VALUE FUND 7.58%.
Class B shares had not commenced operation as of December 31, 1997.
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
37
<PAGE> 92
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.
MISCELLANEOUS
Principal Shareholders
As of February 2, 1998, the following entities owned of record or
beneficially 5% or more of the shares of a Fund:
<TABLE>
<CAPTION>
Percent
Owned of
Percent Record
Name and Address of Owned of and
Beneficial Owner Record* Beneficially
- ---------------- ----------- ------------
<S> <C> <C>
CLASS A
- -------
LARGE CAP VALUE FUND
James L. Cash -0- 10.88%
5703 155th Ave. NE
Redmond, WA 98052
FLEX FUND
Merrill Lynch Pierce Fenner & Smith 60.18%** -0-
FBO the Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville, FL 32246
Cypress Enterprises -0- 8.69%
A Partnership
730 S. Tonti Street
New Orleans, LA 70119
MULTIFLEX FUND
Raymond James Assoc., Inc. -0- 6.18%
Cust. Charles C. Gleason IRA
4629 Rue Bayou
Sanibel, FL 33957
REAL ESTATE FUND
Merrill Lynch Pierce Fenner & Smith 8.50% -0-
FBO the Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. East
Jacksonville, FL 32246
</TABLE>
__________________________________
* The Company has no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** Beneficial Owner may be deemed to control the Fund by virtue of its
ownership percentage of the outstanding securities of that Fund.
38
<PAGE> 93
<TABLE>
<CAPTION>
Percent
Owned of
Percent Record
Name and Address of Owned of and
Beneficial Owner Record* Beneficially
- ---------------- ----------- ------------
<S> <C> <C>
INTERNATIONAL VALUE FUND
Merrill Lynch Pierce Fenner & Smith 17.61 -0-
FBO the Sole Benefit of Customers
Attn: Fund Administration
4800 Deer Lake Dr. E.
Jacksonville, FL 32246
Paul F. Brown, Jr. -0- 6.09%
and W. Todd Raible
TTEES Royal Oil & Gas Corp.
PSP & TR DTD 12/27/97
P.O. Box 809
Indiana, PA 15701
CLASS C
LARGE CAP VALUE FUND
Merrill Lynch Pierce Fenner & Smith 16.64% -0-
FBO the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E.
Jacksonville, FL 32246
FLEX FUND
Merrill Lynch Pierce Fenner & Smith 10.82% -0-
FBO the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E.
Jacksonville, FL 32246
MULTIFLEX FUND
Merrill Lynch Pierce Fenner & Smith 8.99% -0-
FBO the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E.
Jacksonville, FL 32246
</TABLE>
__________________________________
* The Company has no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
39
<PAGE> 94
<TABLE>
<CAPTION>
Owned of
Percent Record
Name and Address of Owned of and
Beneficial Owner Record* Beneficially
- ---------------- ----------- ------------
<S> <C> <C>
REAL ESTATE FUND
Merrill Lynch Pierce Fenner & Smith 6.93% -0-
FBO the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E.
Jacksonville, FL 32246
INTERNATIONAL VALUE FUND
Merrill Lynch Pierce Fenner & Smith 53.95%** -0-
FBO the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. E.
Jacksonville, FL 32246
</TABLE>
__________________________________
* The Company has no knowledge as to whether all or any portion of the
shares owned of record only are also owned beneficially.
** Beneficial Owner may be deemed to control the Fund by virtue of its
ownership percentage of the outstanding securities of that Fund.
As of February 2, 1998, the officers and Directors of the Company, as
a group, owned less than 1% of the outstanding shares of the Funds.
COMPUTATION OF NET ASSET VALUE
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
40
<PAGE> 95
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 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, Martin Luther King, Jr. 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 80202,
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.
41
<PAGE> 96
APPENDIX
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 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
42
<PAGE> 97
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 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 standards for
investment grade obligations are generally similar to those standards included
in the four highest categories by Moody's and 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.
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
43
<PAGE> 98
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.
RATINGS OF COMMERCIAL PAPER. 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
44
<PAGE> 99
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.
45
<PAGE> 100
FINANCIAL STATEMENTS
FS
<PAGE> 101
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of the AIM Advisor Funds, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Advisor Flex Fund, one of the portfolios of the AIM
Advisor Funds, Inc. (hereafter referred to as the "Fund")
at December 31, 1997, the results of its operations for
the year then ended, the changes in its net assets for
each of the two years in the period then ended and the
financial highlights for the periods indicated, in
conformity with generally accepted accounting principles.
These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our
responsibility is to express an opinion on these
financial statements based on our audits. We conducted
our audits of these financial statements in accordance
with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made
by management, and evaluating the overall financial
statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1997
by correspondence with the custodian and the application
of alternative auditing procedures where securities
purchased had not been received, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
February 5, 1998
FS-1
<PAGE> 102
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-76.72%
AEROSPACE/DEFENSE-1.95%
Boeing Co. (The) 110,000 $ 5,383,125
- --------------------------------------------------------------
Lockheed Martin Corp. 70,000 6,895,000
- --------------------------------------------------------------
12,278,125
- --------------------------------------------------------------
AGRICULTURAL PRODUCTS-1.09%
Archer-Daniels-Midland Co. 315,000 6,831,563
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-1.84%
Genuine Parts Co. 200,000 6,787,500
- --------------------------------------------------------------
Snap-on Inc. 110,000 4,798,750
- --------------------------------------------------------------
11,586,250
- --------------------------------------------------------------
AUTOMOBILES-1.36%
Ford Motor Co. 175,000 8,520,313
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-2.75%
First Union Corp. 60,000 3,075,000
- --------------------------------------------------------------
NationsBank Corp. 100,000 6,081,250
- --------------------------------------------------------------
Wachovia Corp. 100,000 8,112,500
- --------------------------------------------------------------
17,268,750
- --------------------------------------------------------------
BANKS (MONEY CENTER)-1.66%
First Chicago N.B.D. Corp. 125,000 10,437,500
- --------------------------------------------------------------
BANKS (REGIONAL)-1.66%
First of America Bank Corp. 135,000 10,411,875
- --------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-1.05%
Anheuser-Busch Companies, Inc. 150,000 6,600,000
- --------------------------------------------------------------
CHEMICALS-1.21%
Dow Chemical Co. (The) 75,000 7,612,500
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-4.01%
Compaq Computer Corp. 150,000 8,465,625
- --------------------------------------------------------------
Hewlett-Packard Co. 100,000 6,250,000
- --------------------------------------------------------------
International Business Machines
Corp. 100,000 10,456,250
- --------------------------------------------------------------
25,171,875
- --------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-2.66%
Computer Associates International,
Inc. 150,000 7,931,250
- --------------------------------------------------------------
Electronic Data Systems Corp. 200,000 8,787,500
- --------------------------------------------------------------
16,718,750
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-1.21%
Fleming Companies Inc. 100,000 1,343,750
- --------------------------------------------------------------
SUPERVALU, Inc. 150,000 6,281,250
- --------------------------------------------------------------
7,625,000
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRIC COMPANIES-3.69%
Edison International 250,000 $ 6,796,875
- --------------------------------------------------------------
Entergy Corp. 300,000 8,981,250
- --------------------------------------------------------------
GPU, Inc. 175,000 7,371,875
- --------------------------------------------------------------
23,150,000
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.08%
General Electric Co. 100,000 7,337,500
- --------------------------------------------------------------
Rockwell International Corp. 110,000 5,747,500
- --------------------------------------------------------------
13,085,000
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.65%
American General Corp. 110,000 5,946,875
- --------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 181,500 10,731,188
- --------------------------------------------------------------
16,678,063
- --------------------------------------------------------------
FOODS-2.40%
H.J. Heinz Co. 125,000 6,351,562
- --------------------------------------------------------------
Unilever N.V.-New York Shares
(Netherlands) 140,000 8,741,250
- --------------------------------------------------------------
15,092,812
- --------------------------------------------------------------
FOOTWEAR-0.46%
Reebok International Ltd.(a) 100,000 2,881,250
- --------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-2.26%
Abbott Laboratories 100,000 6,556,250
- --------------------------------------------------------------
American Home Products Corp. 100,000 7,650,000
- --------------------------------------------------------------
14,206,250
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-1.17%
Mylan Laboratories, Inc. 350,000 7,328,125
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR
PHARMACEUTICALS)-3.79%
Lilly (Eli) & Co. 100,000 6,962,500
- --------------------------------------------------------------
Merck & Co., Inc. 100,000 10,625,000
- --------------------------------------------------------------
Schering-Plough Corp. 100,000 6,212,500
- --------------------------------------------------------------
23,800,000
- --------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.94%
Columbia/HCA Healthcare Corp. 200,000 5,925,000
- --------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-0.66%
Whirlpool Corp. 75,000 4,125,000
- --------------------------------------------------------------
HOUSEWARES-0.65%
Fortune Brands, Inc. 110,000 4,076,875
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-1.01%
Loews Corp. 60,000 6,367,500
- --------------------------------------------------------------
</TABLE>
FS-2
<PAGE> 103
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (PROPERTY-CASUALTY)-2.23%
Ohio Casualty Corp. 150,000 $ 6,693,750
- --------------------------------------------------------------
SAFECO Corp. 150,000 7,312,500
- --------------------------------------------------------------
14,006,250
- --------------------------------------------------------------
INSURANCE BROKERS-1.19%
Marsh & McLennan Co. 100,000 7,456,250
- --------------------------------------------------------------
IRON & STEEL-1.15%
Nucor Corp. 150,000 7,246,875
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-4.14%
Hanson PLC-ADR (United Kingdom) 225,000 5,189,062
- --------------------------------------------------------------
Minnesota Mining and Manufacturing
Co. 70,000 5,744,375
- --------------------------------------------------------------
National Service Industries, Inc. 75,000 3,717,187
- --------------------------------------------------------------
Norsk Hydro A.S.A.-ADR (Norway) 100,000 5,100,000
- --------------------------------------------------------------
Textron, Inc. 100,000 6,250,000
- --------------------------------------------------------------
26,000,624
- --------------------------------------------------------------
METALS MINING-0.79%
Phelps Dodge Corp. 80,000 4,980,000
- --------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-4.39%
Amoco Corp. 50,000 4,256,250
- --------------------------------------------------------------
Exxon Corp. 100,000 6,118,750
- --------------------------------------------------------------
Repsol S.A.-ADR (Spain) 200,000 8,512,499
- --------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New
York Shares (Netherlands) 160,000 8,670,000
- --------------------------------------------------------------
27,557,499
- --------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.68%
Westvaco Corp. 135,000 4,244,063
- --------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.98%
Gannett Co., Inc. 100,000 6,181,250
- --------------------------------------------------------------
RAILROADS-0.81%
Illinois Central Corp. 150,000 5,109,375
- --------------------------------------------------------------
RESTAURANTS-0.95%
McDonald's Corp. 125,000 5,968,750
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.82%
Sherwin-Williams Co. 185,000 5,133,750
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-1.52%
Dillards Inc. 100,000 3,525,000
- --------------------------------------------------------------
J.C. Penney Co., Inc. 100,000 6,031,250
- --------------------------------------------------------------
9,556,250
- --------------------------------------------------------------
RETAIL (DRUG STORES)-0.70%
Rite Aid Corp. 75,000 4,401,563
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.46%
Kmart Corp. 250,000 2,890,625
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER)-0.98%
Dun & Bradstreet Corp. 200,000 $ 6,187,500
- --------------------------------------------------------------
SPECIALTY PRINTING-0.96%
Deluxe Corp. 175,000 6,037,500
- --------------------------------------------------------------
TELEPHONE-4.35%
Bell Atlantic Corp. 70,000 6,370,000
- --------------------------------------------------------------
British Telecommunications PLC-ADR
(United Kingdom) 88,000 7,067,500
- --------------------------------------------------------------
Telefonica de Espana-ADR (Spain) 60,000 5,463,750
- --------------------------------------------------------------
Telefonos de Mexico S.A.-ADR
(Mexico) 150,000 8,409,375
- --------------------------------------------------------------
27,310,625
- --------------------------------------------------------------
TEXTILES (APPAREL)-1.98%
Liz Claiborne, Inc. 100,000 4,181,250
- --------------------------------------------------------------
VF Corp. 180,000 8,268,750
- --------------------------------------------------------------
12,450,000
- --------------------------------------------------------------
TOBACCO-1.67%
Gallaher Group PLC-ADR (United
Kingdom) 110,000 2,351,250
- --------------------------------------------------------------
Philip Morris Companies, Inc. 180,000 8,156,250
- --------------------------------------------------------------
10,507,500
- --------------------------------------------------------------
WASTE MANAGEMENT-1.76%
Browning-Ferris Industries, Inc. 150,000 5,550,000
- --------------------------------------------------------------
Waste Management, Inc. 200,000 5,500,000
- --------------------------------------------------------------
11,050,000
- --------------------------------------------------------------
Total Common Stocks 482,054,625
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CORPORATE BONDS & NOTES-2.82%
AUTOMOBILES-0.12%
Ford Motor Co., Notes, 7.50%,
11/15/99 $ 750,000 $ 770,100
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.41%
National City Corp., Sub Notes,
7.20%, 05/15/05 1,000,000 1,040,840
- --------------------------------------------------------------
NationsBank Corp., Sr. Notes,
5.375%, 04/15/00 1,550,000 1,527,758
- --------------------------------------------------------------
2,568,598
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.48%
Motorola Inc., Notes, 6.50%,
03/01/08 3,000,000 3,034,620
- --------------------------------------------------------------
CONSUMER FINANCE-0.47%
Commercial Credit Co., Notes,
5.55%, 02/15/01 3,000,000 2,946,540
- --------------------------------------------------------------
ELECTRIC COMPANIES-0.49%
Penn Power & Lighting, First
Mortgage Notes, 6.875%, 02/01/03 1,000,000 1,026,870
- --------------------------------------------------------------
6.55%, 03/01/06 1,900,000 1,921,717
- --------------------------------------------------------------
</TABLE>
FS-3
<PAGE> 104
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
Union Electric, First Mortgage
Notes, 6.75%, 10/15/99 $ 150,000 $ 151,940
- --------------------------------------------------------------
3,100,527
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-0.24%
Boeing Co., Notes, 6.625%,
06/01/05 1,500,000 1,530,960
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.49%
Sherwin-Williams Co., Notes,
6.50%, 02/01/02 3,000,000 3,044,880
- --------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE)-0.12%
Wal-Mart Stores, Notes, 5.50%,
03/01/98 750,000 750,188
- --------------------------------------------------------------
Total Corporate Bonds & Notes 17,746,413
- --------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-4.01%
Government National Mortgage
Association ("GNMA")-1.08%
Pass through certificates
6.50%, 10/15/08 1,215,910 1,228,446
- --------------------------------------------------------------
7.00%, 10/15/08 1,137,865 1,164,525
- --------------------------------------------------------------
6.00%, 11/15/08 1,300,666 1,297,414
- --------------------------------------------------------------
7.50%, 03/15/26 3,029,768 3,114,965
- --------------------------------------------------------------
6,805,350
- --------------------------------------------------------------
Federal Home Loan Mortgage Corp.
("FHLMC")-0.93%
Pass through certificates
6.50%, 07/01/01 3,389,645 3,409,745
- --------------------------------------------------------------
8.00%, 10/01/10 2,366,659 2,445,777
- --------------------------------------------------------------
5,855,522
- --------------------------------------------------------------
Federal National Mortgage
Association ("FNMA")-2.00%
Pass through certificates
8.50%, 03/01/10 2,356,062 2,448,090
- --------------------------------------------------------------
6.50%, 06/01/11 to 05/01/26 7,251,640 7,209,879
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
Federal National Mortgage Association
("FNMA")-(Continued)
Pass through certificates-(Continued)
7.50%, 10/01/96 to 11/01/26 $ 2,807,244 $ 2,874,786
- --------------------------------------------------------------
12,532,755
- --------------------------------------------------------------
Total U.S. Government Agency
Securities 25,193,627
- --------------------------------------------------------------
U.S. TREASURY SECURITIES-15.63%
U.S. Treasury Bonds-4.09%
7.25%, 08/15/22 9,000,000 10,399,680
- --------------------------------------------------------------
9.375%, 02/15/06 8,000,000 9,845,920
- --------------------------------------------------------------
9.25%, 02/15/16 4,000,000 5,428,360
- --------------------------------------------------------------
25,673,960
- --------------------------------------------------------------
U.S. Treasury Notes-11.54%
6.125%, 03/31/98 10,000,000 10,019,300
- --------------------------------------------------------------
7.125%, 10/15/98 5,000,000 5,057,700
- --------------------------------------------------------------
8.875%, 02/15/99 6,250,000 6,467,687
- --------------------------------------------------------------
6.75%, 06/30/99 5,000,000 5,080,400
- --------------------------------------------------------------
6.375%, 07/15/99 5,000,000 5,053,850
- --------------------------------------------------------------
8.75%, 08/15/00 9,000,000 9,663,120
- --------------------------------------------------------------
7.875%, 08/15/01 7,000,000 7,487,620
- --------------------------------------------------------------
7.50%, 05/15/02 4,500,000 4,806,405
- --------------------------------------------------------------
6.25%, 02/15/03 5,000,000 5,115,750
- --------------------------------------------------------------
7.25%, 05/15/04 6,000,000 6,478,440
- --------------------------------------------------------------
6.50%, 08/15/05 7,000,000 7,306,670
- --------------------------------------------------------------
72,536,942
- --------------------------------------------------------------
Total U.S. Treasury Securities 98,210,902
- --------------------------------------------------------------
REPURCHASE AGREEMENT-0.56%(b)
Smith Barney Inc., 6.75%,
01/02/98(c) 3,519,858 3,519,858
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.74% 626,725,425
- --------------------------------------------------------------
OTHER ASSETS LESS
LIABILITIES-0.26% 1,605,092
- --------------------------------------------------------------
NET ASSETS-100.00% $628,330,517
==============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to insure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations, 0%
to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Abbreviations:
Sr. - Senior
Sub. - Subordinated
See Notes to Financial Statements.
FS-4
<PAGE> 105
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$432,776,171) $626,725,425
- ---------------------------------------------------------
Receivables for:
Capital stock sold 1,053,096
- ---------------------------------------------------------
Interest and dividends 3,500,542
- ---------------------------------------------------------
Investment for deferred compensation plan 2,561
- ---------------------------------------------------------
Other assets 14,718
- ---------------------------------------------------------
Total assets 631,296,342
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 779,071
- ---------------------------------------------------------
Deferred compensation plan 2,561
- ---------------------------------------------------------
Accrued advisory fees 397,296
- ---------------------------------------------------------
Accrued operating services fees 233,315
- ---------------------------------------------------------
Accrued distribution fees 1,511,312
- ---------------------------------------------------------
Accrued directors' fees and expenses 42,270
- ---------------------------------------------------------
Total liabilities 2,965,825
- ---------------------------------------------------------
Net assets applicable to shares outstanding $628,330,517
=========================================================
NET ASSETS:
Class A $ 25,151,388
=========================================================
Class C $603,179,129
=========================================================
CAPITAL STOCK, $.001, PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 1,274,141
=========================================================
Class C:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 30,552,730
=========================================================
Class A:
Net asset value and redemption price per
share $ 19.74
=========================================================
Offering price per share:
(Net asset value of $19.74
divided by 94.50%) $ 20.89
=========================================================
Class C:
Net asset value and offering price per
share $ 19.74
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 11,975,969
- ---------------------------------------------------------
Dividends 9,478,210
- ---------------------------------------------------------
Total investment income 21,454,179
- ---------------------------------------------------------
EXPENSES:
Advisory fees 4,244,780
- ---------------------------------------------------------
Operating services fees 2,513,883
- ---------------------------------------------------------
Distribution fees-Class A 34,863
- ---------------------------------------------------------
Distribution fees-Class C 5,560,293
- ---------------------------------------------------------
Directors' fees and expenses 61,419
- ---------------------------------------------------------
Total expenses 12,415,238
- ---------------------------------------------------------
Less: Fees waived by distributors (10,010)
- ---------------------------------------------------------
Net expenses 12,405,228
- ---------------------------------------------------------
Net investment income 9,048,951
- ---------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain from investment
securities 23,883,293
- ---------------------------------------------------------
Net unrealized appreciation of investment
securities 86,058,520
- ---------------------------------------------------------
Net gain from investment securities 109,941,813
- ---------------------------------------------------------
Net increase in net assets resulting from
operations $118,990,764
=========================================================
</TABLE>
See Notes to Financial Statements.
FS-5
<PAGE> 106
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 9,048,951 $ 8,108,449
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities 23,883,293 23,531,236
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 86,058,520 26,214,708
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 118,990,764 57,854,393
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (246,939) --
- -----------------------------------------------------------------------------------------
Class C (8,674,714) (8,041,627)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (610,538) --
- -----------------------------------------------------------------------------------------
Class C (14,999,384) (23,712,747)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 24,377,889 --
- -----------------------------------------------------------------------------------------
Class C 19,575,501 64,656,241
- -----------------------------------------------------------------------------------------
Net increase in net assets 138,412,579 90,756,260
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 489,917,938 399,161,678
- -----------------------------------------------------------------------------------------
End of period $628,330,517 $489,917,938
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $426,093,882 $382,140,492
- -----------------------------------------------------------------------------------------
Undistributed net investment income 166,050 69,809
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities 8,121,332 (183,096)
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 193,949,253 107,890,733
- -----------------------------------------------------------------------------------------
$628,330,517 $489,917,938
=========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-6
<PAGE> 107
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor Flex Fund (the "Fund", formerly INVESCO Advisor Flex Portfolio) is a
series portfolio of AIM Advisor Funds, Inc. (the "Company" formerly, INVESCO
Advisor Funds, Inc.). The Company is a Maryland corporation and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of seven diversified
portfolios. The Fund currently offers two different classes of shares: Class A
shares and Class C shares. Class A shares are sold with a front-end sales
charge. Class C shares are sold with a contingent deferred sales charge. Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. The Fund's investment objective
is to achieve a high total return on investment through capital appreciation and
current income, without regard to federal income tax considerations. Information
presented in these financial statements pertains only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not 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 of the closing bid
and asked prices. Debt obligations (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market prices are
not provided by any of the above methods are valued at the mean between last
bid and asked prices based upon quotes furnished by independent sources.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's Board of Directors. Investments with
maturities of 60 days or less are valued on the basis of amortized cost
which approximates market value.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1997,
undistributed net investment income was reduced by $31,057 and undistributed
net realized gains increased by $31,057 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Bond Premiums-It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
D. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed
to shareholders. Therefore, no provision for federal income taxes is
recorded in the financial statements.
E. Expenses-Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the Fund's average daily net assets. AIM has entered into a sub-advisory
agreement with INVESCO Capital Management, Inc. ("ICM") whereby AIM pays ICM an
annual rate of 0.20% of the Fund's average daily net assets. Prior to August 4,
1997, the Company had an investment advisory agreement with INVESCO Services,
Inc. ("ISI") to serve as the Fund's investment advisor. Under the terms of the
prior investment agreement, the Fund paid ISI an advisory fee equal to an annual
rate of 0.75% of the average daily net assets of the Fund. Under the terms of
the prior sub-advisory agreement between ISI and ICM, ISI paid ICM a
sub-advisory fee equal to an annual rate of 0.20% of the Fund's average daily
net assets.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of average daily net assets of the Fund for
providing or arranging to provide accounting, legal (except litigation),
dividend disbursing, transfer agency, registrar, custodial, shareholder
reporting, sub-accounting and recordkeeping services and functions. This
agreement provides 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. During the
period August 4, 1997 to December 31, 1997, AIM was paid $1,106,526 for such
services. Prior to August 4, 1997, the Company had an operating services
FS-7
<PAGE> 108
agreement with ISI whereby the Fund paid ISI an annual rate of 0.45% of average
daily net assets of the Fund. During the period January 1, 1997 through August
3, 1997, the Fund paid ISI $1,407,357.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and Class C shares of the Fund. The Company has adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and the Fund's Class C shares (the "Plan"). The Fund,
pursuant to the Plan, pays AIM Distributors compensation at a maximum annual
rate of 0.35% of the average daily net assets attributable to the Class A
shares. AIM has voluntarily agreed to limit the Plan payments to 0.25% for three
years beginning August 4, 1997. The Fund, pursuant to the Plan, pays AIM
Distributors a maximum annual rate of 1.00% of the Fund's average daily net
assets attributable to the Class C shares. Of these amounts, the Fund may pay a
service fee of 0.25% of the average daily net assets of the Class A and Class C
shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own shares of
the Fund. Any amounts not paid as a service fee under the Plan would constitute
an asset-based sales charge. The Plan also imposes a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the period August 4, 1997 to December 31, 1997, the Class A and
Class C shares paid AIM Distributors $19,781 and $2,430,068, respectively, as
compensation under the Plan. During the year ended December 31, 1997, AIM
Distributors and ISI waived fees of $10,010 for the Class A shares. Prior to
August 4, 1997, the Fund entered into a distribution plan with ISI in accordance
with Rule 12b-1 of the 1940 Act under substantially identical terms as described
for AIM Distributors above. During the period January 1, 1997 to August 3, 1997,
the Class A and Class C shares paid ISI $5,072 and $3,130,225, respectively, as
compensation under the Plan.
AIM Distributors received commissions of $11,729 from sales of Class A shares
of the Fund during the period August 4, 1997 to December 31, 1997. ISI received
commissions of $6,860 from sales of Class A shares of the Fund during the period
January 1, 1997 through August 3, 1997. Such commissions are not an expense to
the Fund. They are deducted from, and are not included in, the proceeds from
sales of Class A shares. During the period August 4, 1997 to December 31, 1997,
AIM Distributors received commissions of $18,422 in contingent deferred sales
charges imposed on redemptions of shares. Certain officers and directors of the
Company are officers and directors of AIM, A I M Fund Services, Inc. and AIM
Distributors. During the period January 1, 1997 through August 3, 1997, ISI
received commissions of $18,877 in contingent deferred sales charges imposed on
redemptions of shares.
The combined effect of the advisory master investment agreements, operating
services agreement and the distribution Plan for the Fund is to place a cap or
ceiling on the total expenses of the 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 Fund. To the extent that the Fund exceeds the amounts, AIM or its
affiliates will waive its fees to reimburse the Fund to assure that the Fund's
expenses do not exceed the designated maximum amounts except for those items
specifically identified above. If, in any calendar quarter, the average daily
net assets of the Fund are less than $500 million, the 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.
During the period August 4, 1997 to December 31, 1997, the Fund paid legal
fees of $765 for services rendered by Kramer, Levin, Naftalis & Frankel as
counsel to the Company's directors. A member of that firm is a director of the
Company.
NOTE 3-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1997 was
$126,040,604 and $88,262,748, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $199,182,995
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (5,233,741)
- -------------------------------------------------------------
Net unrealized appreciation of investment
securities $193,949,254
=============================================================
</TABLE>
Investments have the same cost for tax and financial
statement purposes.
FS-8
<PAGE> 109
NOTE 5-CAPITAL STOCK*
Changes in the Fund's capital stock outstanding during the years ended December
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A** 1,255,277 $ 24,015,843 -- $ --
- --------------------------------------------------------------------------------------------------------------------
Class C 4,707,789 86,294,017 6,596,988 107,726,947
- --------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A** 42,162 821,435 -- --
- --------------------------------------------------------------------------------------------------------------------
Class C 1,120,103 21,660,078 1,659,332 27,317,233
- --------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A** (23,298) (459,389) -- --
- --------------------------------------------------------------------------------------------------------------------
Class C (4,738,134) (88,378,594) (4,281,464) (70,387,939)
- --------------------------------------------------------------------------------------------------------------------
2,363,899 $ 43,953,390 3,974,856 $ 64,656,241
====================================================================================================================
</TABLE>
* Shares have been restated to reflect a 4 for 1 stock split, effected in the
form of a 300% stock dividend, on November 7, 1997.
** Class A shares commenced operations on January 1, 1997.
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the year ended December 31, 1997 and for a share of Class C
capital stock outstanding during each of the years in the five-year period ended
December 31, 1997.(a)
CLASS A:
<TABLE>
<CAPTION>
1997(b)
----------
<S> <C>
Net asset value, beginning of period $ 16.63
- ------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.41(c)
- ------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 3.63
- ------------------------------------------------------------------------
Total from investment operations 4.04
- ------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.43)
- ------------------------------------------------------------------------
Distributions from capital gains (0.50)
- ------------------------------------------------------------------------
Total distributions (0.93)
- ------------------------------------------------------------------------
Net asset value, end of period $ 19.74
========================================================================
Total return(d) 24.60%
========================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 25,151
========================================================================
Ratio of expenses to average net assets(e) 1.45%(f)
========================================================================
Ratio of net investment income to average net assets(g) 2.34%(f)
========================================================================
Portfolio turnover rate 17%
========================================================================
Average brokerage commission rate(h) $ 0.0537
========================================================================
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Calculated using average shares outstanding.
(d) Does not deduct sales charges.
(e) After fee waivers. The ratio of expenses to average net assets prior to fee
waivers was 1.55%.
(f) Ratios are based on average net assets of $10,010,061.
(g) After fee waivers. The ratio of net investment income to average net assets
prior to fee waivers was 2.24%.
(h) 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 and sold.
FS-9
<PAGE> 110
NOTE 6-FINANCIAL HIGHLIGHTS-continued
CLASS C:(a)
<TABLE>
<CAPTION>
1997(b) 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.63 $ 15.66 $ 12.63 $ 13.54 $ 12.76
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.30(c) 0.30 0.32 0.32 0.28
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 3.60 1.81 3.09 (0.23) 1.05
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 3.90 2.11 3.41 0.09 1.33
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.29) (0.29) (0.32) (0.31) (0.27)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from capital gains (0.50) (0.85) (0.06) (0.69) (0.28)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (0.79) (1.14) (0.38) (1.00) (0.55)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 19.74 $ 16.63 $ 15.66 $ 12.63 $ 13.54
============================================================ ======== ======== ======== ======== ========
Total return(d) 23.64% 13.61% 27.30% 0.64% 10.48%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $603,179 $489,918 $399,162 $243,848 $274,349
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets 2.20%(e) 2.26% 2.28% 2.25% 2.25%(f)
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 1.59%(e) 1.81% 2.28% 2.32% 2.10%(f)
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 17% 26% 5% 36% 27%
============================================================ ======== ======== ======== ======== ========
Average brokerage commission rate(g) $ 0.0537 $ 0.0549 N/A N/A N/A
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Calculated using average shares outstanding.
(d) Does not deduct contingent deferred sales charges.
(e) Ratios are based on average net assets of $556,338,988.
(f) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements are 2.26% and 2.09%, respectively, for 1993.
(g) 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 and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
FS-10
<PAGE> 111
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of the AIM Advisor Funds, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Advisor International Value Fund, one of the
portfolios of the AIM Advisor Funds, Inc. (hereafter
referred to as the "Fund") at December 31, 1997, the
results of its operations for the year then ended, the
changes in net assets for each of the two years in the
periods then ended and the financial highlights for the
periods indicated, in conformity with generally accepted
accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with generally accepted auditing standards
which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian
and the application of alternative auditing procedures
where securities purchased had not been received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
February 5, 1998
FS-11
<PAGE> 112
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-97.58%
ARGENTINA-1.18%
YPF Sociedad Anonima-ADR
(Oil-International Integrated) 35,000 $ 1,196,562
- ---------------------------------------------------------------
AUSTRALIA-6.82%
Amcor Ltd.-ADR (Containers &
Packaging ) 60,000 1,020,000
- ---------------------------------------------------------------
National Australia Bank Ltd.-ADR
(Banks-Regional) 30,000 2,118,750
- ---------------------------------------------------------------
News Corp. Ltd. (The)
(Publishing-Newspapers) 400,000 2,208,129
- ---------------------------------------------------------------
Rio Tinto Ltd.-ADR (Metals Mining) 34,000 1,586,437
- ---------------------------------------------------------------
6,933,316
- ---------------------------------------------------------------
BRAZIL-0.92%
Telecomunicacoes Brasileiras
S.A.-Telebras-ADR (Telephone) 8,000 931,500
- ---------------------------------------------------------------
DENMARK-5.12%
Den Danske Bank-ADR (Banks-Money
Center) 20,000 2,666,778
- ---------------------------------------------------------------
Novo Nordisk A.S.-ADR (Health
Care-Drugs-Major Pharmaceuticals) 35,000 2,533,125
- ---------------------------------------------------------------
5,199,903
- ---------------------------------------------------------------
FRANCE-5.99%
Danone-ADR (Foods) 60,000 2,144,328
- ---------------------------------------------------------------
Elf Aquitaine S.A.-ADR
(Oil-International Integrated) 30,000 1,758,750
- ---------------------------------------------------------------
Societe Generale-ADR (Banks-Major
Regional) 80,000 2,180,896
- ---------------------------------------------------------------
6,083,974
- ---------------------------------------------------------------
GERMANY-8.11%
BASF A.G.-ADR
(Chemicals-Diversified) 60,000 2,127,312
- ---------------------------------------------------------------
Bayer A.G.-ADR
(Chemicals-Diversified) 40,000 1,494,956
- ---------------------------------------------------------------
Deutsche Bank A.G.-ADR (Banks-Major
Regional) 35,000 2,472,130
- ---------------------------------------------------------------
RWE A.G.-ADR (Electric Companies) 40,000 2,146,776
- ---------------------------------------------------------------
8,241,174
- ---------------------------------------------------------------
HONG KONG-1.90%
Sun Hung Kai Properties Ltd.-ADR
(Land Development) 140,000 975,702
- ---------------------------------------------------------------
Swire Pacific Ltd.-ADR
(Manufacturing-Diversified) 175,000 959,875
- ---------------------------------------------------------------
1,935,577
- ---------------------------------------------------------------
ITALY-4.67%
Istituto Mobiliare Italiano
S.p.A.-ADR (Banks-Regional) 70,000 2,502,500
- ---------------------------------------------------------------
Telecom Italia S.p.A.-ADR
(Telephone) 35,000 2,240,000
- ---------------------------------------------------------------
4,742,500
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
JAPAN-10.92%
Canon, Inc.-ADR (Office Equipment &
Supplies) 15,000 $ 1,751,250
- ---------------------------------------------------------------
Dai Nippon Printing Co., Ltd.-ADR
(Specialty Printing) 11,000 2,072,740
- ---------------------------------------------------------------
Fuji Photo Film-ADR
(Photography/Imaging) 40,000 1,527,500
- ---------------------------------------------------------------
Hitachi Ltd.-ADR
(Manufacturing-Diversified) 17,000 1,176,187
- ---------------------------------------------------------------
Kirin Brewery Company, Ltd.-ADR
(Beverages-Alcoholic) 23,000 1,687,625
- ---------------------------------------------------------------
Kyocera Corp.-ADR
(Electronics-Component
Distributors) 10,000 905,000
- ---------------------------------------------------------------
Nintendo Co. Ltd. (Leisure
Time-Products) 20,000 1,975,952
- ---------------------------------------------------------------
11,096,254
- ---------------------------------------------------------------
MEXICO-2.41%
Cemex S.A. de C.V.-ADR (Building
Materials) 125,000 1,327,237
- ---------------------------------------------------------------
Telefonos de Mexico S.A.-ADR
(Telephone) 20,000 1,121,250
- ---------------------------------------------------------------
2,448,487
- ---------------------------------------------------------------
NETHERLANDS-9.30%
Akzo Nobel N.V.-ADR (Chemicals) 30,000 2,606,250
- ---------------------------------------------------------------
ING Groep N.V.-ADR
(Insurance-Life/Health) 45,000 1,904,062
- ---------------------------------------------------------------
Royal Dutch Petroleum Co.-New York
Shares-ADR (Oil-International
Integrated) 45,000 2,438,437
- ---------------------------------------------------------------
Unilever N.V.-New York Shares-ADR
(Foods) 40,000 2,497,500
- ---------------------------------------------------------------
9,446,249
- ---------------------------------------------------------------
NORWAY-1.51%
Norsk Hydro A.S.A.-ADR
(Manufacturing-Diversified) 30,000 1,530,000
- ---------------------------------------------------------------
PORTUGAL-2.31%
Portugal Telecom S.A.-ADR
(Telephone) 50,000 2,350,000
- ---------------------------------------------------------------
SINGAPORE-1.85%
Development Bank of Singapore
Ltd.-ADR (Banks-Money Center) 55,000 1,880,186
- ---------------------------------------------------------------
SPAIN-7.84%
Banco Santander-ADR (Banks-Regional) 60,000 1,953,750
- ---------------------------------------------------------------
Endesa S.A.-ADR (Electric Companies) 100,000 1,818,750
- ---------------------------------------------------------------
Repsol S.A.-ADR (Oil-International
Integrated) 45,000 1,915,313
- ---------------------------------------------------------------
Telefonica de Espana-ADR (Telephone) 25,000 2,276,563
- ---------------------------------------------------------------
7,964,376
- ---------------------------------------------------------------
SWEDEN-3.58%
Astra A.B.-ADR (Health
Care-Drugs-Generic & Other) 125,000 2,148,438
- ---------------------------------------------------------------
Volvo A.B.-ADR (Automobiles) 55,000 1,485,000
- ---------------------------------------------------------------
3,633,438
- ---------------------------------------------------------------
SWITZERLAND-5.01%
Nestle S.A.-ADR (Foods) 30,000 2,251,206
- ---------------------------------------------------------------
</TABLE>
FS-12
<PAGE> 113
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SWITZERLAND-(CONTINUED)
Novartis A.G.-ADR (Health
Care-Diversified) 35,000 $ 2,843,575
- ---------------------------------------------------------------
5,094,781
- ---------------------------------------------------------------
UNITED KINGDOM-18.14%
Associated British Foods PLC-ADR
(Foods) 250,000 2,143,125
- ---------------------------------------------------------------
British Airways PLC-ADR (Airlines) 23,000 2,154,813
- ---------------------------------------------------------------
British Telecommunications PLC-ADR
(Telephone) 35,000 2,810,938
- ---------------------------------------------------------------
Carlton Communications PLC-ADR
(Electrical Equipment) 53,000 2,067,000
- ---------------------------------------------------------------
Glaxo Wellcome PLC-ADR (Health
Care-Drugs-Major Pharmaceuticals) 50,000 2,393,750
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM-(CONTINUED)
HSBC Holdings PLC-ADR (Banks-Money
Center) 10,000 $ 2,465,067
- ---------------------------------------------------------------
J. Sainsbury PLC-ADR (Retail-Food
Chains) 60,000 2,011,992
- ---------------------------------------------------------------
PowerGen PLC-ADR (Electric Companies) 45,000 2,390,625
- ---------------------------------------------------------------
18,437,310
- ---------------------------------------------------------------
Total Common Stocks 99,145,587
- ---------------------------------------------------------------
REPURCHASE AGREEMENT-2.49%(a)
Smith Barney Inc., 6.75%,
01/02/98(b) 2,527,605
- ---------------------------------------------------------------
TOTAL INVESTMENTS-100.07% 101,673,192
- ---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.07% (67,063)
- ---------------------------------------------------------------
NET ASSETS-100.00% $ 101,606,129
===============================================================
</TABLE>
Abbreviations
ADR-American Depositary Receipt
Notes to Schedule of Investments:
(a) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(b) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations, 0%
to 13.875%, due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
See Notes to Financial Statements.
FS-13
<PAGE> 114
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$86,614,500) $101,673,192
- ---------------------------------------------------------
Foreign currencies, at market value (cost
$5,234) 5,146
- ---------------------------------------------------------
Receivables for:
Capital stock sold 326,028
- ---------------------------------------------------------
Interest and dividends 188,382
- ---------------------------------------------------------
Investment for deferred compensation plan 2,009
- ---------------------------------------------------------
Total assets 102,194,757
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 226,033
- ---------------------------------------------------------
Deferred compensation plan 2,009
- ---------------------------------------------------------
Accrued advisory fees 84,798
- ---------------------------------------------------------
Accrued operating services fees 38,159
- ---------------------------------------------------------
Accrued distribution fees 234,728
- ---------------------------------------------------------
Accrued directors' fees and expenses 2,901
- ---------------------------------------------------------
Total liabilities 588,628
- ---------------------------------------------------------
Net assets applicable to shares outstanding $101,606,129
=========================================================
NET ASSETS:
Class A $ 8,444,413
=========================================================
Class C $ 93,161,716
=========================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 563,467
=========================================================
Class C:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 6,239,744
=========================================================
Class A:
Net asset value and redemption price per
share $ 14.99
=========================================================
Offering price per share:
(Net asset value of $14.99 divided
by 94.50%) $ 15.86
=========================================================
Class C:
Net asset value and offering price per
share $ 14.93
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 150,874
- --------------------------------------------------------
Dividends (net of $114,696 foreign
withholding tax) 1,907,947
- --------------------------------------------------------
Total investment income 2,058,821
- --------------------------------------------------------
EXPENSES:
Advisory fees 809,518
- --------------------------------------------------------
Operating services fees 364,272
- --------------------------------------------------------
Distribution fees-Class A 11,010
- --------------------------------------------------------
Distribution fees-Class C 778,604
- --------------------------------------------------------
Directors' fees 9,936
- --------------------------------------------------------
Total expenses 1,973,340
- --------------------------------------------------------
Less: Fees waived by distributor (3,204)
- --------------------------------------------------------
Net expenses 1,970,136
- --------------------------------------------------------
Net investment income 88,685
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain (loss) from:
Investment securities 892,398
- --------------------------------------------------------
Foreign currencies (6,931)
- --------------------------------------------------------
885,467
- --------------------------------------------------------
Net unrealized appreciation (depreciation)
of:
Investment securities 7,942,468
- --------------------------------------------------------
Foreign currencies (88)
- --------------------------------------------------------
7,942,380
- --------------------------------------------------------
Net gain from investment securities and
foreign currencies 8,827,847
- --------------------------------------------------------
Net increase in net assets resulting from
operations $8,916,532
========================================================
</TABLE>
See Notes to Financial Statements.
FS-14
<PAGE> 115
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ 88,685 $ (49,154)
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 885,467 226,482
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 7,942,380 6,597,676
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 8,916,532 6,775,004
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (4,884) --
- -----------------------------------------------------------------------------------------
Class C (54,101) --
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (99,400) --
- -----------------------------------------------------------------------------------------
Class C (1,300,488) (102,718)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 8,386,957 --
- -----------------------------------------------------------------------------------------
Class C 33,845,537 35,777,007
- -----------------------------------------------------------------------------------------
Net increase in net assets 49,690,153 42,449,293
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 51,915,976 9,466,683
- -----------------------------------------------------------------------------------------
End of period $101,606,129 $ 51,915,976
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 86,958,918 $ 44,726,424
- -----------------------------------------------------------------------------------------
Undistributed net investment income (loss) (25,744) (48,513)
- -----------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities and foreign currency transactions (385,649) 121,841
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currencies 15,058,604 7,116,224
- -----------------------------------------------------------------------------------------
$101,606,129 $ 51,915,976
=========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-15
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor International Value Fund (the "Fund", formerly INVESCO Advisor
International Value Fund) is a series portfolio of AIM Advisor Funds, Inc. (the
"Company" formerly, INVESCO Advisor Funds, Inc.). The Company is a Maryland
corporation and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end series management investment company
consisting of seven diversified portfolios. The Fund currently offers two
different classes of shares: Class A shares and Class C shares. Class A shares
are sold with a front-end sales charge. Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. The Fund's investment objective is to achieve a high total return on
investment through capital appreciation and current income, without regard to
U.S. or foreign tax considerations. Information presented in these financial
statements pertains only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not 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 of the closing bid
and asked prices. Debt obligations (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market prices are
not provided by any of the above methods are valued at the mean between last
bid and asked prices based upon quotes furnished by independent sources.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's Board of Directors. Investments with
maturities of 60 days or less are valued on the basis of amortized cost
which approximates market value. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such time. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange which would
not be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in
good faith by or under the supervision of the Board of Directors.
B. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at the date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
D. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1997,
undistributed net investment income was reduced by $6,931 and undistributed
net realized gains increased by $6,931 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
E. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed
to shareholders. Therefore, no provision for federal income taxes is
recorded in the financial statements.
FS-16
<PAGE> 117
F. Expenses-Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.00% of
the Fund's average daily net assets. AIM has entered into a sub-advisory
agreement with INVESCO Global Asset Management Limited ("IGAM") whereby AIM pays
IGAM an annual rate of 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. Prior to August 4, 1997, the Company had an
investment advisory agreement with INVESCO Services, Inc. ("ISI") to serve as
the Fund's investment advisor. Under the terms of the prior investment advisory
agreement, the Fund paid ISI an advisory fee equal to an annual rate of 1.00% of
the average daily net assets of the Fund. Under the terms of the prior
sub-advisory agreement between ISI and INVESCO Capital Management, Inc. ("ICM"),
ISI paid ICM a sub-advisory fee equal to an annual rate of 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.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of average daily net assets of the Fund for
providing or arranging to provide accounting, legal (except litigation),
dividend disbursing, transfer agency, registrar, custodial, shareholder
reporting, sub-accounting and recordkeeping services and functions. This
agreement provides 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. During the
period August 4, 1997 to December 31, 1997, AIM was paid $178,446 for such
services. Prior to August 4, 1997, the Company had an operating services
agreement with ISI whereby the Fund paid ISI an annual rate of 0.45% of average
daily net assets of the Fund. During the period January 1, 1997 through August
3, 1997, the Fund paid ISI $185,826.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and Class C shares of the Fund. The Company has adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and the Fund's Class C shares (the "Plan"). The Fund,
pursuant to the Plan, pays AIM Distributors compensation at a maximum annual
rate of 0.35% of the average daily net assets attributable to the Class A
shares. AIM has voluntarily agreed to limit the Plan payments to 0.25% for three
years beginning August 4, 1997. The Fund, pursuant to the Plan, pays AIM
Distributors a maximum annual rate of 1.00% of the Fund's average daily net
assets attributable to the Class C shares. Of these amounts, the Fund may pay a
service fee of 0.25% of the average daily net assets of the Class A and C shares
to selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own shares of the Fund.
Any amounts not paid as a service fee under the Plan would constitute an
asset-based sales charge. The Plan also imposes a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the period August 4, 1997 to December 31, 1997, the Class A and
Class C shares paid AIM Distributors $6,530 and $370,806, respectively, as
compensation under the Plan. During the year ended December 31, 1997 AIM
Distributors and ISI waived fees of $3,204 for the Class A shares. Prior to
August 4, 1997, the Fund entered into a distribution plan with ISI in accordance
with Rule 12b-1 of the 1940 Act under substantially identical terms as described
for AIM Distributors above. During the period January 1, 1997 to August 3, 1997
the Class A and Class C shares paid ISI $1,276 and $407,798, respectively as
compensation under the Plan.
AIM Distributors received commissions of $16,464 from sales of Class A shares
of the Fund during the period August 4, 1997 to December 31, 1997. ISI received
commissions of $8,333 from sales of Class A shares of the Fund during the period
January 1, 1997 through August 3, 1997. Such commissions are not an expense to
the Fund. They are deducted from, and are not included in, the proceeds from
sales of Class A shares. During the period August 4, 1997 to December 31, 1997,
AIM Distributors received commissions of $13,392 in contingent deferred sales
charges imposed on redemptions of shares. Certain officers and directors of the
Company are officers and directors of AIM, A I M Fund Services, Inc. and AIM
Distributors. During the period January 1, 1997 through August 3, 1997, ISI
received commissions of $8,219 in contingent deferred sales charges imposed on
redemptions of shares.
The combined effect of the master investment advisory agreements and Operating
Services Agreement and the Distribution Plan for the Fund is to place a cap or
ceiling on the total expenses of the 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 Fund. To the extent that the Fund exceeds the amounts, AIM or its
affiliates will waive its fees to reimburse the Fund to assure that the Fund's
expenses do not exceed the designated maximum amounts except for those items
specifically identified above. If, in any calendar quarter, the average net
assets of the Fund are less than $100 million, the Fund's 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.
During the period August 4, 1997 to December 31, 1997, the Fund paid legal
fees of $601 for services rendered by Kramer, Levin, Naftalis & Frankel as
counsel to the Company's directors. A member of that firm is a director of the
Company.
FS-17
<PAGE> 118
NOTE 3-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1997 was
$47,760,091 and $7,103,841, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $19,402,883
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,345,254)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $15,057,629
=========================================================================
</TABLE>
Cost of investments for tax purposes is $86,615,563.
NOTE 5-CAPITAL STOCK*
Changes in the Fund's capital stock outstanding during the years ended December
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A** 638,784 $ 9,521,875 -- $ --
- --------------------------------------------------------------------------------------------------------------------
Class C 3,118,584 44,774,893 3,172,292 37,650,713
- --------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A** 5,815 92,368 -- --
- --------------------------------------------------------------------------------------------------------------------
Class C 59,331 998,719 4,372 52,532
- --------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A** (81,132) (1,227,286) -- --
- --------------------------------------------------------------------------------------------------------------------
Class C (806,643) (11,928,075) (158,888) (1,926,238)
- --------------------------------------------------------------------------------------------------------------------
2,934,739 $ 42,232,494 3,017,776 $ 35,777,007
====================================================================================================================
</TABLE>
* Shares have been restated to reflect a 4 for 1 stock split, effected in the
form of a 300% stock dividend, on November 7, 1997.
** Class A shares commenced operations on January 1, 1997.
FS-18
<PAGE> 119
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the year ended December 31, 1997 and for a share of Class C
capital stock outstanding during each of the years in the two-year period ended
December 31, 1997 and the period May 1, 1995 (date operations commenced) through
December 31, 1995.(a)
CLASS A:
<TABLE>
<CAPTION>
1997(b)
----------
<S> <C>
Net asset value, beginning of period $ 13.42
- ------------------------------------------------------------ ----------
Income from investment operations:
Net investment income 0.17(c)
- ------------------------------------------------------------ ----------
Net gains on securities (both realized and unrealized) 1.69
- ------------------------------------------------------------ ----------
Total from investment operations 1.86
- ------------------------------------------------------------ ----------
Less distributions:
Dividends from net investment income (0.07)
- ------------------------------------------------------------ ----------
Distributions from capital gains (0.22)
- ------------------------------------------------------------ ----------
Total distributions (0.29)
- ------------------------------------------------------------ ----------
Net asset value, end of period $ 14.99
============================================================ ==========
Total return(d) 13.84%
============================================================ ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 8,444
============================================================ ==========
Ratio of expenses to average net assets(e) 1.71%(f)
============================================================ ==========
Ratio of net investment income to average net assets(g) 0.83%(f)
============================================================ ==========
Portfolio turnover rate 9%
============================================================ ==========
Average brokerage commission rate(h) $ 0.0507
============================================================ ==========
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Calculated using average shares outstanding.
(d) Does not deduct sales charges.
(e) After fee waivers. The ratio of expenses to average net assets prior to fee
waivers was 1.81%.
(f) Ratios are based on average net assets of $3,145,579.
(g) After fee waivers. The ratio of net investment income to average net assets
prior to fee waivers was 0.73%.
(h) 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 and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
FS-19
<PAGE> 120
NOTE 6-FINANCIAL HIGHLIGHTS-continued
CLASS C:(a)
<TABLE>
<CAPTION>
1997(b) 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.42 $ 11.13 $ 10.00
- ------------------------------------------------------------ -------- -------- --------
Income from investment operations:
Net investment income 0.01(c) (0.01) --
- ------------------------------------------------------------ -------- -------- --------
Net gains on securities (both realized and unrealized) 1.73 2.34 1.13
- ------------------------------------------------------------ -------- -------- --------
Total from investment operations 1.74 2.33 1.13
- ------------------------------------------------------------ -------- -------- --------
Less distributions:
Dividends from net investment income (0.01) -- --
- ------------------------------------------------------------ -------- -------- --------
Distributions from capital gains (0.22) (0.04) --
- ------------------------------------------------------------ -------- -------- --------
Total distributions (0.23) (0.04) --
- ------------------------------------------------------------ -------- -------- --------
Net asset value, end of period $ 14.93 $ 13.42 $ 11.13
============================================================ ======== ======== ========
Total return(d) 12.98% 20.99% 11.28%
============================================================ ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 93,162 $ 51,916 $ 9,467
============================================================ ======== ======== ========
Ratio of expenses to average net assets 2.46%(e) 2.50% 2.50%(f)
============================================================ ======== ======== ========
Ratio of net investment income (loss) to average net assets 0.08%(e) (0.16)% 0.03%(f)
============================================================ ======== ======== ========
Portfolio turnover rate 9% 5% 2%
============================================================ ======== ======== ========
Average brokerage commission rate(g) $ 0.0507 $ 0.0602 N/A
============================================================ ======== ======== ========
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Calculated using average shares outstanding.
(d) Does not deduct contingent deferred sales charges and for periods less than
one year, total returns are not annualized.
(e) Ratios are based on average net assets of $77,973,564.
(f) Annualized
(g) 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 and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
FS-20
<PAGE> 121
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of the AIM Advisor Funds, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Advisor Large Cap Value Fund, one of the portfolios
of the AIM Advisor Funds, Inc. (hereafter referred to as
the "Fund") at December 31, 1997, the results of its
operations for the year then ended, the changes in its
net assets for each of the two years in the period then
ended and the financial highlights for the periods
indicated, in conformity with generally accepted
accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with generally accepted auditing standards
which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian
and the application of alternative auditing procedures
where securities purchased had not been received, provide
a reasonable basis for our opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
February 5, 1998
FS-21
<PAGE> 122
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-97.26%
AEROSPACE/DEFENSE-1.99%
Lockheed Martin Corp. 35,860 $ 3,532,210
- -------------------------------------------------------------
AGRICULTURAL PRODUCTS-1.09%
Archer-Daniels-Midland Co. 89,250 1,935,609
- -------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.85%
Cooper Tire & Rubber Co. 62,000 1,511,250
- -------------------------------------------------------------
AUTOMOBILES-1.59%
Chrysler Corp. 80,000 2,815,000
- -------------------------------------------------------------
BANKS (MAJOR REGIONAL)-3.30%
First Union Corp. 60,000 3,075,000
- -------------------------------------------------------------
NationsBank Corp. 45,674 2,777,550
- -------------------------------------------------------------
5,852,550
- -------------------------------------------------------------
BANKS (MONEY CENTER)-2.53%
First Chicago N.B.D. Corp. 53,800 4,492,300
- -------------------------------------------------------------
BANKS (REGIONAL)-2.61%
First of America Bank Corp. 60,000 4,627,500
- -------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-1.75%
PepsiCo, Inc. 85,000 3,097,188
- -------------------------------------------------------------
CHEMICALS-0.97%
Dow Chemical Co. (The) 17,000 1,725,500
- -------------------------------------------------------------
COMPUTERS (HARDWARE)-5.73%
Compaq Computer Corp. 51,250 2,892,422
- -------------------------------------------------------------
Hewlett-Packard Co. 56,000 3,500,000
- -------------------------------------------------------------
International Business Machines Corp. 36,000 3,764,250
- -------------------------------------------------------------
10,156,672
- -------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES)-4.90%
Computer Associates International,
Inc. 82,500 4,362,188
- -------------------------------------------------------------
Electronic Data Systems Corp. 98,300 4,319,056
- -------------------------------------------------------------
8,681,244
- -------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-2.27%
SUPERVALU, INC. 96,000 4,020,000
- -------------------------------------------------------------
ELECTRIC COMPANIES-8.04%
Baltimore Gas & Electric Co. 55,500 1,890,469
- -------------------------------------------------------------
Cinergy Corp. 61,000 2,337,063
- -------------------------------------------------------------
Entergy Corp. 120,000 3,592,500
- -------------------------------------------------------------
PP&L Resources, Inc. 70,000 1,675,625
- -------------------------------------------------------------
SCANA Corp. 54,500 1,631,594
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
Texas Utilities Co. 75,000 $ 3,117,189
- -------------------------------------------------------------
14,244,440
- -------------------------------------------------------------
ELECTRICAL EQUIPMENT-1.99%
General Electric Co. 48,000 3,522,000
- -------------------------------------------------------------
ELECTRONICS (DEFENSE)-1.12%
Raytheon Co. 39,400 1,989,700
- -------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-4.81%
American General Corp. 48,600 2,627,438
- -------------------------------------------------------------
Fannie Mae 40,000 2,282,500
- -------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover
& Co. 61,050 3,609,581
- -------------------------------------------------------------
8,519,519
- -------------------------------------------------------------
FOODS-1.67%
H.J. Heinz Co. 58,350 2,964,909
- -------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-2.96%
Abbott Laboratories 41,600 2,727,400
- -------------------------------------------------------------
American Home Products Corp. 32,900 2,516,850
- -------------------------------------------------------------
5,244,250
- -------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-5.54%
Lilly (Eli) & Co. 30,400 2,116,600
- -------------------------------------------------------------
Merck & Co., Inc. 30,900 3,283,125
- -------------------------------------------------------------
Schering-Plough Corp. 71,200 4,423,300
- -------------------------------------------------------------
9,823,025
- -------------------------------------------------------------
HEALTH CARE (HOSPITAL
MANAGEMENT)-1.59%
Columbia/HCA Healthcare Corp. 95,200 2,820,300
- -------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES-1.04%
Maytag Corp. 49,200 1,835,775
- -------------------------------------------------------------
HOUSEHOLD PRODUCTS
(NON-DURABLES)-1.11%
Kimberly-Clark Corp. 40,000 1,972,500
- -------------------------------------------------------------
HOUSEWARES-1.05%
Fortune Brands, Inc. 50,000 1,853,125
- -------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-1.06%
Jefferson-Pilot Corp. 24,000 1,869,000
- -------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-3.70%
Chubb Corp. 25,000 1,890,625
- -------------------------------------------------------------
General Re Corp. 13,500 2,862,000
- -------------------------------------------------------------
SAFECO Corp. 37,000 1,803,750
- -------------------------------------------------------------
6,556,375
- -------------------------------------------------------------
</TABLE>
FS-22
<PAGE> 123
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MACHINERY (DIVERSIFIED)-0.98%
Dover Corp. 48,000 $ 1,734,000
- -------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-2.26%
Textron, Inc. 64,000 4,000,000
- -------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.82%
York International Corp. 36,700 1,451,944
- -------------------------------------------------------------
METALS MINING-0.70%
Phelps Dodge Corp. 20,000 1,245,000
- -------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-1.05%
Pitney Bowes, Inc. 20,700 1,861,706
- -------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED)-6.24%
Amoco Corp. 24,600 2,094,074
- -------------------------------------------------------------
Exxon Corp. 52,000 3,181,750
- -------------------------------------------------------------
Repsol S.A.-ADR (Spain) 60,000 2,553,750
- -------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New
York Shares (Netherlands) 59,600 3,229,575
- -------------------------------------------------------------
11,059,149
- -------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.89%
Westvaco Corp. 50,000 1,571,874
- -------------------------------------------------------------
PHOTOGRAPHY/IMAGING-2.08%
Xerox Corp. 50,000 3,690,625
- -------------------------------------------------------------
RAILROADS-1.23%
Illinois Central Corp. 64,200 2,186,812
- -------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-2.14%
Lowe's Companies, Inc. 46,200 2,203,163
- -------------------------------------------------------------
Sherwin-Williams Co. 57,300 1,590,074
- -------------------------------------------------------------
3,793,237
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (DEPARTMENT STORES)-1.36%
J.C. Penney Co., Inc. 40,000 $ 2,412,500
- -------------------------------------------------------------
SERVICES (COMMERCIAL &
CONSUMER)-2.18%
Dun & Bradstreet Corp. 125,000 3,867,188
- -------------------------------------------------------------
TELEPHONE-2.29%
Southern New England
Telecommunications Corp. 35,000 1,760,937
- -------------------------------------------------------------
Telefonos de Mexico S.A.-ADR (Mexico) 40,800 2,287,350
- -------------------------------------------------------------
4,048,287
- -------------------------------------------------------------
TEXTILES (APPAREL)-1.18%
Liz Claiborne, Inc. 49,800 2,082,262
- -------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.98%
Shaw Industries, Inc. 149,000 1,732,124
- -------------------------------------------------------------
TOBACCO-4.46%
Philip Morris Companies, Inc. 79,200 3,588,750
- -------------------------------------------------------------
UST, Inc. 117,000 4,321,689
- -------------------------------------------------------------
7,910,439
- -------------------------------------------------------------
WASTE MANAGEMENT-1.16%
Waste Management, Inc. 75,000 2,062,500
- -------------------------------------------------------------
Total Common Stocks 172,371,588
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-2.73%(a)
Smith Barney Inc., 6.75%,
01/02/98(b) $4,839,870 4,839,870
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.99% 177,211,458
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.01% 16,369
- --------------------------------------------------------------
NET ASSETS-100.00% $177,227,827
==============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to insure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investments companies managed by the
investment advisor or its affiliates.
(b) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations, 0%
to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Abbreviations:
ADR - American Depositary Receipt
See Notes to Financial Statements.
FS-23
<PAGE> 124
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$109,675,167) $177,211,458
- ---------------------------------------------------------
Receivables for:
Capital stock sold 278,933
- ---------------------------------------------------------
Interest and dividends 406,277
- ---------------------------------------------------------
Investment for deferred compensation plan 2,092
- ---------------------------------------------------------
Other assets 4,436
- ---------------------------------------------------------
Total assets 177,903,196
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 56,225
- ---------------------------------------------------------
Deferred compensation plan 2,092
- ---------------------------------------------------------
Accrued advisory fees 110,771
- ---------------------------------------------------------
Accrued operating services fees 66,462
- ---------------------------------------------------------
Accrued distribution fees 422,994
- ---------------------------------------------------------
Accrued directors' fees and expenses 16,825
- ---------------------------------------------------------
Total liabilities 675,369
- ---------------------------------------------------------
Net assets applicable to shares outstanding $177,227,827
=========================================================
NET ASSETS:
Class A $ 5,000,130
=========================================================
Class C $172,227,697
=========================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 207,399
=========================================================
Class C
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 7,153,303
=========================================================
Class A:
Net asset value and redemption price per
share $ 24.11
=========================================================
Offering price per share:
(Net asset value of $24.11 divided by
94.50%) $ 25.51
=========================================================
Class C:
Net asset value and offering price per
share $ 24.08
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 330,699
- --------------------------------------------------------
Dividends (net of $5,361 foreign
withholding tax) 3,197,343
- --------------------------------------------------------
Total investment income 3,528,042
- --------------------------------------------------------
EXPENSES:
Advisory fees 1,184,878
- --------------------------------------------------------
Operating services fees 710,927
- --------------------------------------------------------
Directors' fees and expenses 18,267
- --------------------------------------------------------
Distribution fees-Class A 5,462
- --------------------------------------------------------
Distribution fees-Class C 1,564,270
- --------------------------------------------------------
Total expenses 3,483,804
- --------------------------------------------------------
Less: Fees waived by distributor (1,570)
- --------------------------------------------------------
Net expenses 3,482,234
- --------------------------------------------------------
Net investment income 45,808
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain from investment
securities 17,674,268
- --------------------------------------------------------
Net unrealized appreciation of investment
securities 24,024,117
- --------------------------------------------------------
Net gain on investment securities 41,698,385
- --------------------------------------------------------
Net increase in net assets resulting from
operations $41,744,193
========================================================
</TABLE>
See Notes to Financial Statements.
FS-24
<PAGE> 125
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 45,808 $ 302,211
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities 17,674,268 5,485,198
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 24,024,117 14,241,394
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 41,744,193 20,028,803
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (6,926) --
- -----------------------------------------------------------------------------------------
Class C (10,706) (326,780)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (415,931) --
- -----------------------------------------------------------------------------------------
Class C (17,806,373) --
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 5,055,769 --
- -----------------------------------------------------------------------------------------
Class C 11,252,055 4,140,414
- -----------------------------------------------------------------------------------------
Net increase in net assets 39,812,081 23,842,437
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 137,415,746 113,573,309
- -----------------------------------------------------------------------------------------
End of period $177,227,827 $137,415,746
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $105,927,721 $ 89,619,897
- -----------------------------------------------------------------------------------------
Undistributed net investment income (loss) 5,961 (22,215)
- -----------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities 3,757,854 4,305,890
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 67,536,291 43,512,174
- -----------------------------------------------------------------------------------------
$177,227,827 $137,415,746
=========================================================================================
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor Large Cap Value Fund (the "Fund", formerly INVESCO Advisor Equity
Fund) is a series portfolio of AIM Advisor Funds, Inc. (the "Company" formerly,
INVESCO Advisor Funds, Inc.) The Company is a Maryland corporation and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
diversified portfolios. The Fund currently offers two different classes of
shares: Class A shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class C shares are sold with a contingent deferred sales
charge. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. The Fund's investment
objective is to achieve a high total return on investment through capital
appreciation and current income, without regard to federal income tax
considerations. Information presented in these financial statements pertains
only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not 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 of the closing bid
and asked prices. Debt obligations (including
FS-25
<PAGE> 126
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the
above methods are valued at the mean between last bid and asked prices based
upon quotes furnished by independent sources. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Company's Board of Directors. Investments with maturities of 60 days or less
are valued on the basis of amortized cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
C. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed
to shareholders. Therefore, no provision for federal income taxes is
recorded in the financial statements.
D. Expenses-Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.75% of
the Fund's average daily net assets. AIM has entered into a sub-advisory
agreement with INVESCO Capital Management, Inc. ("ICM") whereby AIM pays ICM an
annual rate of 0.20% of the Fund's average daily net assets. Prior to August 4,
1997, the Company had an investment advisory agreement with INVESCO Services,
Inc. ("ISI") to serve as the Fund's investment advisor. Under the terms of the
prior investment agreement, the Fund paid ISI an advisory fee equal to an annual
rate of 0.75% of the average daily net assets of the Fund. Under the terms of
the prior sub-advisory agreement between ISI and ICM, ISI paid ICM a
sub-advisory fee equal to an annual rate of 0.20% of the Fund's average daily
net assets.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of average daily net assets of the Fund for
providing or arranging to provide accounting, legal (except litigation),
dividend disbursing, transfer agency, registrar, custodial, shareholder
reporting, sub-accounting and recordkeeping services and functions. This
agreement provides 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. During the
period August 4, 1997 to December 31, 1997, AIM was paid $313,139 for such
services. Prior to August 4, 1997, the Company had an operating services
agreement with ISI whereby the Fund paid ISI an annual rate of 0.45% of average
daily net assets of the Fund. During the period January 1, 1997 through August
3, 1997, the Fund paid ISI $397,788.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and Class C shares of the Fund. The Company has adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and the Fund's Class C shares (the "Plan"). The Fund,
pursuant to the Plan, pays AIM Distributors compensation at a maximum annual
rate of 0.35% of the average daily net assets attributable to the Class A
shares. AIM has voluntarily agreed to limit the Plan payments to 0.25% for three
years beginning August 4, 1997. The Fund, pursuant to the Plan, pays AIM
Distributors a maximum annual rate of 1.00% of the Fund's average daily net
assets attributable to the Class C shares. Of these amounts, the Fund may pay a
service fee of 0.25% of the average daily net assets of the Class A and C shares
to selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own shares of the Fund.
Any amounts not paid as a service fee under the Plan would constitute an
asset-based sales charge. The Plan also imposes a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the period August 4, 1997 to December 31, 1997, the Class A and
Class C shares paid AIM Distributors $3,069 and $683,679, respectively, as
compensation under the Plan. During the year ended December 31, 1997 AIM
Distributors and ISI waived fees of $1,570 for the Class A shares. Prior to
August 4, 1997, the Fund entered into a distribution plan with ISI in accordance
with Rule 12b-1 of the 1940 Act under substantially identical terms as described
for AIM Distributors above. During the period January 1, 1997 to August 3, 1997
the Class A and Class C shares paid ISI $823 and $880,591, respectively as
compensation under the Plan.
AIM Distributors received commissions of $7,461 from sales of Class A shares
of the Fund during the period August 4, 1997 to December 31, 1997. ISI received
commissions of $999 from sales of Class A shares of the Fund during the period
January 1, 1997 through August 3, 1997. Such commissions are not an expense to
the Fund. They are deducted from, and are not included in, the proceeds from
sales of Class A shares. During the period August 4, 1997 to December 31, 1997,
AIM Distributors received commissions of $570 in contingent deferred sales
charges imposed on redemptions of shares. Certain officers and directors of the
Company are officers and directors of AIM, A I M Fund Services, Inc. and AIM
Distributors. During the period January 1, 1997 through August 3, 1997, ISI
received commissions of $8,692 in contingent deferred sales charges imposed on
redemptions of shares.
The combined effect of the master investment advisory agreements and operating
services agreement and the distribution plans for the Fund is to place a cap or
ceiling on the total expenses
FS-26
<PAGE> 127
of the 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 Fund. To the
extent that the Fund exceeds the amounts, AIM or its affiliates will waive its
fees to reimburse the Fund to assure that the Fund's expenses do not exceed the
designated maximum amounts except for those items specifically identified above.
If, in any calendar quarter, the average net assets of the Fund are less than
$500 million, the 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.
During the period August 4, 1997 to December 31, 1997, the Fund paid legal
fees of $625 for services rendered by Kramer, Levin, Naftalis & Frankel as
counsel to the Company's directors. A member of that firm is a director of the
Company.
NOTE 3-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1997 was
$52,014,131 and $53,036,580, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $68,808,948
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,272,657)
- -------------------------------------------------------------
Net unrealized appreciation of investment
securities $67,536,291
=============================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 5-CAPITAL STOCK*
Changes in the Fund's capital stock outstanding during the years ended December
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A** 198,806 $ 4,859,057 -- $ --
- ----------------------------------------------------------- --------- ------------ --------- ------------
Class C 745,080 17,246,229 1,052,644 19,738,118
- ----------------------------------------------------------- --------- ------------ --------- ------------
Issued as reinvestment of dividends:
Class A** 15,389 365,541 -- --
- ----------------------------------------------------------- --------- ------------ --------- ------------
Class C 683,868 16,255,395 13,084 248,270
- ----------------------------------------------------------- --------- ------------ --------- ------------
Reacquired:
Class A** (6,796) (168,829) -- --
- ----------------------------------------------------------- --------- ------------ --------- ------------
Class C (955,477) (22,249,569) (837,888) (15,845,974)
- ----------------------------------------------------------- --------- ------------ --------- ------------
680,870 $ 16,307,824 227,840 $ 4,140,414
=========================================================== ========= ============ ========= ============
</TABLE>
* Shares have been restated to reflect a 4 for 1 stock split, effected in the
form of a 300% stock dividend, on November 7, 1997.
** Class A shares commenced operations on January 1, 1997.
FS-27
<PAGE> 128
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the year ended December 31, 1997 and for a share of Class C
capital stock outstanding during each of the years in the five-year period ended
December 31, 1997.(a)
CLASS A:
<TABLE>
<CAPTION>
1997(b)
-------
<S> <C>
Net asset value, beginning of period $ 20.57
- ------------------------------------------------------------ -------
Income from investment operations:
Net investment income 0.23(c)
- ------------------------------------------------------------ -------
Net gains on securities (both realized and unrealized) 6.17
- ------------------------------------------------------------ -------
Total from investment operations 6.40
- ------------------------------------------------------------ -------
Less distributions:
Dividends from net investment income (0.15)
- ------------------------------------------------------------ -------
Distributions from capital gains (2.71)
- ------------------------------------------------------------ -------
Total distributions (2.86)
- ------------------------------------------------------------ -------
Net asset value, end of period $ 24.11
============================================================ =======
Total return(d) 31.66%
============================================================ =======
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 5,000
============================================================ =======
Ratio of expenses to average net assets(e) 1.46%(f)
============================================================ =======
Ratio of net investment income to average net assets(g) 0.77%(f)
============================================================ =======
Portfolio turnover rate 34%
============================================================ =======
Average brokerage commission rate(h) $0.0538
============================================================ =======
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Calculated using average shares outstanding.
(d) Does not deduct sales charges.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 1.56%.
(f) Ratios are based on average net assets of $1,570,213.
(g) After fee waivers. Ratio of net investment income to average net assets
prior to fee waivers was 0.67%.
(h) 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 and sold.
CLASS C:(a)
<TABLE>
<CAPTION>
1997(b) 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.57 $ 17.60 $ 13.96 $ 14.90 $ 15.82
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.01(c) 0.05 0.10 0.09 0.10
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 6.21 2.97 4.11 0.32 1.35
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 6.22 3.02 4.21 0.41 1.45
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income -- (0.05) (0.10) (0.09) (0.10)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from capital gains (2.71) -- (0.47) (1.26) (2.27)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (2.71) (0.05) (0.57) (1.35) (2.37)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 24.08 $ 20.57 $ 17.60 $ 13.96 $ 14.90
============================================================ ======== ======== ======== ======== ========
Total return(d) 30.66% 17.17% 30.28% 2.69% 9.16%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $172,228 $137,416 $113,573 $ 77,929 $ 86,659
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets(e) 2.21%(f) 2.26% 2.28% 2.25% 2.25%
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets(e) 0.02%(f) 0.24% 0.64% 0.61% 0.62%
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 34% 19% 17% 21% 47%
============================================================ ======== ======== ======== ======== ========
Average brokerage commission rate(g) $ 0.0538 $ 0.0590 N/A N/A N/A
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Calculated using average shares outstanding.
(d) Does not deduct contingent deferred sales charges.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 2.25% (annualized) and 0.62% (annualized), respectively,
for 1993.
(f) Ratios are based on average net assets of $156,522,171.
(g) 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 and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
FS-28
<PAGE> 129
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of the AIM Advisor Funds, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Advisor MultiFlex Fund, one of the portfolios of the
AIM Advisor Funds, Inc. (hereafter referred to as the
"Fund") at December 31, 1997, the results of its
operations for the year then ended, the changes in its
net assets for each of the two years in the period then
ended and the financial highlights for the periods
indicated, in conformity with generally accepted
accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with generally accepted auditing standards
which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian
and the application of alternative auditing procedures
where securities purchased had not been received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
February 5, 1998
FS-29
<PAGE> 130
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-79.34%
AEROSPACE/DEFENSE-0.61%
BE Aerospace, Inc.(a) 15,900 $ 425,325
- --------------------------------------------------------------
Boeing Co. (The) 13,000 636,188
- --------------------------------------------------------------
Lockheed Martin Corp. 9,616 947,176
- --------------------------------------------------------------
Sequa Corp.(a) 5,500 357,844
- --------------------------------------------------------------
2,366,533
- --------------------------------------------------------------
AGRICULTURAL PRODUCTS-0.41%
Archer-Daniels-Midland Co. 50,925 1,104,436
- --------------------------------------------------------------
Universal Corp. 11,300 464,713
- --------------------------------------------------------------
1,569,149
- --------------------------------------------------------------
AIR FREIGHT-0.30%
Airborne Freight Corp. 11,600 720,650
- --------------------------------------------------------------
Expeditors International of
Washington, Inc. 11,300 435,050
- --------------------------------------------------------------
1,155,700
- --------------------------------------------------------------
AIRLINES-0.46%
British Airways PLC-ADR (United
Kingdom) 19,000 1,780,063
- --------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.49%
Arvin Industries, Inc. 17,500 582,969
- --------------------------------------------------------------
Borg-Warner Automotive, Inc. 14,600 759,200
- --------------------------------------------------------------
Cooper Tire & Rubber Co. 22,300 543,563
- --------------------------------------------------------------
1,885,732
- --------------------------------------------------------------
AUTOMOBILES-0.49%
Ford Motor Co. 16,600 808,213
- --------------------------------------------------------------
Volvo A.B.-ADR (Sweden) 40,000 1,080,000
- --------------------------------------------------------------
1,888,213
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-3.50%
ABN Amro Holding N.V.-ADR
(Netherlands) 80,000 1,560,000
- --------------------------------------------------------------
Banco Santander-ADR (Spain) 62,700 2,041,669
- --------------------------------------------------------------
Deutsche Bank A.G.-ADR (Germany) 30,000 2,118,969
- --------------------------------------------------------------
HSBC Holdings PLC-ADR (United
Kingdom) 8,000 1,972,054
- --------------------------------------------------------------
Istituto Mobiliare Italiano
S.p.A.-ADR (Italy) 45,000 1,608,750
- --------------------------------------------------------------
National Australia Bank Ltd.-ADR
(Australia) 25,000 1,765,625
- --------------------------------------------------------------
NationsBank Corp. 21,662 1,317,320
- --------------------------------------------------------------
Wachovia Corp. 14,000 1,135,750
- --------------------------------------------------------------
13,520,137
- --------------------------------------------------------------
BANKS (MONEY CENTER)-1.99%
Credit Suisse Group-ADR
(Switzerland) 50,000 1,936,850
- --------------------------------------------------------------
Den Danske Bank-ADR (Denmark) 17,000 2,266,761
- --------------------------------------------------------------
First Chicago N.B.D. Corp. 17,000 1,419,500
- --------------------------------------------------------------
Societe Generale-ADR (France) 75,000 2,044,590
- --------------------------------------------------------------
7,667,701
- --------------------------------------------------------------
BANKS (REGIONAL)-1.55%
ALBANK Financial Corp. 15,840 814,770
- --------------------------------------------------------------
CCB Financial Corp. 5,100 548,250
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BANKS (REGIONAL)-(CONTINUED)
Cullen/Frost Bankers, Inc. 11,600 $ 703,975
- --------------------------------------------------------------
Development Bank of Singapore
Ltd.-ADR (Singapore) 40,000 1,367,408
- --------------------------------------------------------------
First Midwest Bancorp, Inc. 11,500 503,125
- --------------------------------------------------------------
Imperial Bancorp(a) 18,800 927,075
- --------------------------------------------------------------
Independent Bank Corp. 16,600 305,025
- --------------------------------------------------------------
Magna Group, Inc. 18,100 828,075
- --------------------------------------------------------------
5,997,703
- --------------------------------------------------------------
BEVERAGES (ALCOHOLIC)-0.62%
Adolph Coors Co. 5,700 189,525
- --------------------------------------------------------------
Compania Cervecerias Unidas
S.A.-ADR (Chile) 45,000 1,321,875
- --------------------------------------------------------------
Kirin Brewery Co., Ltd.-ADR (Japan) 12,000 880,500
- --------------------------------------------------------------
2,391,900
- --------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC)-0.27%
PepsiCo, Inc. 28,350 1,033,003
- --------------------------------------------------------------
BIOTECHNOLOGY-0.00%
Amylin Pharmaceuticals, Inc.(a) 1,200 6,525
- --------------------------------------------------------------
BUILDING MATERIALS-0.15%
Cameron Ashley Building Products(a) 5,100 85,425
- --------------------------------------------------------------
TJ International, Inc. 20,400 504,900
- --------------------------------------------------------------
590,325
- --------------------------------------------------------------
CHEMICALS-1.01%
Akzo Nobel N.V.-ADR (Netherlands) 20,000 1,737,500
- --------------------------------------------------------------
Dow Chemical Co. (The) 6,200 629,300
- --------------------------------------------------------------
Norsk Hydro A.S.A.-ADR (Norway) 30,000 1,530,000
- --------------------------------------------------------------
3,896,800
- --------------------------------------------------------------
CHEMICALS (DIVERSIFIED)-0.85%
BASF A.G.-ADR (Germany) 50,000 1,772,760
- --------------------------------------------------------------
Bayer A.G.-ADR (Germany) 40,000 1,494,956
- --------------------------------------------------------------
3,267,716
- --------------------------------------------------------------
CHEMICALS (SPECIALTY)-0.65%
Dexter Corp. 28,800 1,243,800
- --------------------------------------------------------------
Fuller (H.B.) Co. 5,000 247,500
- --------------------------------------------------------------
Konica Corp.-ADR (Japan) 22,000 1,015,219
- --------------------------------------------------------------
2,506,519
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.13%
Brightpoint, Inc.(a) 13,600 188,700
- --------------------------------------------------------------
MasTec, Inc.(a) 6,800 155,550
- --------------------------------------------------------------
Tekelec(a) 5,400 164,700
- --------------------------------------------------------------
508,950
- --------------------------------------------------------------
COMPUTERS (HARDWARE)-1.09%
Compaq Computer Corp. 19,500 1,100,531
- --------------------------------------------------------------
Data General Corp.(a) 10,700 186,581
- --------------------------------------------------------------
Hewlett-Packard Co. 18,400 1,150,000
- --------------------------------------------------------------
</TABLE>
FS-30
<PAGE> 131
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (HARDWARE)-(CONTINUED)
International Business Machines
Corp. 9,400 $ 982,888
- --------------------------------------------------------------
Stratus Computer, Inc.(a) 20,600 778,938
- --------------------------------------------------------------
4,198,938
- --------------------------------------------------------------
COMPUTERS (NETWORKING)-0.05%
Premiere Technologies, Inc.(a) 6,300 174,038
- --------------------------------------------------------------
COMPUTERS (PERIPHERALS)-0.18%
Adaptec, Inc.(a) 18,900 701,663
- --------------------------------------------------------------
COMPUTERS (SOFTWARE &
SERVICES)-1.78%
Aspen Technologies, Inc.(a) 9,600 328,800
- --------------------------------------------------------------
Boole & Babbage, Inc.(a) 18,000 537,750
- --------------------------------------------------------------
Computer Associates International,
Inc. 28,350 1,499,006
- --------------------------------------------------------------
Computer Task Group, Inc. 24,600 874,838
- --------------------------------------------------------------
Electronic Data Systems Corp. 39,600 1,739,925
- --------------------------------------------------------------
Harbinger Corp.(a) 9,300 261,563
- --------------------------------------------------------------
Manugistics Group, Inc.(a) 7,800 348,075
- --------------------------------------------------------------
Platinum Technology, Inc. 11,400 322,050
- --------------------------------------------------------------
Structural Dynamics Research
Corp.(a) 14,000 315,000
- --------------------------------------------------------------
Symantec Corp.(a) 13,500 296,156
- --------------------------------------------------------------
Veritas Software Corp.(a) 7,000 357,000
- --------------------------------------------------------------
6,880,163
- --------------------------------------------------------------
CONSTRUCTION (CEMENT & AGGREGATES)-0.84%
Cemex S.A. de C.V.-ADR (Mexico) 110,000 1,167,969
- --------------------------------------------------------------
Centex Construction Products, Inc. 12,000 361,500
- --------------------------------------------------------------
Southdown, Inc. 10,300 607,700
- --------------------------------------------------------------
Vulcan Materials Co. 11,000 1,123,375
- --------------------------------------------------------------
3,260,544
- --------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)-0.12%
Oneida Limited 17,250 460,359
- --------------------------------------------------------------
CONSUMER FINANCE-0.07%
FIRSTPLUS Financial Group, Inc. 7,500 287,813
- --------------------------------------------------------------
CONTAINERS & PACKAGING
(PAPER)-0.15%
Amcor Ltd.-ADR (Australia) 35,000 595,000
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH)-0.36%
AmeriSource Health Corp.-Class A(a) 4,900 285,425
- --------------------------------------------------------------
Bindley Western Industries, Inc. 18,900 583,538
- --------------------------------------------------------------
Richfood Holdings, Inc. 17,900 505,675
- --------------------------------------------------------------
1,374,638
- --------------------------------------------------------------
ELECTRIC COMPANIES-3.20%
Central Louisiana Electric 7,600 246,050
- --------------------------------------------------------------
Central Maine Power Co. 16,000 244,000
- --------------------------------------------------------------
CILCORP, Inc. 5,500 268,813
- --------------------------------------------------------------
Commonwealth Energy System 10,400 345,800
- --------------------------------------------------------------
DTE Energy Co. 26,700 926,156
- --------------------------------------------------------------
Endesa S.A.-ADR (Spain) 90,000 1,636,875
- --------------------------------------------------------------
Entergy Corp. 24,000 718,500
- --------------------------------------------------------------
Hawaiian Electric Industries, Inc. 15,200 621,300
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRIC COMPANIES-(CONTINUED)
Hongkong Electric Holdings Ltd.-ADR
(HongKong) 250,000 $ 950,200
- --------------------------------------------------------------
IES Industries, Inc. 8,800 323,950
- --------------------------------------------------------------
Interstate Power Co. 9,300 348,169
- --------------------------------------------------------------
Minnesota Power & Light Co. 8,300 361,569
- --------------------------------------------------------------
PowerGen PLC-ADR (United Kingdom) 35,000 1,859,375
- --------------------------------------------------------------
RWE A.G. (Germany) 32,000 1,717,420
- --------------------------------------------------------------
SIGCORP, Inc. 10,950 321,656
- --------------------------------------------------------------
Southern Co. 30,000 776,250
- --------------------------------------------------------------
Texas Utilities Co. 16,000 665,000
- --------------------------------------------------------------
12,331,083
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT-2.02%
Black Box Corp.(a) 9,000 318,375
- --------------------------------------------------------------
Carlton Communications PLC-ADR
(United Kingdom) 45,000 1,755,000
- --------------------------------------------------------------
Electro Scientific Industries,
Inc.(a) 9,500 361,000
- --------------------------------------------------------------
Emerson Electric Co. 17,600 993,300
- --------------------------------------------------------------
Esterline Technologies Corp.(a) 6,200 223,200
- --------------------------------------------------------------
General Electric Co. 11,000 807,125
- --------------------------------------------------------------
Hitachi Ltd.-ADR (Japan) 18,000 1,245,375
- --------------------------------------------------------------
Matsushita Electric Industrial Co.,
Ltd. 6,000 912,000
- --------------------------------------------------------------
Robbins & Myers, Inc. 23,100 915,338
- --------------------------------------------------------------
Technitrol, Inc. 9,000 270,000
- --------------------------------------------------------------
7,800,713
- --------------------------------------------------------------
ELECTRONIC (COMPONENT DISTRIBUTORS)-0.21%
Kyocera Corp.-ADR (Japan) 9,000 814,500
- --------------------------------------------------------------
ELECTRONICS (DEFENSE)-0.26%
Raytheon Co. 20,000 1,010,000
- --------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION)-0.16%
CellStar Corp.(a) 9,800 194,775
- --------------------------------------------------------------
Methode Electronics, Inc.-Class A 26,300 427,375
- --------------------------------------------------------------
622,150
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS)-0.43%
Dallas Semiconductor Corp. 9,300 378,975
- --------------------------------------------------------------
PMC-Sierra, Inc. 10,000 310,000
- --------------------------------------------------------------
Texas Instruments, Inc. 15,000 675,000
- --------------------------------------------------------------
Unitrode Corp. 13,000 279,500
- --------------------------------------------------------------
1,643,475
- --------------------------------------------------------------
ENGINEERING & CONSTRUCTION-0.18%
Stone & Webster, Inc. 14,900 698,438
- --------------------------------------------------------------
ENTERTAINMENT-0.54%
Carmike Cinemas, Inc. 17,000 487,688
- --------------------------------------------------------------
News Corp. Ltd. (The)-ADR
(Australia) 50,000 1,115,625
- --------------------------------------------------------------
Walt Disney Co. (The) 5,000 495,313
- --------------------------------------------------------------
2,098,626
- --------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR)-0.23%
Etec Systems, Inc.(a) 11,000 511,500
- --------------------------------------------------------------
</TABLE>
FS-31
<PAGE> 132
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
EQUIPMENT (SEMICONDUCTOR)-(CONTINUED)
Kulicke & Soffa Industries, Inc.(a) 21,200 $ 394,850
- --------------------------------------------------------------
906,350
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.02%
American General Corp. 19,900 1,075,844
- --------------------------------------------------------------
Fannie Mae 24,300 1,386,619
- --------------------------------------------------------------
Morgan Stanley, Dean Witter,
Discover & Co. 14,850 878,006
- --------------------------------------------------------------
U.S. Trust Corp. 9,700 607,463
- --------------------------------------------------------------
3,947,932
- --------------------------------------------------------------
FOODS-2.10%
Associated British Foods PLC-ADR
(United Kingdom) 200,000 1,714,500
- --------------------------------------------------------------
Danone-ADR (France) 50,000 1,786,940
- --------------------------------------------------------------
Earthgrains Co. (The)-ADR 10,000 470,000
- --------------------------------------------------------------
H.J. Heinz Co. 19,000 965,438
- --------------------------------------------------------------
Nestle S.A.-ADR (Switzerland) 27,000 2,026,085
- --------------------------------------------------------------
Ralston-Ralston Purina Group 12,100 1,124,544
- --------------------------------------------------------------
8,087,507
- --------------------------------------------------------------
FOOTWEAR-0.15%
Nike, Inc.-Class B 15,000 588,750
- --------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL
COMPANIES-0.04%
Anchor Gaming(a) 3,000 167,250
- --------------------------------------------------------------
HEALTH CARE (DIVERSIFIED)-1.14%
Abbott Laboratories 17,650 1,157,178
- --------------------------------------------------------------
American Home Products Corp. 11,000 841,500
- --------------------------------------------------------------
Bristol-Myers Squibb Co. 17,900 1,693,788
- --------------------------------------------------------------
Johnson & Johnson 10,800 711,450
- --------------------------------------------------------------
4,403,916
- --------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER)-2.04%
Agouron Pharmaceuticals, Inc.(a) 17,700 519,938
- --------------------------------------------------------------
Alpharma, Inc. 5,200 113,100
- --------------------------------------------------------------
Astra A.B.-ADR (Sweden) 110,000 1,890,625
- --------------------------------------------------------------
ICN Pharmaceuticals, Inc. 9,800 478,363
- --------------------------------------------------------------
Novartis-ADR (Switzerland) 26,666 2,166,479
- --------------------------------------------------------------
Novo Nordisk A.S.-ADR (Denmark) 34,000 2,460,750
- --------------------------------------------------------------
Parexel International Corp.(a) 6,100 225,700
- --------------------------------------------------------------
7,854,955
- --------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS)-1.49%
Glaxo Wellcome PLC-ADR (United
Kingdom) 40,000 1,915,000
- --------------------------------------------------------------
Lilly (Eli) & Co. 11,800 821,575
- --------------------------------------------------------------
Merck & Co., Inc. 11,000 1,168,750
- --------------------------------------------------------------
Schering-Plough Corp. 30,100 1,869,963
- --------------------------------------------------------------
5,775,288
- --------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT)-0.52%
Columbia/HCA Healthcare Corp. 39,428 1,168,055
- --------------------------------------------------------------
Universal Health Services,
Inc.-Class B(a) 16,800 846,300
- --------------------------------------------------------------
2,014,355
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (LONG TERM CARE)-0.33%
Integrated Health Services, Inc. 33,000 $ 1,029,188
- --------------------------------------------------------------
NovaCare, Inc.(a) 19,400 253,413
- --------------------------------------------------------------
1,282,601
- --------------------------------------------------------------
HEALTH CARE (MANAGED CARE)-0.24%
Trigon Healthcare, Inc.(a) 35,500 927,438
- --------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)-0.91%
ADAC Laboratories(a) 16,200 319,950
- --------------------------------------------------------------
Arterial Vascular Engineering,
Inc.(a) 9,400 611,000
- --------------------------------------------------------------
ATL Ultrasound, Inc.(a) 6,300 289,800
- --------------------------------------------------------------
Biomet, Inc. 19,500 499,688
- --------------------------------------------------------------
Invacare Corp. 34,500 750,375
- --------------------------------------------------------------
Safeskin Corp.(a) 7,500 425,625
- --------------------------------------------------------------
Theragenics Corp.(a) 3,300 118,800
- --------------------------------------------------------------
West Co., Inc. (The) 16,200 481,950
- --------------------------------------------------------------
3,497,188
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED
SERVICES)-0.19%
FPA Medical Management, Inc.(a) 11,700 217,913
- --------------------------------------------------------------
Hooper Holmes, Inc. 34,200 498,038
- --------------------------------------------------------------
715,951
- --------------------------------------------------------------
HOMEBUILDING-0.38%
Centex Corp. 1,600 100,700
- --------------------------------------------------------------
Lennar Corp. 18,900 407,531
- --------------------------------------------------------------
Pulte Corp. 16,200 677,363
- --------------------------------------------------------------
U.S. Home Corp.(a) 7,200 282,600
- --------------------------------------------------------------
1,468,194
- --------------------------------------------------------------
HOUSEHOLD FURNITURE &
APPLIANCES-0.61%
Ethan Allen Interiors, Inc. 21,500 829,094
- --------------------------------------------------------------
Furniture Brands International,
Inc.(a) 32,700 670,350
- --------------------------------------------------------------
Scotsman Industries, Inc. 9,000 219,938
- --------------------------------------------------------------
Whirlpool Corp. 11,500 632,500
- --------------------------------------------------------------
2,351,882
- --------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES)-0.75%
Kimberly-Clark Corp. 18,200 897,488
- --------------------------------------------------------------
Unilever N.V.-New York Shares
(Netherlands) 32,000 1,998,000
- --------------------------------------------------------------
2,895,488
- --------------------------------------------------------------
HOUSEWARES-0.14%
Fortune Brands, Inc. 14,500 537,406
- --------------------------------------------------------------
INSURANCE (LIFE/HEALTH)-0.38%
Delphi Financial Group, Inc.(a) 6,732 302,940
- --------------------------------------------------------------
Guarantee Life Companies Inc. (The) 16,700 475,950
- --------------------------------------------------------------
Jefferson-Pilot Corp. 2,600 202,475
- --------------------------------------------------------------
Presidential Life Corp. 24,500 496,125
- --------------------------------------------------------------
1,477,490
- --------------------------------------------------------------
INSURANCE (MULTI-LINE)-0.67%
American International Group, Inc. 10,425 1,133,719
- --------------------------------------------------------------
FBL Financial Group, Inc. 6,700 268,838
- --------------------------------------------------------------
</TABLE>
FS-32
<PAGE> 133
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE)-(CONTINUED)
Travelers Group, Inc. 22,035 $ 1,187,136
- --------------------------------------------------------------
2,589,693
- --------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY)-1.23%
Chubb Corp. 2,900 219,313
- --------------------------------------------------------------
Executive Risk Inc. 3,600 251,325
- --------------------------------------------------------------
Frontier Insurance Group, Inc. 9,420 215,483
- --------------------------------------------------------------
General Re Corp. 3,800 805,600
- --------------------------------------------------------------
Lawyers Title Corp. 21,000 660,188
- --------------------------------------------------------------
Orion Capital Corp. 26,000 1,207,375
- --------------------------------------------------------------
SAFECO Corp. 18,500 901,875
- --------------------------------------------------------------
W. R. Berkley Corp. 11,100 487,013
- --------------------------------------------------------------
4,748,172
- --------------------------------------------------------------
INSURANCE BROKERS-0.32%
Marsh & McLennan Co. 8,050 600,228
- --------------------------------------------------------------
Poe & Brown, Inc. 14,200 633,675
- --------------------------------------------------------------
1,233,903
- --------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.50%
Interra Financial, Inc.(a) 9,800 676,200
- --------------------------------------------------------------
Raymond James Financial, Inc. 31,450 1,248,172
- --------------------------------------------------------------
1,924,372
- --------------------------------------------------------------
IRON & STEEL-0.25%
National Steel Corp.(a) 24,300 280,969
- --------------------------------------------------------------
Nucor Corp. 14,000 676,375
- --------------------------------------------------------------
957,344
- --------------------------------------------------------------
LEISURE TIME (PRODUCTS)-0.67%
Mattel, Inc. 21,200 789,700
- --------------------------------------------------------------
Nintendo Co. Ltd.-ADR (Japan) 145,000 1,784,312
- --------------------------------------------------------------
2,574,012
- --------------------------------------------------------------
LODGING-HOTELS-0.29%
Bristol Hotel Co.(a) 9,300 270,281
- --------------------------------------------------------------
Prime Hospitality Corp.(a) 42,600 867,975
- --------------------------------------------------------------
1,138,256
- --------------------------------------------------------------
MACHINERY (DIVERSIFIED)-0.40%
Dover Corp. 29,700 1,072,913
- --------------------------------------------------------------
Manitiwoc Co., Inc. (The) 14,850 482,625
- --------------------------------------------------------------
1,555,538
- --------------------------------------------------------------
MANUFACTURING (DIVERSIFIED)-1.12%
Carlisle Companies, Inc. 19,300 825,075
- --------------------------------------------------------------
GenCorp, Inc. 17,200 430,000
- --------------------------------------------------------------
IDEX Corp. 19,200 669,600
- --------------------------------------------------------------
Textron, Inc. 20,000 1,250,000
- --------------------------------------------------------------
Tredegar Industries, Inc. 17,500 1,152,813
- --------------------------------------------------------------
4,327,488
- --------------------------------------------------------------
MANUFACTURING (SPECIALIZED)-0.42%
AptarGroup, Inc. 6,700 371,850
- --------------------------------------------------------------
Cognex Corp.(a) 12,200 332,450
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED)-(CONTINUED)
Dionex Corp.(a) 8,100 $ 407,025
- --------------------------------------------------------------
York International Corp. 12,500 494,530
- --------------------------------------------------------------
1,605,855
- --------------------------------------------------------------
METAL FABRICATORS-0.15%
Commercial Metals Co. 6,000 189,375
- --------------------------------------------------------------
Oregon Metallurgical Corp.(a) 11,600 387,150
- --------------------------------------------------------------
576,525
- --------------------------------------------------------------
METALS MINING-0.51%
Phelps Dodge Corp. 8,500 529,125
- --------------------------------------------------------------
Rio Tinto Ltd. (Australia) 31,000 1,446,456
- --------------------------------------------------------------
1,975,581
- --------------------------------------------------------------
NATURAL GAS-0.28%
Energen Corp. 16,500 655,875
- --------------------------------------------------------------
ONEOK, Inc. 10,200 411,825
- --------------------------------------------------------------
1,067,700
- --------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES-0.21%
Pitney Bowes, Inc. 9,000 809,437
- --------------------------------------------------------------
OIL (INTERNATIONAL
INTEGRATED)-1.68%
Amoco Corp. 7,000 595,875
- --------------------------------------------------------------
Exxon Corp. 17,400 1,064,662
- --------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New
York Shares (Netherlands) 27,600 1,495,575
- --------------------------------------------------------------
Shell Transport & Trading Co.-ADR
(United Kingdom) 45,000 1,968,750
- --------------------------------------------------------------
YPF Sociedad Anonima-ADR
(Argentina) 40,000 1,367,500
- --------------------------------------------------------------
6,492,362
- --------------------------------------------------------------
OIL & GAS (DRILLING &
EQUIPMENT)-0.30%
Marine Drilling Companies, Inc.(a) 21,400 444,050
- --------------------------------------------------------------
Trico Marine Services, Inc.(a) 6,800 199,750
- --------------------------------------------------------------
Veritas DGC, Inc.(a) 13,100 517,450
- --------------------------------------------------------------
1,161,250
- --------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION)-1.30%
Cabot Oil & Gas Corp.-Class A 49,100 954,380
- --------------------------------------------------------------
HS Resources, Inc.(a) 37,200 513,825
- --------------------------------------------------------------
Louis Dreyfus Natural Gas Corp.(a) 12,400 231,725
- --------------------------------------------------------------
Repsol S.A.-ADR (Spain) 37,000 1,574,813
- --------------------------------------------------------------
Snyder Oil Corp. 33,600 613,200
- --------------------------------------------------------------
St. Mary Land & Exploration Co. 800 28,000
- --------------------------------------------------------------
Total S.A.-ADR (France) 20,000 1,110,000
- --------------------------------------------------------------
5,025,943
- --------------------------------------------------------------
OIL & GAS (REFINING &
MARKETING)-0.06%
Tesoro Petroleum Corp.(a) 14,500 224,750
- --------------------------------------------------------------
OIL (DOMESTIC INTEGRATED)-0.17%
Atlantic Richfield Co. 7,800 624,975
- --------------------------------------------------------------
PAPER & FOREST PRODUCTS-0.35%
Chesapeake Corp. 23,200 797,500
- --------------------------------------------------------------
</TABLE>
FS-33
<PAGE> 134
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PAPER & FOREST PRODUCTS-(CONTINUED)
Westvaco Corp. 18,000 $ 565,875
- --------------------------------------------------------------
1,363,375
- --------------------------------------------------------------
PERSONAL CARE-0.33%
Carter-Wallace, Inc. 31,900 538,312
- --------------------------------------------------------------
Perrigo Co.(a) 56,400 754,350
- --------------------------------------------------------------
1,292,662
- --------------------------------------------------------------
PHOTOGRAPHY/IMAGING-0.71%
Fuji Photo Film-ADR (Japan) 44,000 1,680,250
- --------------------------------------------------------------
Xerox Corp. 14,500 1,070,280
- --------------------------------------------------------------
2,750,530
- --------------------------------------------------------------
PUBLISHING-0.62%
Dai Nippon Printing Co., Ltd.-ADR
(Japan) 9,000 1,695,877
- --------------------------------------------------------------
Houghton Mifflin Co. 18,400 706,100
- --------------------------------------------------------------
2,401,977
- --------------------------------------------------------------
PUBLISHING (NEWSPAPERS)-0.34%
Gannett Co., Inc. 11,600 717,025
- --------------------------------------------------------------
McClatchy Newspapers, Inc. 7,000 190,312
- --------------------------------------------------------------
Pulitzer Publishing Co. 6,400 402,000
- --------------------------------------------------------------
1,309,337
- --------------------------------------------------------------
RAILROADS-0.22%
Illinois Central Corp. 25,000 851,563
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-18.59%
American General Hospitality Corp. 103,300 2,763,275
- --------------------------------------------------------------
Apartment Investment & Management
Co. 39,700 1,458,975
- --------------------------------------------------------------
Arden Realty Group, Inc. 56,900 1,749,675
- --------------------------------------------------------------
Bedford Property Investors, Inc. 35,900 785,312
- --------------------------------------------------------------
Cali Realty Corp. 54,200 2,222,200
- --------------------------------------------------------------
CBL & Associates Properties, Inc. 79,600 1,965,125
- --------------------------------------------------------------
Charles E. Smith Residential
Realty, Inc. 41,200 1,462,600
- --------------------------------------------------------------
Chelsea GCA Realty, Inc. 17,100 653,006
- --------------------------------------------------------------
CRIIMI MAE, Inc. 25,800 387,000
- --------------------------------------------------------------
Eastgroup Properties, Inc. 33,900 733,088
- --------------------------------------------------------------
Equity Office Properties Trust 124,879 3,941,507
- --------------------------------------------------------------
Equity Residential Properties Trust 51,500 2,603,969
- --------------------------------------------------------------
Essex Property Trust, Inc. 76,700 2,684,500
- --------------------------------------------------------------
Excel Realty Trust, Inc. 47,000 1,480,500
- --------------------------------------------------------------
FelCor Suite Hotels, Inc. 26,200 930,100
- --------------------------------------------------------------
First Industrial Realty Trust, Inc. 58,500 2,113,313
- --------------------------------------------------------------
Gables Residential Trust 60,100 1,660,263
- --------------------------------------------------------------
General Growth Properties 5,600 202,300
- --------------------------------------------------------------
Healthcare Realty Trust, Inc. 42,700 1,235,631
- --------------------------------------------------------------
Highwoods Properties, Inc. 38,100 1,416,844
- --------------------------------------------------------------
JP Realty, Inc. 25,700 666,594
- --------------------------------------------------------------
Kilroy Realty Corp. 60,700 1,745,125
- --------------------------------------------------------------
Kimco Realty Corp. 62,550 2,204,888
- --------------------------------------------------------------
Koger Equity, Inc. 87,900 1,928,306
- --------------------------------------------------------------
Liberty Property Trust 102,900 2,939,081
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUST-(CONTINUED)
Merry Land & Investment Co., Inc. 69,300 $ 1,585,238
- --------------------------------------------------------------
MGI Properties, Inc. 48,200 1,156,800
- --------------------------------------------------------------
Oasis Residential, Inc. 46,100 1,028,606
- --------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 46,800 1,000,350
- --------------------------------------------------------------
Parkway Properties, Inc. 26,600 912,713
- --------------------------------------------------------------
Patriot American Hospitality, Inc. 108,428 3,124,081
- --------------------------------------------------------------
Prentiss Properties Trust 76,500 2,137,219
- --------------------------------------------------------------
Price REIT, Inc. 33,000 1,350,937
- --------------------------------------------------------------
Prime Group Realty Trust 65,500 1,326,375
- --------------------------------------------------------------
Public Storage, Inc. 65,200 1,915,250
- --------------------------------------------------------------
Security Capital Group Inc.,
Warrants, expiring 09/18/98
(Luxembourg)(a) 1,346 7,065
- --------------------------------------------------------------
Security Capital U.S. Realty
(Luxembourg)(a) 98,700 1,401,540
- --------------------------------------------------------------
Shurgard Storage Centers, Inc. 58,500 1,696,500
- --------------------------------------------------------------
Simon DeBartolo Group, Inc. 61,100 1,997,206
- --------------------------------------------------------------
Starwood Lodging Trust 34,550 1,999,581
- --------------------------------------------------------------
Sun Hung Kai Properties Ltd.-ADR (Hong
Kong) 100,000 696,930
- --------------------------------------------------------------
Sunstone Hotel Investors, Inc. 105,400 1,818,150
- --------------------------------------------------------------
Tower Realty Trust, Inc. 64,000 1,576,000
- --------------------------------------------------------------
TriNet Corporate Realty Trust, Inc. 21,800 843,387
- --------------------------------------------------------------
Vornado Realty Trust 24,800 1,164,050
- --------------------------------------------------------------
Weeks Corp. 33,000 1,056,000
- --------------------------------------------------------------
71,727,155
- --------------------------------------------------------------
RESTAURANTS-0.85%
Applebee's International, Inc. 16,100 290,806
- --------------------------------------------------------------
Brinker International, Inc.(a) 27,400 438,400
- --------------------------------------------------------------
CKE Restaurants, Inc. 22,350 941,493
- --------------------------------------------------------------
Consolidated Products, Inc.(a) 16,125 264,047
- --------------------------------------------------------------
McDonald's Corp. 20,500 978,875
- --------------------------------------------------------------
Showbiz Pizza Time, Inc.(a) 15,200 349,600
- --------------------------------------------------------------
3,263,221
- --------------------------------------------------------------
RETAIL (BUILDING SUPPLIES)-0.24%
Sherwin-Williams Co. 32,800 910,200
- --------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS)-0.03%
MicroAge, Inc.(a) 8,800 132,550
- --------------------------------------------------------------
RETAIL (DEPARTMENT STORES)-0.42%
Carson Pirie Scott & Co.(a) 7,800 390,975
- --------------------------------------------------------------
J.C. Penney Co., Inc. 13,375 806,680
- --------------------------------------------------------------
Proffitt's, Inc.(a) 14,800 420,875
- --------------------------------------------------------------
1,618,530
- --------------------------------------------------------------
RETAIL (DISCOUNTERS)-0.16%
Ames Department Stores, Inc.(a) 17,200 301,000
- --------------------------------------------------------------
ShopKo Stores, Inc.(a) 15,400 334,950
- --------------------------------------------------------------
635,950
- --------------------------------------------------------------
RETAIL (DRUG STORES)-0.27%
Rite Aid Corp. 18,000 1,056,375
- --------------------------------------------------------------
</TABLE>
FS-34
<PAGE> 135
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (GENERAL MERCHANDISE)-0.11%
Wal-Mart Stores, Inc. 10,500 $ 414,093
- --------------------------------------------------------------
RETAIL (HOME SHOPPING)-0.19%
Lands' End, Inc.(a) 21,000 736,312
- --------------------------------------------------------------
RETAIL (SPECIALTY)-0.32%
AutoZone, Inc.(a) 7,500 217,500
- --------------------------------------------------------------
Footstar, Inc.(a) 15,400 413,875
- --------------------------------------------------------------
Pier 1 Imports, Inc. 14,550 329,193
- --------------------------------------------------------------
Sports Authority, Inc. (The)(a) 18,100 266,975
- --------------------------------------------------------------
1,227,543
- --------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL)-0.15%
Pacific Sunwear of California(a) 16,000 473,000
- --------------------------------------------------------------
Paul Harris Stores, Inc.(a) 12,300 123,768
- --------------------------------------------------------------
596,768
- --------------------------------------------------------------
SAVINGS & LOAN COMPANIES-0.78%
Astoria Financial Corp. 7,700 429,275
- --------------------------------------------------------------
FirstFed Financial Corp.(a) 8,600 333,250
- --------------------------------------------------------------
ONBANCorp, Inc. 18,000 1,269,000
- --------------------------------------------------------------
Sovereign Bancorp, Inc. 28,900 599,675
- --------------------------------------------------------------
St. Paul Bancorp, Inc. 10,400 273,000
- --------------------------------------------------------------
WSFS Financial Corp.(a) 3,600 72,000
- --------------------------------------------------------------
2,976,200
- --------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING)-0.23%
Acxiom Corp.(a) 25,400 488,950
- --------------------------------------------------------------
True North Communications, Inc. 16,100 398,474
- --------------------------------------------------------------
887,424
- --------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER)-0.59%
Caribiner International, Inc.(a) 9,600 427,200
- --------------------------------------------------------------
DeVry, Inc.(a) 21,500 685,313
- --------------------------------------------------------------
Dun & Bradstreet Corp. 23,000 711,562
- --------------------------------------------------------------
G & K Services, Inc.-Class A 10,900 457,800
- --------------------------------------------------------------
2,281,875
- --------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS)-0.27%
Banctec, Inc.(a) 21,800 584,513
- --------------------------------------------------------------
Gerber Scientific, Inc. 22,900 455,137
- --------------------------------------------------------------
1,039,650
- --------------------------------------------------------------
SERVICES (DATA PROCESSING)-0.17%
Fair, Issac and Company, Inc. 6,000 199,875
- --------------------------------------------------------------
National Data Corp. 5,700 205,912
- --------------------------------------------------------------
Vanstar Corp.(a) 17,200 194,575
- --------------------------------------------------------------
600,362
- --------------------------------------------------------------
SERVICES (EMPLOYMENT)-0.11%
Norrell Corp. 20,800 413,400
- --------------------------------------------------------------
SPECIALTY PRINTING-0.08%
Consolidated Graphics, Inc.(a) 6,400 298,400
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.10%
Centennial Cellular Corp.(a) 18,900 $ 387,449
- --------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE)-0.30%
Billing Information Concepts(a) 690 331,200
- --------------------------------------------------------------
Telefonos de Mexico S.A.-ADR
(Mexico) 1,500 840,937
- --------------------------------------------------------------
1,172,137
- --------------------------------------------------------------
TELEPHONE-2.22%
British Telecommunications PLC-ADR
(United Kingdom) 25,000 2,007,812
- --------------------------------------------------------------
Portugal Telecom S.A.-ADR
(Portugal) 35,000 1,645,000
- --------------------------------------------------------------
Southern New England
Telecommunications Corp. 23,350 1,174,797
- --------------------------------------------------------------
Telecom Italia S.p.A.-ADR (Italy) 30,000 1,920,000
- --------------------------------------------------------------
Telefonica de Espana-ADR (Spain) 20,000 1,821,250
- --------------------------------------------------------------
8,568,859
- --------------------------------------------------------------
TEXTILES (APPAREL)-0.39%
Kellwood Co. 23,800 714,000
- --------------------------------------------------------------
Nautica Enterprises, Inc.(a) 10,100 234,824
- --------------------------------------------------------------
Oxford Industries, Inc. 6,900 224,250
- --------------------------------------------------------------
St. John Knits, Inc. 8,200 328,000
- --------------------------------------------------------------
1,501,074
- --------------------------------------------------------------
TEXTILES (HOME FURNISHINGS)-0.75%
Interface, Inc. 15,400 446,600
- --------------------------------------------------------------
Shaw Industries, Inc. 60,100 698,662
- --------------------------------------------------------------
Springs Industries, Inc.-Class A 24,400 1,268,800
- --------------------------------------------------------------
WestPoint Stevens, Inc. 9,100 429,975
- --------------------------------------------------------------
2,844,037
- --------------------------------------------------------------
TEXTILES (SPECIALTY)-0.11%
Unifi, Inc. 10,000 406,874
- --------------------------------------------------------------
TOBACCO-0.32%
Philip Morris Companies, Inc. 21,950 994,609
- --------------------------------------------------------------
Standard Commercial Corp.(a) 15,100 250,093
- --------------------------------------------------------------
1,244,702
- --------------------------------------------------------------
TRUCKERS-0.36%
Heartland Express, Inc.(a) 2,450 65,844
- --------------------------------------------------------------
Roadway Express, Inc. 22,700 502,237
- --------------------------------------------------------------
Werner Enerprises, Inc. 18,300 375,150
- --------------------------------------------------------------
Yellow Corp.(a) 17,800 447,225
- --------------------------------------------------------------
1,390,456
- --------------------------------------------------------------
WASTE MANAGEMENT-0.30%
Arch Coal, Inc., 8,300 227,212
- --------------------------------------------------------------
Waste Management, Inc. 33,500 921,250
- --------------------------------------------------------------
1,148,462
- --------------------------------------------------------------
WATER UTILITIES-0.05%
E'Town Corp. 5,100 204,955
- --------------------------------------------------------------
Total Common Stocks 306,152,364
- --------------------------------------------------------------
</TABLE>
FS-35
<PAGE> 136
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NON-CONVERTIBLE PREFERRED STOCKS-0.29%
CONSUMER FINANCE-0.16%
Home Ownership Funding Corp.,
13.33% step down Pfd.
(Acquired 02/13/97; Cost
$640,000)(b) 6,400 $ 623,200
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-0.13%
Tier One Properties, 11.095% step
down Pfd.
(Acquired 01/31/97; Cost
$500,000)(b) 5,000 510,625
- --------------------------------------------------------------
Total Non-Convertible Preferred Stocks 1,133,825
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CORPORATE BONDS & NOTES-4.79%
BUILDING MATERIALS-0.72%
USG Corp., Sr. Notes, 8.50%,
08/01/05 $2,550,000 $ 2,773,125
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-0.45%
Motorola Inc., Deb., 8.40%,
08/15/31 1,400,000 1,739,892
- --------------------------------------------------------------
CONSUMER FINANCE-0.62%
Beneficial Corp., Deb, 8.40%,
05/15/08 1,000,000 1,135,680
- --------------------------------------------------------------
GMAC, Medium Term Notes, 6.40%,
05/19/99 1,250,000 1,252,125
- --------------------------------------------------------------
2,387,805
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-1.21%
Association Corp. N.A., Sr. Notes,
7.75%, 02/15/05 1,200,000 1,292,832
- --------------------------------------------------------------
CIT Group Holdings, Sr., Medium
Term Notes, 5.88%, 12/09/99 800,000 797,448
- --------------------------------------------------------------
General Electric Capital Corp,
Medium Term Notes, 5.80%,
04/01/08 1,200,000 1,366,776
- --------------------------------------------------------------
US West Cap Funding Inc., Notes,
6.31%, 11/01/05 1,200,000 1,205,520
- --------------------------------------------------------------
4,662,576
- --------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE-0.52%
Bear Stearns Companies., Inc.,
Notes, 6.25%, 12/01/00 1,000,000 999,900
- --------------------------------------------------------------
Lehman Brothers Holdings., Inc.,
Notes, 5.75%, 02/15/98 1,000,000 1,000,260
- --------------------------------------------------------------
2,000,160
- --------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST-0.62%
Kimco Realty, Medium Term Notes,
7.06%, 07/14/09 970,000 996,559
- --------------------------------------------------------------
Spieker Properties, Inc., Unsec.
Gtd. Notes, 6.95%, 12/15/02 325,000 331,373
- --------------------------------------------------------------
Spieker Properties, Inc., Unsec.
Notes, 7.125%, 12/01/06 325,000 336,141
- --------------------------------------------------------------
Weingarten Realty Investment,
Medium Term Notes, 6.90%,
11/24/08 700,000 724,087
- --------------------------------------------------------------
2,388,160
- --------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)-0.26%
Bellsouth Telecommunication, Deb,
5.85%, 11/15/45 1,000,000 1,001,560
- --------------------------------------------------------------
TELEPHONE-0.39%
GTE Corp., Deb., 10.25%, 11/01/20 620,000 684,399
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE-(CONTINUED)
GTE Corp., Notes, 7.51%, 04/01/09 $ 765,000 $ 816,729
- --------------------------------------------------------------
1,501,128
- --------------------------------------------------------------
Total Corporate Bonds & Notes 18,454,406
- --------------------------------------------------------------
ASSET BACKED SECURITIES-2.33%
AUTOMOBILES-0.32%
Premier Auto Trust, 6.20%, 11/06/00 1,235,000 1,238,458
- --------------------------------------------------------------
BANKS (MAJOR REGIONAL)-0.34%
Nationsbank Auto Owner Trust,
6.375%, 07/15/00 1,325,000 1,330,406
- --------------------------------------------------------------
CONSUMER FINANCE-1.67%
Advanta Mortgage Loan Trust, 6.66%,
03/25/22 2,000,000 2,002,188
- --------------------------------------------------------------
Contrimortgage Home Equity Loan
Trust, 6.40%, 01/15/12 1,900,000 1,900,437
- --------------------------------------------------------------
First Plus Home Loan Trust, 6.57%,
01/15/12 1,000,000 1,008,130
- --------------------------------------------------------------
IMC Home Equity Loan Trust, 6.71%,
01/20/12 1,500,000 1,510,155
- --------------------------------------------------------------
6,420,910
- --------------------------------------------------------------
Total Mortgage Backed Securities 8,989,774
- --------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-4.49%
FEDERAL HOME LOAN BANK BOARD-0.52%
DEB.
6.15%, 11/05/99 2,000,000 2,001,880
- --------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC")-0.95%
DEB.
6.50%, 01/14/00 1,000,000 1,000,720
- --------------------------------------------------------------
5.70%, 04/15/05 1,000,000 996,290
- --------------------------------------------------------------
1,997,010
- --------------------------------------------------------------
PASS THROUGH CERTIFICATES
6.50%, 08/01/03 296,656 300,640
- --------------------------------------------------------------
9.00%, 01/01/05 257,659 267,644
- --------------------------------------------------------------
9.00%, 08/15/06 765,690 804,504
- --------------------------------------------------------------
8.00%, 08/01/17 296,730 309,988
- --------------------------------------------------------------
1,682,776
- --------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA")-2.73%
DEB.
7.50%, 01/25/06 1,000,000 1,027,668
- --------------------------------------------------------------
7.00%, 12/01/27 3,100,000 3,124,211
- --------------------------------------------------------------
4,151,879
- --------------------------------------------------------------
PASS THROUGH CERTIFICATES
9.00%, 12/01/06 889,801 930,118
- --------------------------------------------------------------
8.50%, 06/01/07 918,252 944,652
- --------------------------------------------------------------
6.00%, 06/25/09 866,526 848,881
- --------------------------------------------------------------
6.00%, 04/01/24 1,929,250 1,874,382
- --------------------------------------------------------------
6.50%, 10/01/27 to 11/01/27 1,807,002 1,785,535
- --------------------------------------------------------------
6,383,568
- --------------------------------------------------------------
</TABLE>
FS-36
<PAGE> 137
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA")-0.29%
DEB.
7.00%, 01/16/07 $1,100,000 $ 1,112,342
- --------------------------------------------------------------
Total U.S. Government Agency Securities 17,329,455
- --------------------------------------------------------------
U.S. TREASURY SECURITIES-4.24%
U.S. TREASURY NOTES & BONDS
5.875%, 10/31/98 1,300,000 1,302,561
- --------------------------------------------------------------
5.50%, 11/15/98 3,000,000 2,997,270
- --------------------------------------------------------------
6.375%, 01/15/99 4,750,000 4,787,145
- --------------------------------------------------------------
6.875%, 07/31/99 500,000 509,045
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
8.75%, 05/15/17 $1,300,000 $ 1,704,625
- --------------------------------------------------------------
7.875%, 02/15/21 4,100,000 5,036,932
- --------------------------------------------------------------
Total U. S. Treasury Securities 16,337,578
- --------------------------------------------------------------
REPURCHASE AGREEMENT(c)- 4.50%
Smith Barney Inc., 6.75%,
01/02/98(d) 17,376,851 17,376,851
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.98% 385,774,253
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.02% 95,681
- --------------------------------------------------------------
NET ASSETS-100.00% $385,869,934
==============================================================
</TABLE>
Notes to Schedule of Investments:
(a) Non-income producing security
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of the securities has been determined in
accordance with the procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/97 was $1,133,825, which
represented 0.29% of the Fund's net assets.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor.
(d) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations, 0%
to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Abbreviations:
ADR - American Depositary Receipt
Deb. - Debentures
Gtd. - Guaranteed
Pfd. - Preferred
Sr. - Senior
Unsec. - Unsecured
See Notes to Financial Statements.
FS-37
<PAGE> 138
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$315,329,449) $385,774,253
- ---------------------------------------------------------
Receivables for:
Investments sold 267,500
- ---------------------------------------------------------
Capital stock sold 709,641
- ---------------------------------------------------------
Interest and dividends 1,685,130
- ---------------------------------------------------------
Paydowns 37,915
- ---------------------------------------------------------
Investment for deferred compensation plan 2,291
- ---------------------------------------------------------
Other assets 4,663
- ---------------------------------------------------------
Total assets 388,481,393
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,020,923
- ---------------------------------------------------------
Capital stock reacquired 181,759
- ---------------------------------------------------------
Deferred compensation plan 2,291
- ---------------------------------------------------------
Accrued advisory fees 321,150
- ---------------------------------------------------------
Accrued operating services fees 132,706
- ---------------------------------------------------------
Accrued distribution fees 931,214
- ---------------------------------------------------------
Accrued directors' fees and expenses 21,416
- ---------------------------------------------------------
Total liabilities 2,611,459
- ---------------------------------------------------------
Net assets applicable to shares outstanding $385,869,934
=========================================================
NET ASSETS:
Class A $ 9,066,158
=========================================================
Class C $376,803,776
=========================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 638,212
=========================================================
Class C:
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 26,506,870
=========================================================
Class A:
Net asset value and redemption price per
share $ 14.21
=========================================================
Offering price per share:
(Net asset value of $14.21 divided
by 94.50%) $ 15.04
=========================================================
Class C:
Net asset value and offering price per
share $ 14.22
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 4,171,573
- --------------------------------------------------------
Dividends (net of $86,003 foreign
withholding tax) 6,793,380
- --------------------------------------------------------
Total investment income 10,964,953
- --------------------------------------------------------
EXPENSES:
Advisory fees 3,280,042
- --------------------------------------------------------
Operating services fees 1,362,017
- --------------------------------------------------------
Distribution fees-Class A 10,953
- --------------------------------------------------------
Distribution fees-Class C 3,249,734
- --------------------------------------------------------
Directors' fees and expenses 35,107
- --------------------------------------------------------
Total expenses 7,937,853
- --------------------------------------------------------
Less: Fees waived by advisor (3,147)
- --------------------------------------------------------
Net expenses 7,934,706
- --------------------------------------------------------
Net investment income 3,030,247
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM
INVESTMENT SECURITIES:
Net realized gain on sales of investment
securities 28,345,151
- --------------------------------------------------------
Net unrealized appreciation of investment
securities 24,205,999
- --------------------------------------------------------
Net gain from investment securities 52,551,150
- --------------------------------------------------------
Net increase in net assets resulting from
operations $55,581,397
========================================================
</TABLE>
See Notes to Financial Statements.
FS-38
<PAGE> 139
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,030,247 $ 2,502,127
- -----------------------------------------------------------------------------------------
Net realized gain on sales of investment securities 28,345,151 10,629,068
- -----------------------------------------------------------------------------------------
Net Unrealized appreciation of investment securities 24,205,999 23,172,870
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 55,581,397 36,304,065
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (54,439) --
- -----------------------------------------------------------------------------------------
Class C (2,620,318) (2,400,549)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (574,586) --
- -----------------------------------------------------------------------------------------
Class C (29,179,585) (7,382,073)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 9,196,237 --
- -----------------------------------------------------------------------------------------
Class C 86,678,096 65,729,841
- -----------------------------------------------------------------------------------------
Net increase in net assets 119,026,802 92,251,284
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 266,843,132 174,591,848
- -----------------------------------------------------------------------------------------
End of period $385,869,934 266,843,132
=========================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $313,154,757 217,280,424
- -----------------------------------------------------------------------------------------
Undistributed net investment income 479,628 124,138
- -----------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities 1,790,745 3,199,765
- -----------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 70,444,804 46,238,805
- -----------------------------------------------------------------------------------------
$385,869,934 $266,843,132
=========================================================================================
</TABLE>
See Notes to Financial Statements.
FS-39
<PAGE> 140
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor MultiFlex Fund (the "Fund", formerly INVESCO Advisor MultiFlex Fund)
is a series portfolio of AIM Advisor Funds, Inc. (the "Company"). The Company is
a Maryland corporation registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end series management investment company
consisting of seven diversified portfolios. The Fund currently offers two
different classes of shares: Class A shares and Class C shares. Class A shares
are sold with a front-end sales charge. Class C shares are sold with a
contingent deferred sales charge. Matters affecting each portfolio or class will
be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. The Fund's investment objective is to achieve a high total return on
investment through capital appreciation and current income, without regard to
federal income tax considerations. Information presented in these financial
statements pertains only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not 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 of the closing bid
and asked prices. Debt obligations (including convertible bonds) are valued
on the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market prices are
not provided by any of the above methods are valued at the mean between last
bid and asked prices based upon quotes furnished by independent sources.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's Board of Directors. Investments with
maturities of 60 days or less are valued on the basis of amortized cost
which approximates market value.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
C. Bond Premiums-It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
D. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed
to shareholders. Therefore, no provision for federal income taxes is
recorded in the financial statements.
E. Expenses-Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated between the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 1.00% of
the Fund's average daily net assets. AIM has entered into a sub-advisory
agreement with INVESCO Management and Research, Inc. ("IMR") whereby AIM pays
IMR an annual rate of 0.35% of the Fund's average daily net assets up to $500
million and 0.25% on the Fund's average daily net assets in excess of $500
million. Prior to August 4, 1997, the Company had an investment advisory
agreement with INVESCO Services, Inc. ("ISI") to serve as the Fund's investment
advisor. Under the terms of the prior investment agreement, the Fund paid ISI an
advisory fee equal to an annual rate of 1.00% of the average daily net assets of
the Fund. Under the terms of the prior sub-advisory agreement between ISI and
IMR, ISI paid IMR a sub-advisory fee equal to an annual rate of 0.35% of the
Fund's average daily net assets up to $500 million and 0.25% on the Fund's
average daily net assets in excess of $500 million.
The Company, pursuant to an Operating Services Agreement with AIM, has agreed
to reimburse AIM at an annual rate of 0.45% of daily net assets of the Fund for
providing or arranging to provide accounting, legal (except litigation),
dividend disbursing, transfer agency, registrar, custodial, shareholder
reporting, sub-accounting and recordkeeping services and functions. This
agreement provides 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. During the
period August 4, 1997 to December 31, 1997, AIM was reimbursed $622,522 for such
services. Prior to August 4, 1997, the Company had an operating services
agreement with ISI whereby the Fund paid ISI an annual rate of 0.45% of daily
net assets of the Fund. During the period
FS-40
<PAGE> 141
January 1, 1997 through August 3, 1997, the Fund paid ISI $739,495.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and Class C shares of the Fund. The Company has adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and the Fund's Class C shares (the "Plan"). The Fund,
pursuant to the Plan, pays AIM Distributors compensation at a maximum annual
rate of 0.35% of the average net assets attributable to the Class A shares. AIM
has voluntarily agreed to limit the Plan payments to 0.25% for three years
beginning August 4, 1997. The Fund, pursuant to the Plan, pays AIM Distributors
a maximum annual rate of 1.00% of the Fund's average daily net assets
attributable to the Class C shares. Of these amounts, the Fund may pay a service
fee of 0.25% of the average daily net assets of the Class A and C shares to
selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own shares of the Fund.
Any amounts not paid as a service fee under the Plan would constitute an
asset-based sales charge. The Plan also imposes a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the period August 4, 1997 to December 31, 1997, the Class A and
Class C shares paid AIM Distributors $5,740 and $1,482,976, respectively, as
compensation under the Plans. During the year ended December 31, 1997 AIM
Distributions and ISI waived fees of $3,147 for the Class A Shares. Prior to
August 4, 1997, the Fund entered into a distribution plan with ISI in accordance
with Rule 12b-1 of the 1940 Act with substantially identical terms as described
for AIM Distributors above. During the period January 1, 1997 to August 3, 1997
the Class A and Class C shares paid ISI $2,066 and $1,766,758, respectively as
compensation under the Plans.
AIM Distributors received commissions of $30,382 from sales of Class A shares
of the Fund during the period August 4, 1997 to December 31, 1997. ISI received
commissions of $7,203 from sales of Class A shares of the Fund during the period
January 1, 1997 to August 3, 1997. Such commissions are not an expense to the
Fund. They are deducted from, and are not included in, the proceeds from sales
of Class A shares. During the period August 4, 1997 to December 31, 1997, AIM
Distributors received commissions of $10,269 in contingent deferred sales
charges imposed on redemptions of Fund shares. Certain officers and directors of
the Company are officers and directors of AIM, A I M Fund Services, Inc. and AIM
Distributors. During the period January 1, 1997 through August 3, 1997, ISI
received commissions of $12,043 in contingent deferred sales charges imposed on
redemptions of Fund shares.
The combined effect of the master investment advisory agreement, operating
services agreement and the Distribution Plans for the Fund is to place a cap or
ceiling on the total expenses of the 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 Fund. To the extent that the Fund exceeds the amounts, AIM or its
affiliates will waive its fees to reimburse the Fund to assure that the Fund's
expenses do not exceed the designated maximum amounts except for those items
specifically identified above. If, in any calendar quarter, the average net
assets of the Fund are less than $100 million, the Fund's 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.
During the period August 4, 1997 to December 31, 1997, the Fund paid legal
fees of $686 for services rendered by Kramer, Levin, Naftalis & Frankel as
counsel to the Company's directors. A member of that firm is a director of the
Company.
NOTE 3-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1997 was
$256,748,688 and $195,480,365, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $79,110,453
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,668,717)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $70,441,736
=========================================================================
</TABLE>
Cost of investments for tax purposes is $315,332,517.
FS-41
<PAGE> 142
NOTE 5-CAPITAL STOCK*
Changes in the Fund's capital stock outstanding for the years ended December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold:
Class A** 619,395 $ 8,916,997 -- $ --
- ----------------------------------------------------------- ---------- ------------ ---------- ------------
Class C 6,751,442 95,937,310 6,600,656 80,727,974
- ----------------------------------------------------------- ---------- ------------ ---------- ------------
Issued as reinvestment of dividends:
Class A** 44,119 616,050 -- --
- ----------------------------------------------------------- ---------- ------------ ---------- ------------
Class C 2,197,213 30,337,244 692,736 8,779,155
- ----------------------------------------------------------- ---------- ------------ ---------- ------------
Reacquired:
Class A** (25,302) (336,810) -- --
- ----------------------------------------------------------- ---------- ------------ ---------- ------------
Class C (2,756,585) (39,596,458) (1,928,332) (23,777,288)
- ----------------------------------------------------------- ---------- ------------ ---------- ------------
6,830,282 $ 95,874,333 5,365,060 $ 65,729,841
=========================================================== ========== ============ ========== ============
</TABLE>
* Shares have been restated to reflect a 4 for 1 stock split, effected in the
form of a 300% stock dividend, on November 7, 1997.
** Class A shares commenced operations on January 1, 1997.
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the year ended December 31, 1997 and for a share of Class C
capital stock outstanding during each of the years in the four-year period ended
December 31, 1997 and the period November 17, 1993 (date operations commenced)
through December 31, 1993.(a)
CLASS A:
<TABLE>
<CAPTION>
1997(b)
----------
<S> <C>
Net asset value, beginning of period $ 13.14
- ------------------------------------------------------------ ----------
Income from investment operations:
Net investment income 0.23
- ------------------------------------------------------------ ----------
Net gains on securities (both realized and unrealized) 2.26
- ------------------------------------------------------------ ----------
Total from investment operations 2.49
- ------------------------------------------------------------ ----------
Less distributions:
Dividends from net investment income (0.22)
- ------------------------------------------------------------ ----------
Distributions from capital gains (1.20)
- ------------------------------------------------------------ ----------
Total distributions (1.42)
- ------------------------------------------------------------ ----------
Net asset value, end of period $ 14.21
============================================================ ==========
Total return(c) 19.40%
============================================================ ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 9,066
============================================================ ==========
Ratio of expenses to average net assets(d) 1.67%(e)
============================================================ ==========
Ratio of net investment income to average net assets(f) 1.67%(e)
============================================================ ==========
Portfolio turnover rate 62%
============================================================ ==========
Average brokerage commission rate(g) $ 0.0592
============================================================ ==========
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Does not deduct contingent deferred sales charges.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 1.77%.
(e) Ratios are based on average net assets of $3,147,191.
(f) After fee waivers. Ratio of net investment income to average net assets
prior to fee waivers was 1.57%.
(g) 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 and sold.
FS-42
<PAGE> 143
NOTE 6-FINANCIAL HIGHLIGHTS-continued
CLASS C:
<TABLE>
<CAPTION>
1997(b) 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.14 $ 11.68 $ 9.78 $ 10.04 $ 10.00
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.13 0.14 0.16 0.16 0.01
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 2.26 1.83 1.94 (0.26) 0.04
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total from investment operations 2.39 1.97 2.10 (0.10) 0.05
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.11) (0.13) (0.16) (0.16) (0.01)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Distributions from capital gains (1.20) (0.38) (0.04) -- --
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Total distributions (1.31) (0.51) (0.20) (0.16) (0.01)
- ------------------------------------------------------------ -------- -------- -------- -------- --------
Net asset value, end of period $ 14.22 $ 13.14 $ 11.68 $ 9.78 $ 10.04
============================================================ ======== ======== ======== ======== ========
Total return(c) 18.55% 17.03% 21.58% (1.02)% 0.46%
============================================================ ======== ======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $376,804 $266,843 $174,592 $120,220 $ 12,241
============================================================ ======== ======== ======== ======== ========
Ratio of expenses to average net assets 2.42%(d) 2.45% 2.50% 2.49% 2.50%(e)
============================================================ ======== ======== ======== ======== ========
Ratio of net investment income to average net assets 0.92%(d) 1.16% 1.53% 2.01% 1.09%(e)
============================================================ ======== ======== ======== ======== ========
Portfolio turnover rate 62% 62% 50% 81% 53%
============================================================ ======== ======== ======== ======== ========
Average brokerage commission rate(f) $ 0.0592 $ 0.0577 N/A N/A N/A
============================================================ ======== ======== ======== ======== ========
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Does not deduct sales charges.
(d) Ratios are based on average net assets of $325,274,785.
(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 and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
FS-43
<PAGE> 144
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of the AIM Advisor Funds, Inc.:
In our opinion, the accompanying statement of assets and
liabilities, including the schedule of investments, and
the related statements of operations and of changes in
net assets and the financial highlights present fairly,
in all material respects, the financial position of the
AIM Advisor Real Estate Fund, one of the portfolios of
the AIM Advisor Funds, Inc. (hereafter referred to as the
"Fund") at December 31, 1997, the results of its
operations for the year then ended, the changes in its
net assets for each of the two years in the period then
ended and the financial highlights for the periods
indicated, in conformity with generally accepted
accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion
on these financial statements based on our audits. We
conducted our audits of these financial statements in
accordance with generally accepted auditing standards
which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our
audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian
and the application of alternative auditing procedures
where securities purchased had not been received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
February 5, 1998
FS-44
<PAGE> 145
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-93.24%
DIVERSIFIED-5.44%
Cadillac Fairview Corp. (Canada)(a) 20,800 $ 488,800
- --------------------------------------------------------------
Catellus Development Corp.(a) 58,300 1,166,000
- --------------------------------------------------------------
Security Capital U.S. Realty
(Luxembourg)(a) 74,800 1,062,160
- --------------------------------------------------------------
TrizecHahn Corp. (Canada) 24,700 572,730
- --------------------------------------------------------------
3,289,690
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED)-2.11%
Amresco, Inc.(a) 42,200 1,276,550
- --------------------------------------------------------------
HEALTHCARE (DIVERSIFIED)-0.23%
Healthcare Realty Trust, Inc. 4,800 138,900
- --------------------------------------------------------------
INDUSTRIAL PROPERTIES-5.62%
EastGroup Properties, Inc. 45,400 981,775
- --------------------------------------------------------------
First Industrial Realty Trust, Inc. 32,300 1,166,838
- --------------------------------------------------------------
Weeks Corp. 38,900 1,244,800
- --------------------------------------------------------------
3,393,413
- --------------------------------------------------------------
INDUSTRIAL/OFFICE PROPERTIES-9.14%
Bedford Property Investors, Inc. 45,800 1,001,875
- --------------------------------------------------------------
Liberty Property Trust 53,450 1,526,666
- --------------------------------------------------------------
Prentiss Properties Trust 58,900 1,645,519
- --------------------------------------------------------------
TriNet Corporate Realty Trust, Inc. 34,900 1,350,193
- --------------------------------------------------------------
5,524,253
- --------------------------------------------------------------
LODGING-HOTELS-15.07%
American General Hospitality Corp. 65,600 1,754,800
- --------------------------------------------------------------
FelCor Suite Hotels, Inc. 37,700 1,338,350
- --------------------------------------------------------------
Hospitality Properties Trust 16,300 535,863
- --------------------------------------------------------------
Patriot American Hospitality, Inc. 78,770 2,269,561
- --------------------------------------------------------------
Starwood Lodging Trust 32,500 1,880,938
- --------------------------------------------------------------
Sunstone Hotel Investors, Inc. 77,100 1,329,975
- --------------------------------------------------------------
9,109,487
- --------------------------------------------------------------
MORTGAGE BACKED SECURITIES-3.32%
American Residential Investment
Trust, Inc. 31,000 368,125
- --------------------------------------------------------------
CRIIMI MAE, Inc. 73,200 1,098,000
- --------------------------------------------------------------
Imperial Credit Mortgage Holdings 30,300 541,613
- --------------------------------------------------------------
2,007,738
- --------------------------------------------------------------
OFFICE PROPERTIES-20.89%
Arden Realty Group, Inc. 47,100 1,448,325
- --------------------------------------------------------------
Cali Realty Corp. 50,000 2,050,000
- --------------------------------------------------------------
Equity Office Properties Trust 68,816 2,172,005
- --------------------------------------------------------------
Highwoods Properties, Inc. 47,350 1,760,828
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OFFICE PROPERTIES-(CONTINUED)
Kilroy Realty Corp. 38,700 $ 1,112,625
- --------------------------------------------------------------
Parkway Properties, Inc. 22,700 778,894
- --------------------------------------------------------------
Prime Group Realty Trust 50,000 1,012,500
- --------------------------------------------------------------
Tower Realty Trust, Inc. 93,100 2,292,588
- --------------------------------------------------------------
12,627,765
- --------------------------------------------------------------
REGIONAL MALLS-5.75%
CBL & Associates Properties, Inc. 70,250 1,734,297
- --------------------------------------------------------------
General Growth Properties 22,000 794,750
- --------------------------------------------------------------
Simon DeBartolo Group, Inc. 28,900 944,669
- --------------------------------------------------------------
3,473,716
- --------------------------------------------------------------
RESIDENTIAL PROPERTIES-14.46%
Apartment Investment & Management Co. 34,100 1,253,174
- --------------------------------------------------------------
Charles E. Smith Residential Realty,
Inc. 15,000 532,500
- --------------------------------------------------------------
Equity Residential Properties Trust 43,500 2,199,469
- --------------------------------------------------------------
Essex Property Trust, Inc. 54,000 1,890,000
- --------------------------------------------------------------
Gables Residential Trust 37,350 1,031,794
- --------------------------------------------------------------
Merry Land & Investment Co., Inc. 33,300 761,737
- --------------------------------------------------------------
Oasis Residential, Inc. 48,000 1,071,000
- --------------------------------------------------------------
8,739,674
- --------------------------------------------------------------
SELF-STORAGE-2.74%
Public Storage, Inc. 25,000 734,374
- --------------------------------------------------------------
Shurgard Storage Centers, Inc. 31,850 923,650
- --------------------------------------------------------------
1,658,024
- --------------------------------------------------------------
SHOPPING CENTERS-8.47%
Excel Realty Trust, Inc. 18,700 589,050
- --------------------------------------------------------------
JDN Realty Corp. 45,000 1,456,875
- --------------------------------------------------------------
Kimco Realty Corp. 25,350 893,587
- --------------------------------------------------------------
Pan Pacific Retail Properties, Inc. 23,500 502,313
- --------------------------------------------------------------
Price REIT, Inc. 22,100 904,719
- --------------------------------------------------------------
Vornado Realty Trust 16,400 769,775
- --------------------------------------------------------------
5,116,319
- --------------------------------------------------------------
Total Common Stocks 56,355,529
- --------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENT-6.48%(b)
Smith Barney, Inc. 6.75%(c) $3,915,909 3,915,909
- --------------------------------------------------------------
TOTAL INVESTMENTS-99.72% 60,271,438
- --------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.28% 168,963
- --------------------------------------------------------------
NET ASSETS-100.00% $60,440,401
==============================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to insure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations, 0%
to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
See Notes to Financial Statements.
FS-45
<PAGE> 146
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost
$53,901,066) $ 60,271,438
- ---------------------------------------------------------
Receivables for:
Investments sold 14,469
- ---------------------------------------------------------
Capital stock sold 387,536
- ---------------------------------------------------------
Interest and dividends 386,326
- ---------------------------------------------------------
Investment for deferred compensation plan 1,949
- ---------------------------------------------------------
Other assets 2,871
- ---------------------------------------------------------
Total assets 61,064,589
- ---------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 432,665
- ---------------------------------------------------------
Capital stock reacquired 13,173
- ---------------------------------------------------------
Deferred compensation plan 1,949
- ---------------------------------------------------------
Accrued advisory fees 42,944
- ---------------------------------------------------------
Accrued operating services fees 21,472
- ---------------------------------------------------------
Accrued distribution fees 110,853
- ---------------------------------------------------------
Accrued directors' fees and expenses 1,132
- ---------------------------------------------------------
Total liabilities 624,188
- ---------------------------------------------------------
Net assets applicable to shares outstanding $ 60,440,401
=========================================================
NET ASSETS:
Class A $ 16,506,836
=========================================================
Class C $ 43,933,565
=========================================================
CAPITAL STOCK, $.001 PAR VALUE PER SHARE
Class A
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 1,048,908
=========================================================
Class C
Authorized 100,000,000
- ---------------------------------------------------------
Outstanding 2,791,898
=========================================================
Class A:
Net asset value and redemption price per
share $ 15.74
=========================================================
Offering price per share:
(Net asset value of $15.74
divided by 95.25%) $ 16.52
=========================================================
Class C:
Net asset value and offering price per
share $ 15.74
=========================================================
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 100,792
- --------------------------------------------------------
Dividends 1,643,046
- --------------------------------------------------------
Total investment income 1,743,838
- --------------------------------------------------------
EXPENSES:
Advisory fees 319,754
- --------------------------------------------------------
Operating services fees 158,068
- --------------------------------------------------------
Distribution fees-Class A 12,123
- --------------------------------------------------------
Distribution fees-Class C 320,877
- --------------------------------------------------------
Directors' fees and expenses 5,659
- --------------------------------------------------------
Total expenses 816,481
- --------------------------------------------------------
Less: Fees waived by distributor (3,511)
- --------------------------------------------------------
Net expenses 812,970
- --------------------------------------------------------
Net investment income 930,868
- --------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT
SECURITIES:
Net realized gain from investment
securities 3,781,061
- --------------------------------------------------------
Net unrealized appreciation on investment
securities 1,996,379
- --------------------------------------------------------
Net increase in net assets resulting from
operations $ 6,708,308
========================================================
</TABLE>
See Notes to Financial Statements.
FS-46
<PAGE> 147
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 930,868 $ 364,733
- ---------------------------------------------------------------------------------------
Net realized gain from investment securities 3,781,061 177,126
- ---------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 1,996,379 4,153,030
- ---------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,708,308 4,694,889
- ---------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Class A (138,336) --
- ---------------------------------------------------------------------------------------
Class C (755,032) (332,659)
- ---------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains on
investment securities:
Class A (609,759) --
- ---------------------------------------------------------------------------------------
Class C (1,923,812) (134,173)
- ---------------------------------------------------------------------------------------
Share transactions-net:
Class A 16,620,595 --
- ---------------------------------------------------------------------------------------
Class C 19,971,956 10,773,564
- ---------------------------------------------------------------------------------------
Net increase in net assets 39,873,920 15,001,621
- ---------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 20,566,481 5,564,860
- ---------------------------------------------------------------------------------------
End of period $60,440,401 $20,566,481
=======================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $52,709,732 $16,117,181
- ---------------------------------------------------------------------------------------
Undistributed net investment income 72,384 34,884
- ---------------------------------------------------------------------------------------
Undistributed net realized gain on sales of investment
securities 1,287,912 40,422
- ---------------------------------------------------------------------------------------
Unrealized appreciation of investment securities 6,370,373 4,373,994
- ---------------------------------------------------------------------------------------
$60,440,401 $20,566,481
=======================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
AIM Advisor Real Estate Fund (the "Fund", formerly INVESCO Advisor Real Estate
Fund) is a series portfolio of AIM Advisor Funds, Inc. (the "Company" formerly,
INVESCO Advisor Funds, Inc.). The Company is a Maryland corporation and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of seven
diversified portfolios. The Fund currently offers two different classes of
shares: Class A shares and Class C shares. Class A shares are sold with a
front-end sales charge. Class C shares are sold with a contingent deferred sales
charge. Matters affecting each portfolio or class will be voted on exclusively
by the shareholders of such portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. The Fund's investment
objective is to achieve a high total return on investment through capital
appreciation and current income, without regard to federal income tax
considerations. Information presented in these financial statements pertains
only to the Fund.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations-A security listed or traded on an exchange 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 of the closing bid and asked prices. Securities for which
market prices are not provided by any of the above methods are valued at the
mean between last
FS-47
<PAGE> 148
bid and asked prices based upon quotes furnished by independent sources.
Securities for which market quotations are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's Board of Directors. Investments with
maturities of 60 days or less are valued on the basis of amortized cost
which approximates market value.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
C. Bond Premiums-It is the policy of the Fund not to amortize market premiums
on bonds for financial reporting purposes.
D. Federal Income Taxes-The Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated investment company
and, as such, will not be subject to federal income taxes on otherwise
taxable income (including net realized capital gains) which is distributed
to shareholders. Therefore, no provision for federal income taxes is
recorded in the financial statements.
E. Expenses-Distribution expenses directly attributable to a class of shares
are charged to that class' operations. All other expenses which are
attributable to more than one class are allocated among the classes.
NOTE 2-ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at the annual rate of 0.90% of
the Fund's average daily net assets. AIM has entered into a sub-advisory
agreement with INVESCO Realty Advisors, Inc. ("IRAI") whereby AIM pays IRAI an
annual rate of 0.35% of the Fund's average daily net assets on the first $100
million and 0.25% of the Fund's average daily net assets in excess of $100
million. Prior to August 4, 1997, the Company had an investment advisory
agreement with INVESCO Services, Inc. ("ISI") to serve as the Fund's investment
advisor. Under the terms of the prior investment agreement, the Fund paid ISI an
advisory fee equal to an annual rate of 0.90% of the average daily net assets of
the Fund. Under the terms of the prior sub-advisory agreement between ISI and
IRAI, ISI paid IRAI a sub-advisory fee equal to an annual rate of 0.35% of the
Fund's average daily net assets on the first $100 million and 0.25% on the
Fund's average daily net assets in excess of $100 million.
The Company, pursuant to an operating services agreement with AIM, has agreed
to pay AIM an annual rate of 0.45% of average daily net assets of the Fund for
providing or arranging to provide accounting, legal (except litigation),
dividend disbursing, transfer agency, registrar, custodial, shareholder
reporting, sub-accounting and recordkeeping services and functions. This
agreement provides 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. During the
period August 4, 1997 to December 31, 1997, AIM was paid $84,332 for such
services. Prior to August 4, 1997, the Company had an operating services
agreement with ISI whereby the Fund paid ISI an annual rate of 0.45% of average
daily net assets of the Fund. During the period January 1, 1997 through August
3, 1997, the Fund paid ISI $73,736.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A shares and Class C shares of the Fund. The Company has adopted a
distribution plan pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A shares and the Fund's Class C shares (the "Plan"). The Fund,
pursuant to the Plan, pays AIM Distributors compensation at a maximum annual
rate of 0.35% of the average daily net assets attributable to the Class A
shares. AIM has voluntarily agreed to limit the Plan payments to 0.25% for three
years beginning August 4, 1997. The Fund, pursuant to the Plan, pays AIM
Distributors a maximum annual rate of 1.00% of the Fund's average daily net
assets attributable to the Class C shares. Of these amounts, the Fund may pay a
service fee of 0.25% of the average daily net assets of the Class A and C shares
to selected dealers and financial institutions who furnish continuing personal
shareholder services to their customers who purchase and own shares of the Fund.
Any amounts not paid as a service fee under the Plan would constitute an
asset-based sales charge. The Plan also imposes a cap on the total sales
charges, including asset-based sales charges, that may be paid by the respective
classes. During the period August 4, 1997 to December 31, 1997, the Class A and
Class C shares paid AIM Distributors $7,467 and $161,592, respectively, as
compensation under the Plan. During the year ended December 31, 1997, AIM
Distributors and ISI waived fees of $3,511 for the Class A shares. Prior to
August 4, 1997, the Fund entered into a distribution plan with ISI in accordance
with Rule 12b-1 of the 1940 Act under substantially identical terms as described
for AIM Distributors above. During the period January 1, 1997 to August 3, 1997,
the Class A and Class C shares paid ISI $1,145 and $159,285, respectively, as
compensation under the Plan.
AIM Distributors received commissions of $54,138 from sales of Class A shares
of the Fund during the period August 4, 1997 to December 31, 1997. ISI received
commissions of $1,424 from sales of Class A shares of the Fund during the period
January 1, 1997 through August 3, 1997. Such commissions are not an expense to
the Fund. They are deducted from, and are not included in, the proceeds from
sales of Class A shares. During the period August 4, 1997 to December 31, 1997,
AIM Distributors received commissions of $2,643 in contingent deferred sales
charges imposed on redemptions of shares. Certain officers and directors of the
Company are officers and directors of AIM, A I M Fund Services, Inc. and AIM
Distributors. During the period January 1, 1997 through August 3, 1997, ISI
received commissions of $1,935 in contingent deferred sales charges imposed on
redemptions of shares.
The combined effect of the advisory agreements, operating services agreement
and the distribution plans for the Fund is to place a cap or ceiling on the
total expenses of the Fund, other than
FS-48
<PAGE> 149
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 Fund. To the extent that the Fund exceeds the
amounts, AIM or its affiliates will waive its fees to reimburse the Fund to
assure that the Fund's expenses do not exceed the designated maximum amounts
except for those items specifically identified above. If, in any calendar
quarter, the average net assets of the Fund are less than $500 million, the
Fund's expenses shall not exceed 1.70% for Class A and 2.35% for Class C; on the
next $500 million of net assets, 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.
During the period August 4, 1997 to December 31, 1997, the Fund paid legal
fees of $582 for services rendered by Kramer, Levin, Naftalis & Frankel as
counsel to the Company's directors. A member of that firm is a director of the
Company.
NOTE 3-DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if so
elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 4-INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities)
purchased and sold by the Fund during the year ended December 31, 1997 was
$50,874,677 and $19,383,820, respectively.
The amount of unrealized appreciation (depreciation) of investment securities,
on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of
investment securities $6,889,219
- -----------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (518,847)
- -----------------------------------------------------------------
Net unrealized appreciation of investment
securities $6,370,372
=================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 5-CAPITAL STOCK*
Changes in the Fund's capital stock outstanding during the years ended December
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Sold:
Class A** 1,054,003 $16,739,222 -- $ --
- ----------------------------------------------------------------------
Class C 1,421,288 21,204,369 943,712 10,888,988
- ----------------------------------------------------------------------
Issued as
reinvestment of
dividends:
Class A** 47,730 725,852 -- --
- ----------------------------------------------------------------------
Class C 162,326 2,458,661 34,412 421,963
- ----------------------------------------------------------------------
Reacquired:
Class A** (52,825) (844,479) -- --
- ----------------------------------------------------------------------
Class C (240,812) (3,691,074) (46,444) (537,387)
- ----------------------------------------------------------------------
2,391,710 $36,592,551 931,680 $10,773,564
======================================================================
</TABLE>
* Shares have been restated to reflect a 4 for 1 stock split, effected in the
form of a 300% stock dividend, on November 7, 1997.
** Class A shares commenced operations on January 1, 1997.
FS-49
<PAGE> 150
NOTE 6-FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share of Class A capital stock
outstanding during the year ended December 31, 1997 and a share of Class C
capital stock outstanding during each of the years in the two-year period ended
December 31, 1997 and the period May 1, 1995 (date operations commenced) through
December 31, 1995.(a)
CLASS A:
<TABLE>
<CAPTION>
1997(b)
----------
<S> <C>
Net asset value, beginning of period $ 14.19
- ------------------------------------------------------------ ----------
Income from investment operations:
Net investment income 0.34(c)
- ------------------------------------------------------------ ----------
Net gains on securities (both realized and unrealized) 2.39
- ------------------------------------------------------------ ----------
Total from investment operations 2.73
- ------------------------------------------------------------ ----------
Less distributions:
Dividends from net investment income (0.44)
- ------------------------------------------------------------ ----------
Distributions from capital gains (0.74)
- ------------------------------------------------------------ ----------
Total distributions (1.18)
- ------------------------------------------------------------ ----------
Net asset value, end of period $ 15.74
============================================================ ==========
Total return(d) 19.78%
============================================================ ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 16,507
============================================================ ==========
Ratio of expenses to average net assets(e) 1.60%(f)
============================================================ ==========
Ratio of net investment income to average net assets(g) 3.26%(f)
============================================================ ==========
Portfolio turnover rate 57%
============================================================ ==========
Average brokerage commission rate(h) $ 0.0584
============================================================ ==========
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Calculated using average shares outstanding.
(d) Does not deduct sales charges.
(e) After fee waivers. The ratio of expenses to average net assets prior to fee
waivers was 1.70%.
(f) Ratios are based on average net assets of $3,510,793.
(g) After fee waivers. The ratio of net investment income to average net assets
prior to fee waivers was 3.16%.
(h) 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 and sold.
CLASS C:(a)
<TABLE>
<CAPTION>
1997(b) 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 14.19 $ 10.76 $ 10.00
- ------------------------------------------------------------ -------- -------- --------
Income from investment operations:
Net investment income 0.36(c) 0.33 0.16
- ------------------------------------------------------------ -------- -------- --------
Net gains (losses) on securities (both realized and
unrealized) 2.26 3.51 0.75
- ------------------------------------------------------------ -------- -------- --------
Total from investment operations 2.62 3.84 0.91
- ------------------------------------------------------------ -------- -------- --------
Less distributions:
Dividends from net investment income (0.33) (0.31) (0.15)
- ------------------------------------------------------------ -------- -------- --------
Distributions from capital gains (0.74) (0.10) --
- ------------------------------------------------------------ -------- -------- --------
Total distributions (1.07) (0.41) (0.15)
- ------------------------------------------------------------ -------- -------- --------
Net asset value, end of period $ 15.74 $ 14.19 $ 10.76
============================================================ ======== ======== ========
Total return(d) 18.88% 36.43% 9.12%
============================================================ ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 43,934 $ 20,566 $ 5,565
============================================================ ======== ======== ========
Ratio of expenses to average net assets 2.35%(e) 2.40% 2.40%(f)
============================================================ ======== ======== ========
Ratio of net investment income to average net assets 2.54%(e) 3.21% 4.68%(f)
============================================================ ======== ======== ========
Portfolio turnover rate 57% 25% 7%
============================================================ ======== ======== ========
Average brokerage commission rate(g) $ 0.0584 $ 0.0601 N/A
============================================================ ======== ======== ========
</TABLE>
(a) Per share information and shares have been restated to reflect a 4 for 1
stock split, effected in the form of a 300% stock dividend, on November 7,
1997.
(b) The Fund changed investment advisors on August 4, 1997.
(c) Calculated using average shares outstanding.
(d) Does not deduct contingent deferred sales charges and for periods less than
one year, total returns are not annualized.
(e) Ratios are based on average net assets of $32,160,457.
(f) Annualized.
(g) 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 and sold.
FS-50
